Commodity prices fluctuate based on many factors (mostly use and availability).
How much the exchange rate between gold and silver coins may fluctuate in a month or a year?
Place: Judea & Bavel.
Time: ~2000 years ago.
Base rate: 25 silver shekels for 1 gold shekel.
PS. This is tangentially related to Value of commodity money outside of the place it was minted
More of an economic answer than historical, but yet…
The answer is that it would change very little.
Silver and gold are not consumed, so the amount available the previous year was still available the current year.
Silver and gold are scarce and difficult to mine (from it their value), so at any given period its production would have been small compared with the already circulating bullion. And what would change their relative value would be the difference in production rate, which would be even smaller.
To put an example, imagine that there are circulating 1000 tons of gold and 10000 tons of silver. If each year 1 ton of gold and 10 tons of silver were mined, their relative value would not have changed.
Now double silver production. To get a 1% change in the exchange ratio (1 gold sheckels = 10.1 silver schekels).
This can be expressed as1
1000 + 1*years = Tg
10000 + 20*years = Ts
Tg = 10.1Ts
which gives a result of 497.5 years. For these timescales, the effects of supply of bullion pale with other effects (debasing, wars, economic developments).
Now, for the first assertion, there are a few things to consider:
Bullion could be lost by several ways; for example in shipwrecks and the like. But with few exceptions, those events would be few and would mean the loss of bullion in proportion to the circulating quantities.
Other ways of getting gold was through plunder and tributes. But you would more likely be plundering your neighbours which, due to trade, would likely have a similar proportion of bullion to yours.
Historically, changes in the relationship between metals have been mostly been caused by colonizers getting to new territories with easy to mine resources (Potosí, Gold and Silver rushes) and improved trade with other regions of the world with a different proportion of gold and silver (Far East), but those events were few and their effects are very documented.
1Yes! I got to write equations on a history.SE answer!
Tangentially related is that at one time I believe (like in the 17th century and later) China valued silver more than gold by weight. This obviously created tremendous arbitrage opportunities.
Gold & Silver History
It is time to flip the script, time for positive vibrations.
In physical ounce and USD volume terms, we are smack right in the midst of the greatest gold and silver bull market the world has ever seen. Because of this fact there is plenty of enough demand for honest bullion businessmen to flourish and prosper alongside their hard saving customer bases.
Time to cover a bit on silver and gold’s history and why they are in their greatest secular bull market ever.
Gold vs the CRB Commodity Index
Let me tell you the story of the gold prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, ‘Oh, I’m really sorry. You seem to meet all the tests to get into Heaven. But we’ve got a terrible problem. See that pen over there? That’s where we keep the gold prospectors waiting to get into Heaven. And it’s filled – we haven’t got room for even one more.’ The gold prospector thought for a minute and said, ‘Would you mind if I just said four words to those folks?’ ‘I can’t see any harm in that,’ said St. Peter. So the old-timer cupped his hands and yelled out, ‘Gold discovered in Hell!’ Immediately, the gold prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. ‘You know, that’s a pretty good trick,’ St. Peter said. ‘Move in. The place is yours. You’ve got plenty of room.’ The old fellow scratched his head and said, ‘No. If you don’t mind, I think I’ll go along with the rest of them. There may be some truth to that rumor after all.’
This story from Ben Graham that Warren Buffett likes to tell is actually about an oil prospector, but it’s just as fitting with a gold prospector.
Why am I telling you this story? Because inflation has the same effect on humans. Comes a time when even those who created the rumor end up believing in it and its beneficial effects. I have found myself so very often with wealth managers or economists who would mistake price rises due to changes in supply and demand with inflation, which is a devaluation of the medium of exchange (dollar, euro, etc.). Moreover, devaluation of the medium of exchange lets the State create confusion, to the point that people no longer know how to protect themselves, event those supposed to have created and studied it, like the economists. After having created inflation, they end up believing themselves in it, like the gold prospector.
Should I be raising my prices by 1.58% (official inflation) or by 9.17% (official inflation calculated with the method used before 1980)? If you talk to ordinary people, they will tell you inflation is around 15%. The inflation rate is an approximation with a wide margin of error and, what’s more, always manipulated by the State to create a false impression of wealth increase, whereas it often produces a decrease in wealth. Why would inflation be good and deflation be a catastrophy? The measuring stick, in my opinion, should remain as constant as possible, like all other measuring units (meter, gram, liter, etc.).
