Ancient Egypt: Silver to Gold Ratio of 1:1

Many of SchiffGold clients hold silver patiently waiting for a drop in the silver to gold ratio. I am very much one of these patient holders of silver.

For those who aren’t familiar, the silver to gold ratio is exactly as it sounds: the price of gold stated in ounces of silver.

Today the silver to gold ratio is trading at about 87:1. In simple terms, this means it takes 87 ounces of silver to buy one ounce of gold.

Throughout most of known history, this ratio has averaged between 10:1 to 20:1. In other words, most of our understanding of this historical relationship puts gold at about 10 to 20 times the value of silver. It’s only been in the last century that we’ve seen much higher ratios. Even at that, today’s ratio is historically high. The modern average has been closer to 40 or 50 to one.

While there is a lot to look at in terms of the last hundred years, I want to focus on the other extreme — when the ratio was at all-time lows at or below 1:1! One example of that we know of was in ancient Egypt.

Precious metals played an important religious roll in ancient Egyptian society. Additionally, they were used as their standard of value. Gold was so precious to the people of Egypt that it was considered to be the skin of the gods. It was specifically associated with the god of the sun, Ra. The royals and nobility were the only ones that really had access to gold, and it was very prevalent throughout all of Egypt’s history. Gold was mined all along the Nile and throughout the dessert. Archeologists are still discovering ancient gold mines today.

Silver, however, was not as prevalent.

The ancient Egyptians were unable to find and mine silver in the same way they did gold. In fact, there is no evidence that the Egyptians mined their own silver at all. So, when silver was first introduced during the Old Kingdom (ca. 2575-2150 BC), Egyptians did not have a word for it. They simply called it “white metal,” which is still a nickname for silver today. Egyptians valued silver more than gold. They thought that while the skin of the gods was gold, the bones of the gods were silver.

Silver was originally mined in places around the Mediterranean. Historians believe it was likely the Egyptians imported all their silver and held it at a ratio of around 1:1. This was valuable compared to neighboring lands that valued silver as one-thirteenth of gold. Traders, who had the means and accepted the travel risks, could arbitrage the ratio by importing silver and exporting gold out of Egypt. Over time silver became more prevalent, and historians speculate the value of silver decreased to around half the value of gold (a 2:1 silver to gold ratio) during the late Middle Kingdom (ca. 2030–1650 BC). Of course, this is still remarkably low.

Egyptians did not use gold or silver as currency. However, like most ancient cultures they used precious metals as a measure of value for traded goods and services. This may sound strange at first, but it was a relatively effective use of silver. Egyptians would juxtapose different assets to a specific amount of weight of silver. For example, a shat, also called seniu, sna, or shena, was a flat disk of silver that weighed approximately 7.5-7.6 grams. A goat cost about half a shat, a cow was about eight shats, and a typical house cost around ten shats. Another unit used was a deben or kit which weighed approximately 90-91 grams. Male slaves cost around seven deben and female slaves cost around four deben.

Outside of being used as a measure of value, not surprisingly, Egypt used silver for jewelry. The Egyptians were able to use a process called wiredrawing to form thin silver wires. These wires were then used to make jewelry and to weave into cloth. During the Old Kingdom, Queen Hetephere I was buried with thin silver bracelets and many thicker gold bracelets. Historians speculate this is further proof that silver was valued higher than gold during that time because not even royals had a large enough supply of silver to saturate their tombs the way they did with gold.

Another use of utility for silver was for its reflective properties. They would pound the metal into thin, round or oval sheets, and fashion a tang that would secure the “mirror” into the handle. The silver was then highly polished to create a reflective surface. Many silver mirror surfaces have been found in the graves of elite Egyptian women, as only royals and nobles had access to the metal.

This one to one or one to two ratio didn’t last indefinitely in Egypt. It wasn’t until the 21^st and 22^nd dynasty (ca. 1069-716 BC), that the presence and use of silver became more abundant. This was due to trading and importing silver over time. Psusennes I was buried in a silver coffin, and Sheshong II was buried in a solid silver coffin with gilded details in the forms of the hawk god, Sokar. The Egyptians would also hammer the silver into thin sheets, and cover copper or bronze statues. Archeologists have also found cast statues made from solid silver with parts of the silver statue, such as the eyes or nails, “painted” black with sulfur. Even during this time, with silver being more abundant the gold, to silver ratio of 2:1 still held. It wasn’t until around the 4^th century BC that Egypt’s silver to gold ratio started to be more in line with the historical average ratio of approximately 13:1.

Fast-forward to modern-day — we are trading at roughly 87:1. Said another way, an ounce of silver is 1/87^th the price of an ounce of gold! Between SchiffGold’s silver corporate holdings and individual broker positions, we are ready for a move down in the gold to silver ratio. While we do not have a forecasted number or price level in mind, it’s important to remember the ratio touched approximately 30:1 in 2011 during the height of the QE programs.

As a reminder, Peter Schiff is calling for a continuation of the QE programs via zero to negative interest rates. Some believe it’s already here in the form of injections, like what we saw with recent Fed’s cash injections into the repo market in September of last year and during the second week of January 2020.

Gold has rallied in response to this, the Chinese trade war, and the recent Iranian tensions, however, we haven’t seen much of a response from silver (yet). If I had to make an educated speculation based on market price action, we probably still have at minimum a few months of silver underperforming gold. This is great news for those who are still building their silver position and need time to get in before this trade takes off (which is when the ratio falls).

Again we are not saying it’s necessarily going to any specific gold to silver ratio level. However looking at 2011’s 30:1 ratio, and at examples in history, like the 1:1 ratio in Egypt, I don’t believe 30:1 would be an outrageous ratio target. So, for those who are potentially interested in going long silver relative to gold, now is the time to move or at least prepare to move into the white metal.