Copper/Silver Ratio: Same Range For Thousands Of Years

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Includes: BHP, CPER, FCX, GDX, GDXJ, GLD, GOAU, JJCB, JJCTF, PHYS, PSLV, RIO, SIL, SILJ, SLV, TECK
by: Geoffrey Caveney
Summary

The Copper/Silver ratio has had a range from below 0.10 to above 0.30 in recent decades.

My research reveals that this broad range has existed and held for thousands of years, from ancient Egypt to ancient Rome to the Byzantine Empire to the 20th-21st century.

The Copper/Silver ratio in the 14th century Byzantine Empire was 0.13, the same as it was on Election Day in November 2016.

The ratio in the Roman Empire was 0.35, the same as it was in 2006, 1960, 1930, and 1917. The ratio in Ancient Egypt was 0.145, the same as it was last year on June 7, 2017.

How the stability of the Copper/Silver ratio range can guide investment decisions in copper and silver.

Here is a chart of the Copper/Silver ratio over the past three decades, from 1990 to the present:

(This is the ratio of the standard copper price per pound (JJC) (JJCB) (CPER) (CU) to the standard silver price (SLV) (PSLV) (SIL) (SILJ) per troy ounce.)

The chart shows a distinct range, from lows around 0.10 or even below it at periods of peak enthusiasm for silver and precious metals, like 2011, to highs above 0.30 when global industrial demand for copper and base metals is very strong, like 2006.

What is remarkable is that my research reveals that this broad range of the Copper/Silver ratio, from around 0.10 or slightly below it to around 0.30 or somewhat above it, has existed and held for many thousands of years, from ancient Egypt to ancient Rome to the Byzantine Empire to the 20th century and up to the present.

This is a contrast to many other ratios and indicators: For example, we know that the Gold/Silver ratio was in the 10/1 to 16/1 range for much of human history, but the relative value of silver declined significantly when massive silver deposits were discovered and mined in Nevada and the American West in the late 19th century, increasing the supply.

Silver and copper, however, seem to have stayed relatively balanced with each other in terms of their relative supply and demand levels and dynamics over the course of human history.

Silver has had more value as a form of money and store of value as a precious metal, while copper has been used as a less valuable form of money but mainly as an industrial metal essential for the production of manufactured goods. Both, however, are industrial metals, and both tend to rise in value when global industrial production is growing.

The Copper/Silver Ratio in the 20th Century

The following tables of annual copper and silver prices allow us to calculate the Copper/Silver ratio over the course of the 20th century:

(Table courtesy of the USGS's Metal Prices in the United States Through 2010, p. 50.)

(Table courtesy of the USGS's Metal Prices in the United States Through 2010, p. 170.)

Based on these tables, I calculate the following Copper/Silver ratio values for various years from 1900 to 1990:

1900: 0.26

1903: 0.24

1905: 0.26

1907: 0.30

1910: 0.24

1913: 0.25

1915: 0.34

1917: 0.35

1920: 0.17

1923: 0.23

1925: 0.21

1927: 0.23

1930: 0.35

1933: 0.21

1935: 0.14

1937: 0.30

1940: 0.33

1943: 0.27

1945: 0.23

1947: 0.30

1950: 0.29

1960: 0.36

1970: 0.33

1973: 0.23

1975: 0.15

1977: 0.14

1980: 0.05

1981: 0.08

1982: 0.09

1983: 0.07

1984: 0.08

1985: 0.11

1986: 0.12

1987: 0.12

1988: 0.18

1989: 0.24

1990: 0.26

We see that the Copper/Silver ratio was actually up in the 0.20 - 0.35 range for most of the 20th century from 1900 until the mid-1970s.

Then the inflation of the 1970s boosted precious metal prices much more than industrial base metal prices, so the Copper/Silver ratio crashed as low as 0.05 for 1980.

The ratio stayed low into the mid-1980s, but starting in the late 1980s it began to move upward again. The 1990-2018 chart at the top of this article shows its value since then.

The Byzantine Empire's 14th Century Silver and Copper Coin Values

The Byzantine Emperor Andronikos II Palaiologos (ruled 1282-1328) established a system of coinage in the early 14th century. The coins' weights, metal contents, and relative values in the Byzantine monetary system of the time allow us to determine the relative value of gold (GLD) (PHYS) (GDX) (GDXJ) (GOAU), silver, and copper that was prevailing then.

The gold coin was the hyperpyron, the silver coin was the basilikon, and the copper coin was the assarion.

The hyperpyron weighed about 4.45 grams but was only made of 12 carat (50% pure) gold, so it contained the equivalent of 2.225 grams of gold.

The basilikon weighed 2.2 grams and consisted of 92% pure silver, so it contained 2 grams of silver. In the Byzantine monetary system established then, 12 of the silver basilikon were equal to 1 gold hyperpyron.

The assarion weighed 3-4 grams, so we must estimate its average weight around 3.5 grams. 768 of the copper assarion were equal to 1 gold hyperpyron.

At these metal weights and values, we can calculate that 1 gram of gold was valued as equivalent to about 11 grams of silver. And 1 gram of silver was valued as equivalent to about 112 grams of copper.

When we convert these values into pounds of copper and troy ounces of silver (1 pound = 14.5833 troy ounces), we find that in the 14th century Byzantine Empire, the ratio of 1 pound of copper to 1 troy ounce of silver was about 0.13.

