This 4,000-year old financial indicator says that a major crisis is looming

Guest Post by Simon Black

Over 4,000 years ago during Sargon the Great’s reign of the Akkadian Empire, it took 8 units of silver to buy one unit of gold.

This was a time long before coins. It would be thousands of years before the Lydians in modern day Turkey would invent gold coins as a form of money.

Back in the Akkadian Empire, gold and silver were still used as a medium of exchange.

But the prices of goods and services were based on the weight of metal, and typically denominated in a unit called a ‘shekel’, about 8.33 grams.

For example, you could have bought 100 quarts of grain in ancient Mesopotamia for about 2 shekels of silver, a weight close to half an ounce in our modern units.

Both gold and silver were used in trade. And at the time the ‘exchange rate’ between the two metals was fixed at 8:1.

Throughout ancient times, the gold/silver ratio kept pretty close to that figure.

During the time of Hamurabbi in ancient Babylon, the ratio was roughly 6:1.

In ancient Egypt, it varied wildly, from 13:1 all the way to 2:1.

In Rome, around 12:1 (though Roman emperors routinely manipulated the ratio to suit their needs).

In the United States, the ratio between silver and gold was fixed at 15:1 in 1792. And throughout the 20th century it averaged about 50:1.

But given that gold is still traditionally seen as a safe haven, the ratio tends to rise dramatically in times of crisis, panic, and economic slowdown.

Just prior to World War II as Hitler rolled into Poland, the gold/silver ratio hit 98:1.

In January 1991 as the first Gulf War kicked off, the ratio once again reached 100:1, twice its normal level.

In nearly every single major recession and panic of the last century, there was a sharp rise in the gold/silver ratio.

The crash of 1987. The Dot-Com bust in the late 1990s. The 2008 financial crisis.

These panics invariably led to a gold/silver ratio in the 70s or higher.

In 2008, in fact, the gold/silver ratio surged from below 50 to a high of roughly 84 in just two months.

We’re seeing another major increase once again. Right now as I write this, the gold/silver ratio is 81.7, nearly as high as the peak of the 2008 financial crisis.

This isn’t normal.

In modern history, the gold/silver ratio has only been this high three other times, all periods of extreme turmoil—the 2008 crisis, Gulf War, and World War II.

This suggests that something is seriously wrong. Or at least that people perceive something is seriously wrong.

There are so many macroeconomic and financial indicators suggesting that a recession is looming, if not an all-out crisis.

In the US, manufacturing data show that the country is already in recession (more on this soon).

Default rates are rising; corporate defaults in the US are actually higher now than when Lehman Brothers went bankrupt back in 2008.

These defaults have put a ton of pressure on banks, whose stock prices are tanking worldwide as they scramble to reinforce their balance sheets against losses.

I just had a meeting with a commercial banker here in Sydney who told me that Australian regulators are forcing the bank to increase its already plentiful capital reserves by over 40% within the next several months.

This is an astonishing (and almost impossible) order.

The regulators wouldn’t be doing that if they weren’t getting ready for a major storm. So even the financial establishment is planning for the worst.

Good times never last forever, especially with governments and central banks engineering artificial prosperity by going into debt and printing money.

These tactics destroy a financial system. And the cracks are visibly expanding.

So while the gold/silver ratio isn’t any kind of smoking gun, it is an obvious symptom alongside many, many others.

Now, the ratio may certainly go even higher in the event of a major banking or financial crisis. We may see it touch 100 again.

But it is reasonable to expect that someday the gold/silver ratio will eventually fall to more ‘normal’ levels.

In other words, today you can trade 1 ounce of gold for 80 ounces of silver.

But perhaps, say, over the next two years the gold/silver ratio returns to a more historic norm of 55. (Remember, it was as low as 30 in 2011)

This means that in the future you’ll be able to trade the 80 ounces of silver you acquired today for 1.45 ounces of gold.

