The Silver To Gold Ratio

3 Soaring Silver Supply Weighs Heavy On Gold Demand Throughout history, the supply of silver to gold often fluctuated. In the decade or so following the passage of the Act of 1792, silver supply dwindled. This served to discourage citizens from converting silver to coin as raw silver was deemed more valuable than the face value of the coin to which it would be converted . So widespread did the hoarding of silver become that by 1804, production of the silver dollar was halted. Then, bolstered by a rise in silver production from Mexico and China, it was determined the minting of silver dollars could resume but only upon condition silver would be revalued against gold. The Coinage Act of 1834 reset the value of one ounce of gold to be equal to 16 ounces of silver. Then came a great shift in supply. By 1840, the production of silver coinage was so dramatically outpacing that of gold, monetary policy was turned on its ear. Now 40 ounces of silver coin were produced for each ounce of gold . Despite such a dramatic increase in silver coinage, the value in gold terms, (silver to gold) did not change. That What is the AGAU Ratio? It’s a measure of the value of silver as compared to gold. In this report, learn how to apply this measure when making a precious metals purchase. meant, 16 ounces of silver could still be traded for one ounce of gold, despite the massive increase in silver production. So, while the mere growth in supply of silver should have caused a revaluation of silver more indicative of 40:1 levels of production, it did not. What did occur, was the hoarding of gold. Silver was plentiful and could still be converted to coin. Now 40 ounces of Silver coin could be traded for 2.5 ounces of Gold coin. Hence, bank vaults began to fill with silver and empty of gold as hoarding gold by the populace and producers seemed prudent and wise. Silver Takes Another Turn On January 24, 1848, James Marshall, an employee and partner of mill owner John Sutter, discovered gold. By 1850, gold discovered at Sutter’s Mill began to make its way into the economy via the increased production of gold coinage. Consistent with the laws of supply and demand, an increase in gold supply now meant gold value, relative to silver, would fall. The ratio of silver supply to gold dropped as low as 7:1. Now supply dictates a conversion of gold to silver as one ounce of gold could be traded for 16 ounces of silver which had become markedly more rare. Price of Gold Price of Silver = AGAU Ratio