This was the same Copper/Silver ratio as the closing prices on Election Day 2016, November 8th.

The Roman Empire's Silver and Copper Coin Values

Julius Caesar and then Augustus Caesar standardized and stabilized the Roman coinage and monetary system. The system remained more or less stable for centuries during the healthiest period of the Roman Empire, until debasement of the metals in the coinage caused massive inflation during the later centuries of the Empire's decline.

In the stable system under Augustus, the gold coin was the aureus, the silver coin was the denarius, and the copper coin was the as.

In the Roman system, 1 gold aureus = 25 of the silver denarius = 400 of the copper as.

The aureus weighed 8.09 grams of gold, the denarius weighed 3.9 grams of silver under Augustus, and the as weighed about 10 grams of copper under Augustus.

At these metal weights and values, we can calculate that 1 gram of gold was valued as equivalent to about 12 grams of silver. And 1 gram of silver was valued as equivalent to about 41 grams of copper.

When we convert these values into pounds of copper and troy ounces of silver, we find that in the Roman Empire, the ratio of 1 pound of copper to 1 troy ounce of silver was about 0.355.

This was close to the commodity boom level of mid-2006 as well as the Copper/Silver ratio in 1960, 1930, and 1917.

One thing all of these periods had in common with the Roman Empire was a high level of manufacturing and construction, as well as a high level of military activity. All of these things increase the demand for industrial metals.

Copper and Silver Values in Ancient Egypt and Ancient Greece

This interesting historical article at CommodityHQ.com describes the relative values of copper and silver in Ancient Egypt and Ancient Greece.

In Ancient Egypt, "a unit of copper was worth 1/100th that of silver". When we convert this ratio into pounds of copper and troy ounces of silver, we find that in Ancient Egypt, the ratio of 1 pound of copper to 1 troy ounce of silver was about 0.145.

This is just slightly higher than the prevailing value ratio in the Byzantine Empire thousands of years later. It is also the same as the Copper/Silver ratio about this time last year, on June 7, 2017.

Meanwhile, the ancient Greeks "valued copper at a ratio of 1:350 with silver." Converting this ratio into pounds of copper and troy ounces of silver, we find that in Ancient Greece, the ratio of 1 pound of copper to 1 troy ounce of silver was only about 0.04.

This is very low historically speaking in comparison to the relative values in other societies. It is similar to the extreme low of the Copper/Silver ratio in the peak inflation year of 1980.

Perhaps this is because the ancient Greeks did not have the same level of construction and large-scale manufacturing as ancient Egypt and the Roman Empire did. Thus they did not value the industrial metal copper quite as highly relative to the precious metal silver - their demand for copper was not as great.

How the Copper/Silver Ratio Can Guide Investors

When investors and traders use any ratio or indicator, it is important to be aware of not only its recent range and trends, but also its longer-term range, trends, and historical performance.

Some ratios and indicators exhibit cyclical behavior and reversion to the mean, but others do not. Some stocks of well-run companies, for example, outperform the stocks of less well-managed companies, year after year and decade after decade. In such cases, we cannot necessarily expect a "reversion" to a mean or to a previous level to ever occur.

Likewise, it is difficult to rely on the Gold/Silver ratio, because there has been a long-term trend over decades and centuries for the ratio to rise (higher gold prices relative to silver prices). Of course there can be some cyclical behavior and reversion to a lower ratio, but it is difficult to be confident about what that level will be or how long it will last. For example, it is hard to count on a return to a 15/1 Gold/Silver ratio when that old standard level hasn't existed for over 100 years now.

Similarly, the Platinum/Gold ratio has been breaking down in recent years. Until very recently investors could be confident that platinum should be more valuable than gold in normal circumstances. But now the platinum price has fallen hundreds of dollars per ounce below the gold price, and shows no signs of a quick recovery any time soon. Nowadays I prefer to calculate the average of the platinum and palladium prices, and compare that to the gold price, for a more stable and reliable indicator ratio.

But the Copper/Silver ratio range has proven to be much more stable than any of these other indicator ratios.

When I look at the current Copper/Silver ratio chart, I see that it has been in a strong uptrend for almost 2 years now:

And I see that the value of this ratio should still have plenty of room to run farther upward, since right now we are only at an average level around 0.20. As I have shown, the Copper/Silver ratio can run up to as high as around 0.35, as it did in 2006, 1960, 1930, 1917, and 2,000 years ago in the Roman Empire!

So for the rest of 2018 and 2019, I expect copper and copper/base metal miners (FCX) (BHP) (RIO) (TECK) to continue to outperform silver and silver miners.

At some point, of course, this will change. If and when this ratio peaks around the 0.30 - 0.35 range, and then the trend reverses and the ratio breaks below 0.30 in a decisive way, that could be the signal that silver and silver miners will then outperform copper and base metal miners.

For now, I encourage investors and traders to look into copper miners! See my recent article "Multitude of Trends Point to Rising Copper Price Ahead" for more analysis of the reasons why I am very bullish on copper and copper miners right now.

Even if you are or have been more into gold, silver, and precious metals, there is nothing wrong with diversifying your portfolio with some copper and base metal miners. You may be very happy with the results!

Disclosure: I am/we are long PHYS, GOAU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long FCX and TECK call options.