Bilbo Baggins (Ian Holm) had the One Ring for quite a while, ever since he got it from Gollum's cave. And if Gandalf (Ian McKellen) knew him all that time, how did he not figure out that his friend had the One Ring? Shouldn't he have known? There are some mysteries in the Lord of the Rings story and this is definitely one of them. There are, however, answers to these questions and a possible way of solving this mystery. First, it's important to understand what Gandalf might have been thinking. And how Bilbo used the Ring. Only Tolkien would know the full story, of course. Yet it is possible to speculate based on what is known about Gandalf and Bilbo. Gandalf was definitely suspicious of Bilbo's ring from the beginning, however, he did not seem to know for sure whether or not it was the One Ring.
He should have known, maybe, but it might have been somewhat hard to figure out. After all, other Rings of Power were created, lesser rings. It could've possibly been one of them. Or another kind of magic ring. Gandalf also would have wanted to make sure. It would've been a wasted effort if he and Bilbo had gone to all the trouble to destroy the Ring and it turned out not to be the One Ring. So instead of acting right away, Gandalf waited. He observed Bilbo and the Ring for years. During that time, Bilbo would only occasionally wear the Ring. Yet it still had an effect on him.
He did not age normally for a Hobbit. He disappeared when he put the Ring on. And he was reluctant to part with it in the end. Gandalf had to remind him to give it to Frodo, and Bilbo called it "my precious" before finally giving it up. After all of this, Gandalf was definitely very suspicious of Bilbo's ring. Yet he still needed to confirm his suspicions. So he went to Gondor to do some research. In the Lord of the Rings books and movies, Gandalf knew that Isildur briefly possessed the Ring. So he went to find out how Isildur described it. He also described it as precious and mentioned that it reveals something when put in fire.
Once Gandalf knew that, he headed to the Shire to see if Bilbo and Frodo's ring was really the One Ring. After throwing it into the fire, and Frodo saying that there's something written on it, that is when Gandalf fully knew. Of course, he could have suspected sooner. He probably should have. Yet without having all of the information on the Ring, it was probably best to do what Gandalf ended up doing: watching and waiting. Gandalf knew exactly where the Ring was, and who owned it. At any time he could've stepped in to help Bilbo destroy it if he did indeed confirm it was the One Ring. However, Gandalf would also have known how corrupting an influence the Ring can be. So he wouldn't have taken it himself, even if he had known earlier. No, it was much safer where it was in the Shire with Bilbo.
Gandalf is not the type to do things rashly or to rush something as important as the destruction of the Ring. He also might have felt that as long as the Ring didn't go anywhere, it couldn't be a threat. He also might have not wanted to put his friend Bilbo in harm's way if it could be avoided. Although it would've been convenient if Gandalf had realized earlier that Bilbo had the One Ring, the story would've been very different. The whole plot of Lord of the Rings wouldn't have needed to happen if Gandalf and Bilbo had already destroyed the Ring. Or perhaps Bilbo wouldn't have wanted to part with the Ring after all, and Gandalf wouldn't have been able to get it from him. That would've been a tragic tale, where the Ring could've disappeared again. So perhaps it was better that Gandalf didn't figure it out sooner. After all, Bilbo rarely used the Ring. And if he had used it more often or it had started to deeply change him sooner, Gandalf would probably have noticed.
As it is, however, Gandalf can be somewhat excused for not realizing right away that Bilbo had the One Ring. Of course, not every Lord of the Rings fan will agree. Some might think Gandalf not realizing that Bilbo's ring was the One Ring sooner is inexcusable. While others will believe that he knew all along and had his reasons for not revealing what he knew. Yet it seems to make sense that Gandalf might have had a gut feeling that it was the One Ring, yet wasn't entirely sure. That he would want to make absolutely sure before taking any action. And that it just so happened he wasn't sure until the events of the beginning of Lord of the Rings. That is a definite possibility.