The final result is that, in gold terms, you earn a 45% “profit”. Essentially you end up with 45% more gold than you started with today.

So bottom line, if you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver.

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kokoda
kokoda

The entire world is already in a recession if you eliminate government statistics.

Gator
Gator

I actually agree with simon here. I love gold as much as the next guy, but at this ratio, silver is your smarter play.

And no, Im not looking to flip it for a quick profit, or go trade it in for more gold one the ratio more or less normalizes, this is about long term savings and getting the most value for my money.

Anonymous
Anonymous

Not taken into account here is the amount of silver mined to the amount of gold mined and the amount of silver available (already mined) to the amount of gold available.

What was the ratio of silver mined to gold mined 4, years ago to the ration of it today, and what was the ration of silver already mined and available then than now (i.e. oz Gold/ oz Silver).

It would be like comparing ounces of pepper to ounces of gold as a price ratio. At one time in the Middle Ages pepper traded ounce for ounce with gold, today over at over 3000 oz to an ounce for gold. Ratios aren’t a fixed amount, they vary with availability at the time of trade.

Bea Lever
Bea Lever

I have posted many times that wealth should be held in gold but also consider silver as that is where you will make more gains in the long run.

But is this time different?

Where in the last 5000 years have there been paper gold and silver trading on the rigged financial markets which gives TPTB the ability to manipulate ratios and price ?

When in the last 5000 years have they needed to keep silver at extremely low prices in order to manufacture cheap consumer electronics (millions and millions of computers and billions of cell phones etc.) of which requires huge amounts of disposable silver to produce ?

SpecOpsAlpha
SpecOpsAlpha

Better might be the stocks. Less likely to be confiscated since all the rich people own stocks.

Bea Lever
Bea Lever

Spec Ops

Do you really think rich people don’t own gold and silver ? If you answer yes, you are hopeless.

Fiatman60
Fiatman60

Like I’ve said before…… Gold and silver are an insurance policy against inflation and uncertainty.

Uncertainty is reining supreme right now…. (actually inflation is too but the government is “hiding it”)

Scarcity in either metal can cause spikes in ratios.

If your going physical….. silver is the best bet today…… tomorrow it will be different.

Once everything settles down, so will the PM’s.

Homer
Homer

I have given the gold and silver ration a lot of thought and have concluded that it is a meaningless metric.

It seems that the purveyors of silver always hype the ‘gold and silver ratio’ as a reason to purchase their wares. It is going to triple they say based upon the ratio. If so, why don’t they keep it and reap the profits?

The price of anything is based upon two things and only two things. ‘Demand’, the ability to buy it and ‘Desirability’, the need for the ‘good’. Scarcity, many will say impacts price, but scarcity is wrapped up in ‘demand’ and ‘desirability’.

There are many reasons why silver can triple in price, or more. The ratio isn’t one of them.

I remember when the sellers were saying that the photographic need for silver would push prices to the moon. That Indian demand would push prices to the moon. That the gold-silver ratio has never been greater. Today it is the photo-voltaic industry that will push prices to the moon. That the Indian demand is pushing prices to the moon. And..That the gold-silver ratio has never been greater. And… one more, Drum Roll, please, PMorgan just stocked up on 30 million ounces of silver.

So, ditch the ratio and focus on ‘demand’ and ‘desirability’. Do your homework to access PMs as an investment.

OF COURSE, why is there always ‘of course’? I maybe prudent in times of monetary stress to hold something real, tangible, and enduring when paper currency is being debased at an escalating rate.

Hummmm!

Homer
Homer

Bea Lever–Anything that is priced below ‘demand’ is quickly used up. That’s why when I go to Home Depot and I spot something that is heavily discounted, I snatch it up. Right now I’m looking at an oven and waiting for the price to drop even more. Home Depot reduces the price even more when the discounted price doesn’t sell.

