Even though the historical ratio of gold to silver is about eight to one and even though mining production still reflects that ratio, the difference in price tells another story. The gold to silver ration is an historical method of measuring the value of gold and silver and has been prominent in economics since Ancient Rome. At that time, the historical average was about eight to one, meaning for every eight ounces of silver you could buy one ounce of gold.
Considering the relative consistency of production and market appreciation, we should be at a level very similar to that historical 8 to 1, especially considering that daily mine production still reflects those numbers. However the current gold to silver ratio is around 56 to 1. That means it takes approximately 56 ounces of silver to purchase a single ounce of gold. This indicates that gold is either overvalued, which is unlikely given market fundamentals, or that silver is undervalued. If silver is undervalued, then is needs to correct to somewhere between $100 and $150 per ounce to reflect a stabilization of the gold to silver ratio.
This may seem like an eye-popping number at first, but considering the amount of above-ground silver is at a multi-century low, that economic problems around the world are forcing inflationary policies into effect, and that there are $7 being invested in gold for every $1 invested in silver, the current distortion in the price is very much understandable. Eventually, however, the price has to even out and silver will show such an increase at that time that it may outpace even gold.
In the Western world we think of silver as an industrial metal, which is true and adds to demand. However, historically there are many countries throughout the world in which the word silver means money. They are synonymous because they are the same. Silver is money. In the West, we seem to have forgotten in current times that the silver standard was the American way from the inception of this country through to the last century. The silver dollar is a good example.
As gold and silver continue their bull market run while fiat currencies falter, the historical importance of silver will become apparent when silver takes its place as the monetary currency of choice. Both gold and silver will perform well, but silver may outpace the performance of gold because silver is currently so affordable.