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Why is the Gold:Silver ratio shrinking?

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  • Why is the Gold:Silver ratio shrinking?

    Since the beginning of the year the gold:silver ratio has been generally increasing:

    On Jan. 2 the ratio was 1 : 54.86. On Aug. 6 the ratio was 1 : 65.76.

    But since Aug. 7th, silver has been going up faster than gold. Today the ratio has shrunk to 1 : 58.95.

    Any ideas what this indicates? Is it significant or just a blip? Is inflation picking up speed?

    Be kinder than necessary because everyone you meet is fighting some kind of battle.

  • #2
    Re: Why is the Gold:Silver ratio shrinking?

    Originally posted by shiny! View Post
    Since the beginning of the year the gold:silver ratio has been generally increasing:

    On Jan. 2 the ratio was 1 : 54.86. On Aug. 6 the ratio was 1 : 65.76.

    But since Aug. 7th, silver has been going up faster than gold. Today the ratio has shrunk to 1 : 58.95.

    Any ideas what this indicates? Is it significant or just a blip? Is inflation picking up speed?
    The Federal Reserve has been spiking the punch with monetary Everclear since 2009 and the party is starting to get exciting? Or stated differently, silver is more speculative than gold and speculative fever is running high.

    Comment


    • #3
      Re: Why is the Gold:Silver ratio shrinking?

      It doesn't help that JPMorgan is into about 25% of the futures for Silver. They must see some tremendous upside to silver, or perhaps they plan to provoke it..

      Comment


      • #4
        Re: Why is the Gold:Silver ratio shrinking?

        Originally posted by shiny
        Since the beginning of the year the gold:silver ratio has been generally increasing:

        On Jan. 2 the ratio was 1 : 54.86. On Aug. 6 the ratio was 1 : 65.76.

        But since Aug. 7th, silver has been going up faster than gold. Today the ratio has shrunk to 1 : 58.95.

        Any ideas what this indicates? Is it significant or just a blip? Is inflation picking up speed?
        Silver is far more volatile than gold. Back when silver peaked and EJ made the sell call, the ratio was much lower. After that mini bubble burst, the ratio got really large, then shrank when gold started going down.

        Thus the ratio means nothing whatsoever - it is just an artifact of silver being far more speculative than gold.

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        • #5
          Re: Why is the Gold:Silver ratio shrinking?

          Originally posted by c1ue View Post
          Silver is far more volatile than gold. Back when silver peaked and EJ made the sell call, the ratio was much lower. After that mini bubble burst, the ratio got really large, then shrank when gold started going down.

          Thus the ratio means nothing whatsoever - it is just an artifact of silver being far more speculative than gold.
          The ratio is good to trade, though. When it's very high, trade gold for silver. When it's very low, trade silver for gold. Grow your PMs without spending any money.

          Be kinder than necessary because everyone you meet is fighting some kind of battle.

          Comment


          • #6
            Re: Why is the Gold:Silver ratio shrinking?

            Originally posted by shiny
            The ratio is good to trade, though. When it's very high, trade gold for silver. When it's very low, trade silver for gold. Grow your PMs without spending any money.
            It isn't so clear to me. What is defined as very high? What is defined as very low?

            The historical gold/silver ratio as shown: http://goldprice.org/gold-silver-ratio.html

            seems to show that the ratio varies between 85 and 30-ish. Given this amount of variation, I don't see how 54-ish to 65-ish change is in any way remarkable.

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            • #7
              Re: Why is the Gold:Silver ratio shrinking?

              Originally posted by c1ue View Post
              It isn't so clear to me. What is defined as very high? What is defined as very low?

              The historical gold/silver ratio as shown: http://goldprice.org/gold-silver-ratio.html

              seems to show that the ratio varies between 85 and 30-ish. Given this amount of variation, I don't see how 54-ish to 65-ish change is in any way remarkable.
              It's not the ratio that caught my attention, but the sudden change that caught my attention. The ratio isn't extreme, but after being trounced by gold for so long, the speed with which silver is climbing in relation to gold has me wondering what's going on.

              Generally, silver prices drop in relation to gold during periods of deflation. Silver rises in relation to gold during periods of inflation. So I'm wondering if this may be an indicator of inflation, or an indicator of anything at all. Or just a speculative blip.

              Be kinder than necessary because everyone you meet is fighting some kind of battle.

