65.98 ounces of silver per ounce of gold.
That is what the gold and silver ratio stands at as Bernank writes this here piece on the Devil’s Metal. For those of you who might not know, that current AU/AG ratio is quite a divorce from history’s usual gold:silver ratio. Don’t know what I mean? Well, read on, this news is hot off the printing press.
Silver and gold have been money for a very long time. From active Silverbugs to those in recovery (come hang with Yellen and I at this weeks Silverbugs Anonymous…the coffee is hot and the T-Bills are soft!), we share a common thread: an understanding that the printing press always pales in comparison to a nice, clean silver Maple Leaf. Heck, even Milky Maples are preferable to the laser-engraved linens of the press.
As I told Mr. Ron Paul, gold is “tradition.” A lot of people say I was poo-pooing gold in the discussion, but, as they say, “Old habits die hard.” Traditions, like habits, therefore don’t go away very easily. I was stating in that conversation, however misunderstood I was, that gold has been tradition and will be around for a long time still…as a traditional form of money or savings or insurance or whatever people use it for. My Constitution Ave. friends and I had a good laugh at that one. Here is that talk with the Senator, whom I consider a good friend:
So let’s get back to the gold and silver ratio. As a global system, it starts with Sir Isaac Newton, who monetized silver and set the ratio at 15.5 ounce of silver to 1 ounce of gold in the early 18th century. Isaac Newton’s gold and silver ratio was not aligned with nature, as silver exceeds gold by a ratio of approximately 18.75. 15.5:1 in the real world, a ratio which remained until 1873, when silver was demonetized.
(As an aside, I consider myself a kindred spirit of Sir Isaac Newton, somewhat of an inventor and “next level” mind, if you will. While he helped to monetize rare metals dug out of the earth to the tune of much energy, I monetized laser beams and paper.)
The Long View Of The Gold/Silver Ratio
In dissecting the gold and silver ratio, Deutsche Bank’s Daniel Brebner goes all the way back to the earth’s crust and its formation. Daniel and I go way back to my QE days… ahh, how fondly I remember the times we spent, tinkering on the printing press in our garage as only young monetary scientists. How pretentious we were, drinking to the death of deflation.
From the 12th century to the 17th century, the gold/silver ratio stood at 12:1, a far cry from today’s 65.98.
Back when I was fronting Bennie & The Jets, in 2011, the gold and silver ratio was 30:1 at one point, a nice median between the two extremes. I do still occasionally get fan mail for my part in bringing an end to many a Silverbug marriage, during those fateful months around April of 2011.
The 10 year Gold:Silver ratio is quite a chart, intimating a possible bottom here as the derivative of the trend line’s slope is turning negative. It is entirely possible for it to return that 30:1 level. As you can tell in the next chart, the gold silver ratio is at a five year high.
Around that time, the stock market was at its high. So, one can expect that, when the stock market goes, so too will the gold and silver ratio.
That is the gold and silver ratio tip. When the stock market goes, that will create a window of opportunity, perhaps, to trade some gold for silver and ride the gold/silver ratio. But, there’s one thing you’ve got to wait for, first.
In 2008, during the Lehman’s Crash, we see the peak of the gold and silver ratio at 80:1. The three decade high came next. So, when the stock market goes, the gold and silver ratio will widen a bit at first as the metals go down a bit as everyone runs to cash. But after that, things will change. Things will head back in the direction of 2011.
Keep an eye on interest rates this week while I prepare a firmware upgrade for the Bernank Press. Janet should put on quite show. She always does. What a hoot that woman is. I heard she sourced the new laser printers directly from our good friends in Shenzhen.
In short, the gold:silver ratio has become fantastically distorted as the last bulls are throwing in the towel. It seems they cannot handle the heat of all the freshly lasered linens.
Bernank will be there to pick up all the silver when she drops.