If silver was held at a low price to promote the electronics industry, others seeing the value would snatch it up, forcing the price to rise. Perhaps, the government and banksters are looking at silver as a ‘loss leader’ to serve a larger agenda and are disgorging themselves of their stockpiles of silver to achieve that agenda. It is a ‘supply and demand’ world and when the supply goes up the price generally goes down. You can’t suppress a price where there is demand unless you are willing sell at that suppressed price or fool someone into thinking that you are selling at that suppressed price.
A Con Job called the Comex comes to mind.

A move to a ‘cashless society’ would require suppressing anything that could be used as an alternate means of trade. I guess silver would fall into that category. Gee, whose pushing for a ‘cashless society’? Hmmmm!

goofyfoot
goofyfoot

https://youtu.be/PWoGycDAkBE If we don’t change,we might be here again. My mom was here and she still continues to vote for the dust.

AnthonyHargis

“GOLD/SILVER RATIO… NOW MAY BE A GOOD TIME TO CONSIDER TRADING IN SOME GOLD FOR SILVER.”
You really should perform due diligence before taking your thots onto a public stage; otherwise someone will come along a make a damn fool of you.
FIRST: it is NOT a “gold/silver” ratio: it is a “silver/gold” ratio.
With the former you’re claiming that it takes 80 units of gold to purchase one unit of silver.
Show me someone who will believe that and I’ll show you someone who is truly gullible, a very polite term.
Further, this ratio has nowhere to go but up: silver will continue to lose value relative to gold. This is because of the method by which each is mined. This method consists of extracting a few ounce of each from a ton of raw ore. That is, each is limited by the number of tons this ore can be worked in one day.
This leads to another factor: 85% of all silver that comes on the market is a byproduct of operations related to mercury, lead, zinc, copper, iron a few other base metals. In other words, this silver is thrown on the market un-demanded, which means it tends to suppress silver prices.
Only 15% of all gold that comes on the market is a by product.
Thus, as civilized society expands, its demand for base metals also expands, throwing more silver on the market than the market can absorb.
This means that silver will always fall in value relative to gold.
Two thousand years ago, the SILVER/GOLD ratio ranged around 4 to 1.
Five hundred years ago, 7.5 to 1.
One hundred and fifty years ago, 15 to 1,
Now, it is ranging around 75 to 1 and 83 to 1.
History is trying to tell you something.
You should find the answer somewhere within my remarks above.
Of course, we deal with a mere academic situation.
The real problem is the baseless status of the existing monetary systems, all of which are a few months, or years, away from extinction.
If there is to be any survivors, someone must invent and provide an alternative currency. I’ve already done both. However, the IRS, DoJ, and Federal Reserve couldn’t tolerate such an alternative that allowed people to protect themselves from the plundering nature of their baseless currency. So, my operation was judicially assassinated in 2004 (http://redressone.wordpress.com/about/). Here is WHY we must duplicate what I did (http://redressone.wordpress.com/what-price/) and here is how we can avoid mistakes I made earlier (http://redressone.wordpress.com/locate/).

IndenturedServant

Bea said:
“When in the last 5000 years have they needed to keep silver at extremely low prices in order to manufacture cheap consumer electronics (millions and millions of computers and billions of cell phones etc.) of which requires huge amounts of disposable silver to produce ?”

In the last 100+ years they sure used up an enormous amount of *disposable* silver for photography. I’m sure that was the equivalent (or better) of disposable use in electronics.

An important thing to remember is that the USA and other countries have been selling more physical silver and gold than is being mined for the last 5 years in a row to meet investment demand. Mints like Sunshine are reporting that they are receiving old ingots of silver when sourcing the metal for routine production indicating that suppliers are scraping the bottom of the barrel to meet demand. Sovereign mints around the world are setting bullion sales records already in 2016. We may be reaching the fabled point where the physical price disconnects from the paper price. Remember kiddies, buy early and buy often.

rhs jr
rhs jr

I won’t be surprised if silver becomes more valuable than gold and lead/brass the most valuable.

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