In 663 BC, King Ashurbanipal of the Assyrian Empire invaded Egypt and sacked the city of Waset (located in modern day Luxor on the Nile River).

Ashurbanipal vanquished the city, purportedly seizing more than 75 metric tons of silver for his personal collection.

At the time in the ancient world, the prevailing ratio between gold and silver was 1:2. In other words, 75 metric tons (= 75,000 kilograms) of silver was worth 37,500 kilograms of gold, equal to $1.76 billion in today’s money.

That 1:2 gold/silver ratio had held for thousands of years across Persia, Mesopotamia, and Ancient Egypt, possibly since as early as 3,000 BC.

But over time it has changed periodically.

By the time of Alexander the Great in the 300s BC, the Gold/Silver ratio had shifted to 1:13. Mining techniques had advanced at that point, so the ancients were able to produce higher volumes of silver than ever before.

Under Julius Caesar in Ancient Rome, one ounce of gold was worth 12 ounces of silver. In the time of Mohammed and the early days of the Islamic Caliphate in the 600s, the ratio was 1:16.

Even in the early history of the United States, the Mint and Coinage Act of 1792 established a gold/silver ratio of 1:15.

(According to the law, one US dollar is defined as 1.604 grams of pure gold, or 24.1 grams of pure silver. So those pieces of paper in your wallet are not technically US dollars, but ‘Federal Reserve Notes’.)

In our modern times, the ratio average is around 55 ounces of silver per ounce of gold.

Much of this is due to continual improvements in mining techniques-- it’s a lot easier to mine than it was 5,000 years ago, so the ratio is more indicative of the natural abundance of these metals in the Earth’s crust.

But the gold/silver ratio also fluctuates from time to time based on market conditions.

Gold is pretty unique; while there’s a fair amount of demand for gold from the jewelry industry, and a bit of gold used in industrial production, the key driver of gold demand is from investors, foreign governments, and central banks.

When times are tense, people buy gold and the price goes up.

And as we’ve been discussing, foreign central banks are starting to dump their US dollars for gold, scooping up hundreds of metric tons of the stuff.

But silver is different.

Less than 20% of silver demand is from investors-- usually smaller, retail investors. Because it’s so much less expensive than gold, most foreign central banks and governments don’t even bother buying silver. They only buy gold.

The primary driver of silver demand is jewelry and technology; silver is used in a variety of industrial applications like batteries, water purification, semiconductors, and dental equipment.

This is an important distinction to understand: in a difficult economy, demand for silver from industry and jewelry will likely DECREASE, causing silver prices to fall.

With gold, on the other hand, a monetary crisis, trade dispute, war, etc. would likely cause gold prices to increase.

But don’t write off silver just yet.

The Gold/Silver ratio right now is around 1:84… that’s 84 ounces of silver per ounce of gold, close to an all-time high.

Over the past decade it’s been as low as 32 and as high as 93. So it stands to reason that a correction may be in order.

There is, of course, no fixed requirement that the gold/silver ratio maintains a certain level. It could go to 100… or even 1,000. Or go back to 1:15.

But just as I’ve been arguing for the last 12+ months that gold prices should be heading higher (and they’re more than 30% higher since I started writing this), silver could also move quite a bit higher.

First-- while investor demand isn’t the primary driver, it would be foolish to dismiss this factor.

Investor demand is currently low. According to data from the US Mint, the average number of one-ounce Silver Eagle coins sold over the last three years is HALF as much as the average sales from the previous eight years.

Bottom line, investors aren’t as interested in silver as they used to be. And that’s usually a good time to start thinking about buying an asset.

Simultaneously, central banks around the world keep slashing rates and printing money.

Even in the United States, which is supposed to have a ‘tremendous’ economy, the central bank has turned once again to Quantitative Easing, and recently announced that they would print more than $60 billion per month to buy US government bonds.

Another key fact in this analysis is that silver production is falling.

Most of the gold that is mined ends up sitting in a vault somewhere, or in someone’s jewelry drawer. So as mining companies pull more gold out of the ground each year, that supply increases.

But with silver, most of the silver mined this year will be used up in industrial production. So the companies that make fancy tableware or dentists’ drills will need new supplies of silver next year in order to manufacture more products.

If those companies are growing, they’ll need even more silver… so, as long as the global economy generally keeps growing, industrial silver demand should keep growing.

But silver production is actually falling... so silver prices should increase as a result.

And because central banks are simultaneously printing tons of money, prices could increase even more due to renewed investor interest.

Like I said, silver is pretty much dead right now. US Mint sales figures show there’s very little investor demand. That makes now a great time to start thinking about silver-- BEFORE it becomes popular again.

Neither this post nor content posted on the website is intended to provide personal tax or financial advice. Before undertaking any action described in this letter, financial or otherwise, you should discuss your options with a qualified advisor-- tax accountant, financial planner, attorney, priest, IRS auditor, Bernie Madoff, etc.

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