A brief history of the gold-silver exchange ratio


In the first part of this blog series, we had seen that silver had various applications in the real economy for centuries due to its unique and special chemical properties (greatest electrical conductivity, high sensitivity to light, inertness, antibacterial effect). In the second part of this article, we will start to look at the role of silver from an investor’s perspective. We start with a historical outline of the exchange relationship between silver and gold.


Changes in demand

While mankind has been making jewellery out of silver for 6000 years, new industrial applications, such as its use in photovoltaics, are constantly being added, while other uses are fading into insignificance due to technical progress (silver in analogue photography, use of stainless steels in the cutlery industry).


Changes in the offer

At the same time, the gold and silver reserves that can be economically extracted have changed over the centuries with new discoveries and advances in mining technology. For the future, recycling technology will play an increasingly important role. How much silver can be recovered from e-waste, mobile phones or solar panels?


Changes in legislation influence the silver price

Occasionally, silver was accepted as the only means of payment. For the most part, silver fulfilled the function of a means of payment and unit of account together with gold. Just as power and monetary policy in ancient Rome had a significant influence on the price of silver, today environmental policy, fiscal and monetary policy, but also general legislation, such as VAT exemptions or changes in taxation rates, have an enormous influence on the price of silver. The institutional framework, the monetary system (silver standard, gold standard, bimetallism or “paper currency”) were and are decisive for the development of silver prices.


Silver as a means of payment

Alongside gold, silver played an important role in the history of money, sometimes even playing “first fiddle”. Over the millennia, there were not only gold standards again and again, but also silver standards, or so-called bimetallism. The existence and regulation of the futures markets (paper silver) as well as margin changes can also have an important influence on the price of silver.


The gold-silver ratio (GSR) is the price of gold in silver: How much silver does an ounce of gold cost?

The gold-silver ratio (GSR) indicates how many ounces of silver you get for one ounce of gold. It is calculated by dividing the price of gold by the price of silver. There is about 20 times as much silver as gold in the earth’s crust. Therefore, however, the fair price of silver needs by no means be twenty times the price of gold. In contrast to silver, gold is almost not used in industry and is therefore less driven by the economic cycle and innovations (e.g., invention of analogue photography, digital photography, photovoltaics). Silver is an industrial metal and “a bit of currency”. Gold has a “more pronounced currency function” than silver.


Longest financial market time series of mankind

Since gold and silver have played a very important role in the culture of mankind for thousands of years, very long and reliable price time series exist for gold and silver and the exchange ratio of gold and silver. Since prices of consumer goods from antiquity are already known in gold and silver, it is even possible to calculate how many Swiss francs, for example, a loaf of bread cost in an ancient advanced civilisation.

The gold-silver ratio may be the longest and best documented financial price time series of mankind ever. Pharaohs, emperors, kings, ancient traders, speculators in ancient civilisations and “Reddit investors” have all pondered and continue to ponder how high the GSR should be and whether one can gain gold, money or silver based on a GSR that is too low or too high compared to the fair GSR. The history of the GSR is as old as the cultural history of humankind and closely connected to it.


A brief history of the GSC

In ancient Egypt, silver was initially considered more valuable than gold, the exchange ratio was less than 1 long time and therefore took less than 1 ounce of silver to buy an ounce of gold. This was probably mainly because the ancient Egyptians found it easier to mine gold than silver.

The Roman Empire officially set the gold-silver ratio at 12:1 for centuries.

Medieval fans who are also bullion fans will learn here reasons why the GSR fluctuated between 14.2 and 9.4.


Gold discoveries in the New World trigger economic boom and “first inflationary wave of the modern era”

With the discovery of the New World and the exploitation of vast new deposits of gold and silver[1], the shipping of precious metals to Portugal and Spain greatly expanded the money supply, leading to an economic boom in these countries that slowly spread to the entire Old World. This was one of the biggest expansionary geopolitical shocks, as the supply of money in the old world exploded. After a period in which the real economy prospered, this was followed by a sharp rise in inflation. Historians call this period “The Price Revolution“. The phenomenon of almost always positive inflation, which is considered normal today, had not existed in Europe before the 16th century.[2] It was the rule that real wage increases with constant nominal wages were achieved by falling prices (as far as one could even speak of “wages” at that time.) As “today”, in the “new regime of money expansion”, due to the discoveries of precious metals, it was more advantageous at that time to be over-indebted than solvent, since the nominally fixed debts quickly became worth less and less and all prices rose rapidly. The discovery of the New World in 1492 and not least the discovery of huge stocks of precious metals (the native “Indians” had amassed huge stocks of gold) favoured or perhaps even made possible Europe’s 500-year economic and military-geostrategic boom.

In 1497, the exchange ratio was set at 10.07 in the Edict of Medina in Spain. From 1700 to 1870, the GSR fluctuated with moderate fluctuations around 15.5.

President Roosevelt sets the price of gold at $35 in 1934. Silver lost its status as legal tender in many countries in 1935, when the silver standard was largely ended and Bretton Woods was implemented and a sole peg to gold took place.

After that, with higher fluctuations, there was a systematic increase to almost 100 (1939). Silver was probably an essential raw material for the war effort (e.g., for mirror optics and image development).

In 1944, the Bretton Woods Agreement was concluded. Most currencies became firmly pegged to gold, and the GSR began to decline. But even in the 1960s and 1970s, after the end of Bretton Woods, the GSR tended to fall.

In 1980, the GSR briefly fell to 16, while the price of gold rose to almost $50 per ounce due to the Hunt brothers’ speculation in silver. With the failure of the Hunt brothers’ attempt to “corner” the silver market, there was a rapid rise in the GSR to 94.8 in 1991, when the price of silver fell below $4 per ounce.

During the 21st century, the ratio fluctuated between 45:1 and 75:1. In 2018, a local maximum of 104.98 was reached. The lowest value was around 40:1 in 2011.

A graphical representation of the GSC since the 12th century for the United Kingdom can be found here.



The GSR has fluctuated massively over the millennia from below 1 in ancient Egypt to 105 in 2018, with various “gold-silver price regimes” that have been stable for extended periods. With the invention of stainless steel, the change of currency regimes and the advent of paper currencies anchored by “nothing”, the volatility of the silver price measured in gold (but also in paper currencies) increased sharply. At the same time, silver lost significantly in value compared to gold and left the previously valid, quite stable exchange ratio.

This raises some questions: What on earth is a “fair” exchange ratio between gold and silver? What is the fair price of silver? Is it possible to earn something with silver investments and if so, how?


In part 3 we will try to answer the question whether silver is rather expensive or cheap and whether it might be worth investing. We will also investigate the question of how best to invest in silver.

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