The best way to avoid this manipulation is to compare real things without using the official virtual currency (dollar, euro, etc.). Gold has always been the medium of exchange that is least likely to create inflation. Not all is perfect, of course, there is even a little inflation with gold, but gold cannot be created artificially by the State to infinity. Annual inflation in gold is only 1.64%, which corresponds also to world population growth. It corresponds also to the new annual global gold production. Many sovereigns have tried to create gold by hiring alchemists who actually ruined the sovereign without finding the magic formula. One must also know that gold is not a commodity it is money, because it is not consumed, as petroleum that disappears once used. Almost all of the gold mined throughout history still exists.
Since gold has been chosen by people by practice as the best medium of exchange on all continents for at least 5,000 years and that industrial demand for it is only 9% (hardly recyclable), it is the best yardstick for comparing prices, while mostly avoiding this distortion/manipulation called inflation. By looking at chart #1 of nominal prices of the CRB Commodity Index since 1200, one could be tricked into thinking that prices are rising into infinity and, above all, that prices are rising faster since 1900. What a performance, right!
Chart #1: CRB Index 1200-2014
But, on the other hand, if we look (chart #2) at the same index measured in real terms (gold), we observe a steep fall in the price of commodities, especially since 1950. What could have distorted reality that much? Inflation, of course. We can observe that this explosion in prices started with the end of the gold standard and the start of the paper standard and, thus, the explosion of inflation.
Chart #2: CRB Index in ounces of gold 1200-2014
The modernization of the mining industry and agriculture has created an enormous decrease in the cost of producing commodities, especially due to technological advances, thus leading to lower prices, but the effects of inflation counter all this. Inflation creates an optical illusion that changes reality, and its goal is to mislead people.
In a period of inflation, all commodity prices rise in nominal terms, which creates the impression for some, economists included, that gold is a commodity like any other, instead of money. However, in real terms, the price doesn’t change: on the contrary, the paper money (dollar, euro, etc.) loses value. This does not keep any single commodity from fluctuating in terms of gold, due to specific supply and demand factors. In periods of economic growth demand for commodities increases and demand for cash decreases, and the opposite happens in periods of recession.
As we can observe, there is a strong positive correlation between gold and commodities if we look at them in US dollars, but when we get rid of the dollar and, thus, inflation, this correlation disappears. I believe this can be explained by the fact that gold is hard cash, whereas commodities are inputs into the economic process. It is therefore normal that, in periods of economic growth, demand for commodities increases and, thus, their prices in gold as well.
Therefore, as far as I’m concerned, it’s inflation that lets certain economists falsely pretend that gold is a commodity like any other, rather than hard money. Inflation produces an optical illusion in which even economists believe.
Chart #3: CRB Index in ounces of gold 1885-2014
1971 – End of the Gold Standard
Chart #4: CRB Index in ounces of gold since the end of the Gold Exchange Standard 1970-2014
You can observe, in chart #5, how the performance of commodities increases in relation to gold and then returns to gold. According to Roy Jastram, author of Golden Constant and Silver: The Restless Metal, gold maintains its purchasing power over long periods, not because gold eventually moves toward commodity prices but because commodity prices return to gold.
Chart #5: CRB Index vs Gold in percentage since the end of the Gold Exchange Standard 1970-2014
Economist John Maynard Keynes described the effects of inflation citing Vladimir Ilyich Lenin this way:
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
This is why governments love inflation so much and hate gold.
Chart #6: Percentages of commodities comprising the Thomson Reuters/Jefferies CRB Index
Nick Laird, www. ShareLynx.com
Reproduction, in whole or in part, is authorized as long as it includes a link back to the original source.
Dan Popescu Gold & Silver Analyst
Mr. Popescu is an independent investment analyst and studies the gold and silver market and their future role in the international monetary system. He has followed regularly since 1970 the gold, silver and foreign exchange markets. He has a bachelor degree in physics (1993) from Concordia University in Montreal, Canada and has completed the Canadian investment management certificate (1999) of the CSI. He is a member and was the president in 2004 of the CSTA and also was president in 2005 of the Montreal CFA Society. He is a member of the CFA Institute, the MTA, NYSSA, UKSIP, the CSTA and the Gold Standard Institute International.
Let us begin the debate by defining both forms of gold bullion products in the 21st Century.
Gold Coins - (n) a precious metal wafer struck in a coin format by a government mint typically stamped with a legal tender face value (the most significant exception being the famous South African Krugerrand Coin). Sizes vary from fractional grams to kilos and larger.
