Back in China, during the excellent Ming Dynasty, the exchange rate was 4 ounces of silver to 1 ounce of gold. Fascinating indeed as in the country of ancient Egypt silver was considered as important as gold. On the other hand, the silver gold ratio kept somewhere around 12 to 1 which in turn means it took 12 ounces of silver to buy one ounce of gold.
The strange reason for the 12 to 1 ratio was that gold and silver were in fact very much money. I mean they were going around side by side and in the end the free markets balanced the scales and said it was so. The ratio is in fact decided by the marketplace doing what it does naturally. The fair market value of something will always rise to the top.
Here is a video recording from a classy gold and silver investor and his trading group: http://www.youtube.com/watch?v=Psuo1-os2eo
So what does the 12:1 ratio mean? Going even deeper it means that on average there was somewhere around 12 times more silver in movement than gold all through history. Again, as stated earlier, it is simply the free market determining the price based on the relative rarity of the 2 precious metals.
Then again, in the late 1800s, discoveries of silver out West and of course technological advancements added drastically to the supply. This and other factors triggered the value of silver to drop appreciably to 1/100th of gold?s value.
Then Franklin Roosevelt, during the famous Depression, signed the Silver Purchase Act of 1934 and America began to obtain and get hold of the world?s largest stockpile of silver in history. There were a lot of more silver buying in the 50?s and gradually the stockpile peaked at 3.5 billion ounces.
For more information about precious metals, watch this video about how to buy gold and silver coins http://www.youtube.com/buysilverandgold
Source: http://www.dspvietnam.info/dsp-vietnam/the-reason-why-investing-in-gold-and-silver-is-intelligent
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