Precious Ratios

I recently posted a picture and discussion about how the United States used to back some paper currency with precious metals ... see: Real Money. The picture in this blog entry intrigued me to the point that I figured out what the value ratio between gold and silver was in the early 1930s. Roughly a  ten dollar Silver Certificate was equal to 10 one ounce silver dollars whereas a ten dollar Gold Certificate was backed by a half ounce gold coin. Therefore the value ratio of silver to gold then was 20 to 1.

And I also remember that, as a young man in the 1950s, this same government mandated ratio was 32 to 1 because gold was pegged at $32 per ounce when we still had real one ounce silver dollars. Today the spot price of an ounce of gold is $1,287 whereas silver goes for $14.54 an ounce. Therefore the current value ratio between these two precious metals now is roughly 88 to 1.

This suggests that either gold is too expensive ... or silver is too cheap. You decide.