Gold Bars - (n) precious metal lump or ingot struck by both government mints and private gold mints. Typically gold bullion bars do not carry legal tender face values and cost less per troy ounce or gram vs. gold coins.
The answer on which is better will be often get determined by the gold bullion buyers highest objectives.
We shall discuss whether gold coins or gold bars have an advantage in the following determinants:
Overall Gold Price on Like-Kind Weight between Gold Coins and Gold Bars
Government vs. Private Mint Gold Bullion Guarantees
Gold Purity levels of Gold Coins vs. Gold Bars
Gold Bullion Coin and Gold Bullion Bar selling privacy factors
Gold Coin vs. Gold Bullion Bar size variances
PRICE: Gold Bars vs. Gold Coins?
In general, gold bars (even when struck by government mints) enjoy lower prices or premiums over the fluctuating gold price per ounce although the most economical price does not always win the day for gold bullion buyers.
Many gold bullion buyers will choose to pay a slightly higher price or premium per ounce or gram of gold to have a government guarantee and government mint hallmark.
If getting the overall lowest price is the most critical factor for your gold bullion buying, try buying highly respected private mint gold bullion bars like Republic Metals Gold Bullion Bars.
If a getting a low price yet having some government guarantee is essential to you, try Royal Canadian Mint Gold Bars.
In general as well, the larger the gold bar is the lessor its price per gold weight will be due to lessoned fabrication costs associated with large gold bars (whether private mint or government mint struck).
In terms of overall lowest price, in general, gold bars win out as they are typically slightly less costly than similar weight gold coins.
GUARANTEE: Gold Bars or Gold Coins?
Both private gold mints and government gold mints guarantee the several gold bars and gold coins they strike and issue.
The question a concerned gold bullion buyer might ask themselves perhaps is who enforces this guarantee and which entity has a longer potential to last.
For example, the US Mint has the US Secret Service helping to ensure that all US Mint gold coins issued never get counterfeited successfully.
The Royal Canadian Mint has the Royal Canadian Mounted Police ensuring its gold coins, and gold bars also never get counterfeited successfully.
Private gold mints have been faster to respond to fake Chinese gold bars by adding cutting edge technological applications to many of their products, like Sunshine Minting’s MintMark SI technology.
The penalties for counterfeiting government legal tender gold coins, for example, are punitive Federally as well as counterfeiting private mint gold bars.
In terms of overall guarantee between gold coins vs. gold bars, the entities with the longer track records and monopoly on violence win this debate government mints have the edge.
PURITY: Gold Coins or Gold Bars?
Many government mints still issue 22k gold coins today. They often get traded mainly on their overall gold content. For example, a 22k, 1 oz American Gold Eagle Coin which has a 1.09 oz weight overall due to additional copper and silver added. They are traded based on their overall one troy ounce of gold content.
These 22k gold coin issuance typically have additional silver and copper mixed into their makeup to make the gold coins harder and resistant to dents or warping.
Two of the most popular gold coins in the world are, in fact, 22k gold.
The most popular gold coin of the 1970s 1980 gold bull market was the 22k South African Krugerrand Coins.
The Gold Krugerrand coin remains very popular and well trusted to date.
Today the most purchased gold bullion coin remains the 22k American Gold Eagle Coin.
With either .999 fine gold coins or .999 fine gold bars, one could rather easily make an indentation in then with a fingertip of pressure applied. That is how soft pure gold is.
This fact makes 24k gold coins very fragile in terms of protecting them from dings or wear. Mainly this is why most modern .999 fine gold bullion coins come in protective plastic tubes and slips. Even many small 1 ounce or lessor sized gram .999 fine gold bars come in protective packaging as well.
Often government gold mints and private gold mints will make gold coins with .9999 or even .99999 purity. Achieving this four-9 or 5-nine fine purity level frankly is mostly gold refining differentiation and for marketing purposes. Just do the math.
The value of 0.0009 oz of gold is worth $1.22 in fiat US dollars, based on a gold spot price of $1350 oz USD.
Move the decimal over to the left again, and 0.00009 oz of gold is worth just over 12¢ USD based on the same spot price (i.e., a cupronickel dime and zinc-based pennies of legal tender face value, in other words not much value).
Gold purity can matter when moving gold across national or governmental boundaries. For example, .999+ fine gold can go into Canada tax-free while 22k gold gets slapped with taxes. Mostly this situation is due to governments setting up laws to give their respective government gold mint an advantage versus other competing government gold mints (i.e., Royal Canadian Mint gets an edge over competitors like South African Mint and US Mint).
