What’s the historical gold-to-silver ratio?

gold to silver ratio, silver to gold ratioQ: What is the ratio of gold to silver?

A: The value ratio between an ounce of silver and an ounce of gold was set by government decree. A common misconception is that the ratio was a natural ratio that simply existed in nature.

Not so. The ratio was established based on a “best guess” about the relative scarcity of gold and silver (and not a particularly accurate one). Local governments would literally decree that a certain number of silver coins would be worth one gold coin.

These laws were determined by guessing how much more silver was available compared to gold. Lawmakers thought there was perhaps 12 times as much silver as gold, so they’d issue the official value ratio based on that assumption.

Today we have a better idea of what the real ratio is—and how terrible that old guess was. Instead of the ratio being 12 to 1, it’s actually estimated to be 1 to 4. Yes, that’s right, the current estimate of readily available gold on the surface of the earth is about four times greater than silver. Said another way, silver is more scarce than gold, four times more scarce. This makes silver insanely undervalued.