Introduction
To most people, the concept of bullion as an asset class will likely be quite foreign to those having had the normal exposure or ‘financial education’.
So how well understood is it that gold and silver are the oldest monies in the world ?
What about that quite frequently (~ less than every 100 years) throughout recent history, Global Reserve Currencies (fiat currencies just like the US dollar) rise and fall and get replaced by the next up and coming economic force ?
We hope to have presented a range of information here for research and to fast track your entry into the precious metals space, gaining a better understanding of real money.
Books
Ratios
Gold / Silver ratio
The Gold / Silver ratio is simply the price of Gold per troy ounce divide by the price of Silver per troy ounce.
It can be thought of expressing how many ounces of silver it would take to exchange for a single ounce of gold at a given point in time.
Dow / Gold ratio
The Dow / Gold ratio is the value of the Dow Jones market Index (in points) divided by the price of Gold per troy ounce.
It can be thought of expressing how many ounces of gold it would take to ‘buy’ a single point of the Dow Jones Index at a given time, expressing broader equities market values in terms of gold ounces.
US M2 / Gold ratio
The US M2 (M2 money supply) / Gold ratio is the value in billions of USD of the entire US M2 money supply divided by the price of Gold per troy ounce.
It can be thought of expressing the amount of gold that would be required to cover the M2 money supply at a point in time, M2 money supply being a fiat currency.
Coins and Rounds
Coins and Rounds are essentially the same thing when it comes to bullion content, in that 1 troy ounce is 1 troy ounce and both contain the same amount of the underlying precious metal (approx 31 grams).
However, coins are money in the official sense that they are minted under a country’s currency act. Rounds are minted by private companies, mostly for the purpose of sale to bullion stackers.
Coins therefore can be expected to have a higher degree of confidence in authenticity when transactions between buyer and seller are undertaken, either between bullion stackers or in exchange for goods and services at agreed values.
Coins are also minted to have a nominal face value, whereas rounds are not. Under the relevant currency act it is typically only the government who can mint coins as currency, and if a round where to be minted with a nominal face value it would effectively be a form of counterfeiting.
coins
rounds
Supply and Demand
Gold
Supply of gold has totaled on average 4,750 tonnes per year recently, and is approximately 75% sourced from new mining with the remaining 25% sourced from gold recycling.
Demand for gold in 2022 (post pandemic) has shown 4,710 tonnes, with the major category being gold jewellery fabrication, however of most interest has been the increasing buying by Central Banks to levels not seen in the prior decade of data.
source: World Gold Council
Silver
Supply of silver has totaled on average 1,000 million ounces over the period 2021-2023(f), which is approximately 31,100 tonnes per year. This is only 6.5x the amount of gold supply for the similar period.
Over the corresponding period, silver demand has outstripped silver supply by between 50,000 and 100,000 million ounces per year. Photovoltaics (solar panels) has shown year on year increased demands during the same period.
source: The Silver Institute
Gold to Silver Mining ratio versus the Gold to Silver Price ratio
Quite obviously there seems to be a disparity between the price of gold relative to the price of silver (or vice-versa) when the annual Supply data is taken into consideration at less than 10x the amount of silver production compared to that of gold production per year.
In simply terms, assuming that silver should be 1/10th of the price of gold (in keeping with its mining ratio), either gold should only be around $260 USD per troy ounce or silver itself should be around $195 USD per troy ounce as at beginning of August 2023.
And there begins the topic of paper gold and paper silver futures markets, and why the physical market and hard work undertaken by the miners, is priced off the derivatives market at all ?