This debate is a draw, dependent upon a gold buyer's overall preference of gold purity hardness and the ability to move gold internationally if desired.
PRIVACY: Gold Bars or Coins?
Based on current bullion privacy rules in 2019 within the United States, if you sell gold bullion to a gold dealer in a short related time frame, the questions of (#1) what kind of gold you are selling and (#2) how much gold you are selling to the gold dealer are crucial to whether the transaction gets reported to the IRS via the IRS 1099-B form.
Of course, regardless of the transaction being private or not, the IRS wants all capital gains and losses to get reported on investor income tax reporting. Consult your professional tax advisor with any questions you may have.
Value of Platinum
Similar to gold and silver, platinum is purchased and sold as a commodity all across the globe. However, platinum is considerably rarer than gold and silver, and also has industrial uses. Platinum is so scarce that some say the entire amount of metal ever mined could easily fit in an average-sized living room. Even though platinum has a shorter history in the financial sector, the value of platinum makes for a great investment because of.
The constricted supply (around 75% comes from South Africa)
The high demand in the auto industry (particularly in China and India)
The intrinsic value that will protect you against currency devaluation and inflation
Platinum is a great metal for investing in. Take advantage of our competitive prices and check out our inventory of platinum products.
How Long it Takes to Recover from Stock Market Crashes
Stock brokers will sometimes point to 100-year chart of the stock market and show that it always eventually recovers and heads higher, even after big crashes. What they don’t show, however, is how long it takes to recover after accounting for inflation.
Some stock market crashes have taken a long time to get back to even—so long, in fact, that if the investor were to spend the proceeds they’d find that the same amount of cash wouldn’t buy them as much. Because the recovery took so long, inflation eroded their purchasing power, despite gaining back all that they’d lost in the crash.
What we know from history is that the best defense against both the prospect of a stock market crash and the corroding effects of inflation is gold.
Historic Gold Silver Ratio - Gold vs Silver Ratio History
The following content and historic data are directly sourced from the book called ‘ Silver Bonanza ’ and it was authored by James Blanchard III released in 1995. Well worth picking up a used copy for any long term silver bullion buyers.
Mr. Blanchard was a successful businessman and the driving force behind the ‘re-legalization’ of private gold ownership in the USA in 1975. Only recently have we learned through Wikileaks intercepted US cables that simultaneous efforts were ongoing to discourage US citizenry from buying and saving gold bullion long term (but that is a COMEX and gold price discovery topic for another post).
Below is nearly 5,000 years of gold-silver ratio data:
The more ancient ratios are estimates for long periods of time. Those from 1600 to 1900 (AD) are yearly on periodic averages from Michael G. Mulhall, The Dictionary of Statistics, 4th ed. (London: George Routledge and Sons, 1899) and E.J. Farmer, The Conspiracy Against Silver, or a Plea for Bimetallism (New York: Greenwood Press, 1969 originally published 1886), p. 13.
The other statistics are from Steve Puetz’s Investment Letter, or from our own records. Statistics after 1900 are not yearly averages, but lows or highs that generally did not obtain for long periods. In 1980 the ratio stayed below 20 to 1 for the first two and a half months only and touched under 16 to 1 for only a few days in January.
Gold Price Prediction Chart
I’ve compiled gold price predictions from a number of banks and precious metals analysts.
The table below shows the gold price prediction from various consultancies and independent analysts. Not all gave a forecast for both time periods, but I’ve listed what they’ve stated publicly. Here’s what they think is ahead for gold.
You can see that most analysts predict gold will exceed $2,000 per ounce in 2021. Two project it will average in the $1,900-range. And of those I found, all are very bullish long-term (though this survey is not exhaustive, as there are always analysts who are bearish).
A couple interesting points to highlight from these analysts…
CPM Group’s projection is lower than most, but if gold averages $1,922 in 2021, it would represent an 8.2% increase over 2020 and a record annual average. They also state that “we expect prices to rise sharply at some point in the future, to new records significantly higher than $2,000. Such an increase would be expected to be caused by investors buying increased volumes of gold in a future economic and political crisis… the period 2023 – 2025 is perhaps the most likely time period to expect such.” (Their outlook and projections can be viewed in more detail in their monthly Precious Metals Advisory on their website.)
Meanwhile, we’ll note that analyst Ross Norman has won first place in the LBMA gold price survey nine times. He predicts gold will rise 20% this year.
