Origin of Gold vs. Silver Ratio
Discussed more and more, as silver prices rally, is the ratio in value of silver to gold.Currently sitting at 60 ounces silver being equal to 1 ounce gold, some say that ratio is headed much lower.Why the optimism?Perhaps history explains.
In 1792 our Federal Monetary System was created after numerous failed attempts to introduce paper currencies into commerce.
The Original Coinage Act of 1792 was passed in order that a common monetary system could be created for the new United States.
Prior to doing so, the money was based largely on the British system of pounds, shillings and pence.
Use of a variety of other foreign coins, made of both gold and silver, found no favor amongst merchants and citizens alike as it was cumbersome to calculate and convert relative values of each in their daily transactions.
The Act called for the minting of Gold and Silver coins.
Taking into consideration the weights of the variety of foreign coins in circulation, Alexander Hamilton, Secretary of the Treasury, made recommendations of specific weights and metal content for each coin.
In studying the values set for foreign coinage, Hamilton observed that gold carried 15 times more value per the same unit of measure as did silver.
So it was in the Act that a gold dollar would contain 24.75 grains of gold and a silver dollar would contain 371.25 grains of silver.
In consideration of the fact that a gold dollar would be very small, and that there was really no need for two kinds of dollars to circulate, the gold coin to be minted would be a $10 coin called the "Eagle."
It's interesting to note that Hamilton's calculations of the value of silver to gold came to equal the same ratio as set in Biblical times.
15 ounces of silver equal to 1 ounce of gold.
Hamilton's ratio, or God's if you will, has now not been seen since 1980 when gold and silver hit respective highs of $850 and $54 per ounce.This is one reason silver investors are excited as they see an ultimate convergence of both the gold price and silver price back to their lawful ratio.
Will it occur?At present, either the gold price has to drop dramatically or silver has to rise even more so.With global debt driving gold demand through the roof, as even central banks are now accumulating gold to offset currency debasement, the more likely scenario appears to be rising silver.Considering gold at $1315 today that means silver would have to be $87.67 an ounce.
Personally, I believe if the silver price does catch up to its historic ratio to gold, it will not be until both reach bubble proportion.Nonetheless, silver has some catching up to do, meaning a well diversified savings and retirement account should maybe have some.
For great on-line gold coin and silver coin prices, visit LearCapital.com and compare.There you will not only find low buy prices but you will find current sell prices as well.