              Comment


              • #8
                Re: Why is the Gold:Silver ratio shrinking?

                Originally posted by shiny
                It's not the ratio that caught my attention, but the sudden change that caught my attention.
                Well, from looking at the historical gold-silver ratio - it seems sudden changes are very frequent.

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                • #9
                  Re: Why is the Gold:Silver ratio shrinking?

                  People aren't buying much gold, they're turning to silver, rather:
                  http://goldprice.org/gold-silver-ratio.html

                  I think silver's price will shoot up and gold will sink further. We haven't seen gold's deepest level, in my opinion...

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                  • #10
                    Re: Why is the Gold:Silver ratio shrinking?

                    do you have a histogram?
                    does it look like a bell curve?
                    Can we use this to trade gold for silver and vice versa.
                    I can provide gld/slv ratio as a proxy. be right back ...

                    Comment


                    • #11
                      Re: Why is the Gold:Silver ratio shrinking?

                      Originally posted by charliebrown View Post
                      do you have a histogram?
                      does it look like a bell curve?
                      Can we use this to trade gold for silver and vice versa.
                      I can provide gld/slv ratio as a proxy. be right back ...
                      I don't know how to chart things or do anything sophisticated like that. I just go to Kitco, look at the gold price and divide it by the silver price. If you look at their historical charts, you'll see that it took 8 months, from Jan 2 to Aug 6, for the ratio to go from 54.86 to 65.76. But since Aug 7th the ratio has fallen to 59.99 right now. Earlier this morning the ratio was 57.xx. That's a fairly steep rate of change.

                      Maybe it's just that silver is such a small market compared to gold. Buyers are buying again, and as gold goes up, silver goes up faster. Like when gold goes down, silver goes down faster.

                      You can use the ratio for growing your holdings without spending any money. When the ratio is extremely high, like maybe 70:1, silver is undervalued in relation to gold. One gold ounce will get you 70 silver ounces of silver, or 70 ounces of silver will only get you one ounce of gold. It's a good time to trade some gold for silver, or just buy silver if you don't have any. It'll never be the world's reserve currency, but it's good to have on hand for trading when the ratio swings in the other direction.

                      When the ratio falls to the other extreme, like 35:1, gold is undervalued in relation to silver. It only takes 35 ounces of silver to buy one ounce of gold, or one ounce of gold will only get you 35 ounces of silver. That's a good time to trade some silver for gold. Basically your silver will buy you twice the amount of gold than it could when the ratio was 70:1.

                      These extremes don't happen often; it could be years between trades, but you can use the ratios to increase your holdings dramatically without spending any money. You have to account for the premium the dealer charges, so only do it when the ratio extreme is big or small enough to give you more metals after the premium.

                      Be kinder than necessary because everyone you meet is fighting some kind of battle.

                      Comment


                      • #12
                        Re: Why is the Gold:Silver ratio shrinking?

                        Originally posted by charliebrown View Post
                        do you have a histogram?
                        As for this question... No. I take antihistamines.

                        Be kinder than necessary because everyone you meet is fighting some kind of battle.

                        Comment


                        • #13
                          Re: Why is the Gold:Silver ratio shrinking?

                          average since 5/2006 of london-gold/slv = 59. std dev = 11. If you trade gold for silver at +1 std dev. (70), and trade silver for gold at -1 std dev. (48), you only make two trades and nearly double the amount of gold. I missed the last ratio of over 70, in June. Too bad. hope you took advantage of it.
                          this could be done via paper in a retirement account to avoid taxes and a lot of trading friction.

                          I would not bet the farm on this trade, because if simpleton me can see the trade, then people much smarter than me can see it too.
                          Might not work the next time.

                          I can replace real spot prices for slv prices that will take a while to scrape kitco's data.

                          Comment


                          • #14
                            Re: Why is the Gold:Silver ratio shrinking?

                            Originally posted by shiny! View Post
                            Since the beginning of the year the gold:silver ratio has been generally increasing:

                            On Jan. 2 the ratio was 1 : 54.86. On Aug. 6 the ratio was 1 : 65.76.

                            But since Aug. 7th, silver has been going up faster than gold. Today the ratio has shrunk to 1 : 58.95.

                            Any ideas what this indicates? Is it significant or just a blip? Is inflation picking up speed?
                            Just oscillation. Silver could drop all the way down to below 10 $. Because it is so volatile, it is affecting the GSR quite a lot.

                            Comment

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