Last, the average 2021 gold price forecasts from these analysts is $2,228.
So what is my 2021 gold price prediction? To answer that question we have to look at the various factors that are likely to have the biggest impact on the price, both positive and negative.
A Brief History of Gold
3600 BC: Gold is first smelted in ancient Egypt.
2600 BC: Egyptian hieroglyphs describe gold as being &ldquomore plentiful than dirt&rdquo. The earliest known map dates from this time and shows the plan of a gold mine. The first gold jewellery is also seen.
1223 BC: Tutankhamun&rsquos funeral mask is crafted using gold.
600 BC: The first gold coins are struck in Lydia, Asia Minor. These are a crude mix of gold and silver.
560 BC: The Lydians learn how to refine these metals and the world&rsquos first bi-metallic coinage is created: gold and silver. These are called Croesids after their King, Croesus. Because of their consistent gold content, Croesids start to be an accepted form of currency and are traded with confidence.
546 BC: The King of Lydia is captured by the Persians, who adopt gold as the main metal for their coins.
500 AD: The ancient Chinese state of Chu circulates the Ying Yuan, a gold square coin.
1300: Hallmarking is first established at Goldsmith&rsquos Hall in London.
1370-1420: Mining in Europe becomes so prevalent that mines are almost emptied. This period is known as The Great Bullion Famine.
1489: The first gold Sovereign is struck under the reign of King Henry VII.
1717: The UK sets the gold standard. This means currency is linked to gold at a fixed rate.
1816: The industrial revolution causes the financial landscape, and the way we produce money, to change dramatically. Steam-powered coining presses designed by Matthew Boulton and James Watt make the money-making process seamless and far more efficient. It&rsquos at this time that The Royal Mint moves from The Tower of London to new premises on nearby Tower Hill.
1848: The California Gold Rush begins when gold is found at Sutter&rsquos Mill in Coloma by James W Marshall.
1870-1900: The rest of the world apart from China adopts the gold standard.
1914: Many countries move to fractional gold standards, inflating their currencies to help pay for the First World War. They don&rsquot return to the gold standard until 1925.
1944: After the Second World War, the gold standard is replaced by a system of nominally convertible currencies related by fixed exchange rates called the Bretton Woods Agreement.
Although gold initially served as the base reserve currency, the US dollar gradually becomes the reserve currency which is linked to the price of gold. However, central banks continue to keep a portion of their liquid reserves as gold in some form.
The International Monetary Fund and World Bank are also both established.
1971-73: US President Richard Nixon abandons the Bretton Woods Agreement. This means that the dollar and other global currencies are no longer linked to the value of gold and the US can effectively print money at will.
1999: The first Central Bank Gold Agreement (CBGA) is agreed. European banks affirm that gold will continue to be an important part of their monetary reserves. They also cap gold sales at 400 tonnes per year over the next five years.
2010: World Bank president advocates a return to the gold standard to help combat floating exchange rates.
2014: The Royal Mint launch a new bullion trading platform, allowing investors a chance to purchase gold bullion coins directly from The Royal Mint.
2015: Royal Mint Refinery branded gold bars are available for the first time in over half a century.
Digital Gold is also launched by The Royal Mint, allowing investors the chance to purchase a percentage of a physical gold bar from as little as £20, and store it in The Royal Mint&rsquos state of the art vault.
2020: The Royal Mint becomes the first Sovereign Mint in Europe to launch a physically-backed gold exchange traded commodity called RMAU. It is listed on the London Stock Exchange and is The Royal Mint&rsquos first financially listed product.
Gold and Silver Investment Options
Whether you invest in a gold IRA or a silver IRA, the options available to you are numerous. While there are restrictions on investing in certain coins or bars, experts like those at Goldco can help you navigate the investment process and inform you of your options when it comes to investing in physical gold or silver coins or bars.
The process of starting a gold or silver IRA isn’t difficult at all, and you can even roll over existing retirement savings into a new precious metals IRA. By investing in precious metals you gain the confidence of knowing that your wealth is protected in the form of physical assets that have stood the test of time and safeguarded investors for centuries.
If you’re mid-career and looking to hedge a portion of your investment portfolio, or nearing retirement and looking to get most of your retirement assets into safe havens, the experts at Goldco can give you all the advice you need to get started in precious metals investing. Their experience in helping investors just like you get started in investing in gold and silver will give you the edge you need to achieve your investment goals.
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