In 1717, Sir Isaac Newton was tasked with setting the exchange rate of gold to silver.
At the time, he was the Master of the Royal Mint of Great Britain. He decided to fix the exchange rate to the ratio of the world’s total physical supply of both metals.
His ratio? 15.5 to 1.
For every 1 ounce of gold, the world had roughly 15.5 ounces of silver. This exchange rate made it so that the value of all the gold in the world was equal to the value of all the silver.
This was roughly the exchange rate for most of human history, as can be seen in the graphic below.
Today, that balance is broken. With gold at $4,750 and silver at $94, one ounce of gold is worth 50 ounces of silver. If the exchange rate was to revert to Newton’s exchange rate, an ounce of silver would be worth $306.
However, industry has been using up the world’s supply of silver. Silver is the best conductor of electricity, so it is used in countless electronic components.
Companiesmarketcap dot com implies that the ratio of above ground supply now sits at 8 to 1 (see graphic below), approximately half of what it was in Sir Issac Newton’s time.
Furthermore, Keith Neumeyer, the CEO of First Majestic Silver, confirms that silver is mined at a ratio of 8:1 to gold today. In other words, this ratio of available gold/silver is unlikely to change anytime soon.
If the gold to silver exchange rate was 8:1, silver would be $594 per ounce. This assumes no change in the price of gold.
We are currently living through the early stages of the third electrical revolution, and silver is a vital component. There have been times in world history where all the silver was worth more than all the gold. One could make an argument that silver is more useful than gold today. That would support a gold to silver exchange rate even less than 8:1.
