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Why do recessions, and extreme turmoil, often lead to a massive spike in the gold/silver ratio…[or, asked differently, why does] gold often go up, and silver stays flat (or falls) during such occasions? Words: 413
…Gold is still widely used as a reserve by central banks and governments around the world and investors still buy gold as a hedge against inflation and uncertainty. Silver, on the other hand, while also a hedge against inflation and uncertainty, has countless industrial applications…[so] silver’s demand fundamentals are more heavily influenced by overall economic health. If the economy is in recession, silver prices can fall because there’s less demand from industry…
A History Of Spikes In the Gold/Silver Ratio
- Just prior to World War II as Hitler launched his invasion of Poland, the ratio spiked to 98:1.
- In 1991 as the first Gulf War began, the ratio again reached 100:1.
- Today we’re back again in that territory; as of this morning, the ratio is 112:1, and it’s been as high as 120 or more in recent weeks.
The Effect Of Massive Dollar Creation[Given the current COVID-19 crisis and the effect it is having on the world’s economy] central banks around the world are beginning to print [what will end up being] an extraordinary amount of money and cause governments to go into a ridiculous amount of debt…The Federal Reserve in the U.S., for example, his already expanded its balance sheet by $6T , a nearly 50% increase from last month, and they’re just getting started.
Why does something so mundane as a central bank balance sheet even matter? Because a rising balance sheet means they’re conjuring trillions of dollars out of thin air to bail everyone out…This is something that policymakers have…[frequently done over the years] to solve problems but you can only get away with doing that a limited number of times before the currency starts to lose value and whenever that happens, gold and silver tend to rise as a result.
The price of gold is up significantly…since the start of this crisis but the price of silver has declined leading to the current record-high gold/silver ratio…The ratio may stay elevated for a while, or even go higher but, [if history is any guide] the ratio has always returned to more traditional levels, always, even when the world was facing Adolf Hitler or the Great Depression, so it stands to reason that, if they keep printing money…and the ratio eventually returns to its historical range, the price of silver could really skyrocket…
Editor’s Note: The above post is taken from the original article by Simon Black and has been edited ([ ]) and abridged (…) for the sake of clarity and brevity. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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