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Thread: Using the Silver:Gold Ratio

  1. #1
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    Default Using the Silver:Gold Ratio

    I recently posted some information about using the gold:silver ratio for making pm purchases. The thread is now gone but someone asked me to post it again, so here it is...

    The question was, is silver low enough now to be a good buy? I don't know the answer to that. But the ratio between silver and gold is high right now, and that might make silver a good buy for someone who is looking to increase their position in gold but is in no hurry.

    Silver's price is more volatile than gold's. When gold goes up, silver usually goes up more. When gold goes down, silver usually goes down more. During periods of deflation the ratio increases, during inflation the ratio decreases. During this period of deflation the ratio has been about 75:1, meaning one gold ounce can be purchased for 75 ounces of silver. In 2008-2009, the ratio was between 75-80:1. When EJ made his "Time to Sell Silver" call in April, 2011, the ratio had shrunk to 33:1.

    Using round numbers, if you purchased 80 ounces of silver instead of 1 ounce of gold when the ratio was 80:1, then traded the silver for gold when the ratio was 40:1, you would end up with 2 ounces of gold for the price of 1. You have to factor in premiums but that's the general idea.

    When the ratio is at an extreme it makes sense (to me) to buy whichever pm is the more undervalued, then swap it for the other metal or sell it when the ratio swings the other way. Buy low, sell high. That's all I got. I hope this is helpful to someone.

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

  2. #2
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    Default Re: Using the Silver:Gold Ratio

    Thanks Shiny!
    I was just looking for that very post of yours.

    Here's a link to a video by Mike Maloney that supports your strategy, and makes some other pretty compelling points.

    https://www.youtube.com/watch?v=BOHe...layer_embedded

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    Default Re: Using the Silver:Gold Ratio

    JMO - No one investing today is going to make a killing in silver. That ship sailed 15 years ago and landed 4 years ago. If you like metals, wait for gold to come down more and buy it. Silver is not going up while oil is coming down in price.

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    Default Re: Using the Silver:Gold Ratio

    Quote Originally Posted by santafe2 View Post
    Silver is not going up while oil is coming down in price.
    tbh, gold isn't going to do much either while oil is coming down in price. Generally, the picture is a good one for all commodities in the coming inflation (after the short term deflation we appear to be headed into). As a matter of fact, despite the call Eric made on silver's fall, he has still said that silver could go to $100 if gold went to $5000. From current prices of silver, you're looking at a pretty solid gain there. The special reason for holding gold is that once inflation starts picking up and the USD starts fracturing, gold will be driven by both fear and greed, because its seen as both a commodity and a currency. I think silver will still do alright because its priced in USD's which we know has a declining shelf life going forward. But in the near term, i think most commodities, maybe even gold, probably are going lower (though i doubt anyone who buys gold today will be complaining about it 5 years from now). With gold though, things are a little different today than they were before the 2008 crash. I think the wash out in gold since 2011 has resulted in less weak hands who don't understand gold holding it, so if it does fall in the event of another near term market crash, it probably wont fall as much as it did in 2008 because there aren't as many people holding it who would have an immediate need to liquidate it, but that's just speculation on my part.



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    Default Re: Using the Silver:Gold Ratio

    Quote Originally Posted by verdo View Post
    .....With gold though, things are a little different today than they were before the 2008 crash. I think the wash out in gold since 2011 has resulted in less weak hands who don't understand gold holding it, so if it does fall in the event of another near term market crash, it probably wont fall as much as it did in 2008 because there aren't as many people holding it who would have an immediate need to liquidate it, but that's just speculation on my part.
    therein lies the BIG question, eh?

    how much of that downstroke in 08 was the result of margin calls, etc = 'forced liquidation' ?

    and wont there be even more FEAR on the next plunge, as a result of the 'fed being out of ammo/tricks' ?

    never mind what happens when it suddenly dawns on the masses that their numbers - for inflation and employment (or the lack of it) are pure BS.

    case in point?

    my obamacare premium is launching next year, UP over 25% (with kaiser-perm just being 'awarded' a 34% boost for individual subscribers, in the place i'm OH so familiar with...) and NO offset in the subsidy

    and rupert&co have just this week boosted the newstand price of the wsj by another buck = 33% jump
    on top of the last bump (in '11? IIRC) = 100% increase in 4 years!!?

    'good thing theres no inflation'...

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    Default Re: Using the Silver:Gold Ratio

    Quote Originally Posted by lektrode View Post
    therein lies the BIG question, eh?

    how much of that downstroke in 08 was the result of margin calls, etc = 'forced liquidation' ?

    and wont there be even more FEAR on the next plunge, as a result of the 'fed being out of ammo/tricks' ?

    never mind what happens when it suddenly dawns on the masses that their numbers - for inflation and employment (or the lack of it) are pure BS.

    case in point?

    my obamacare premium is launching next year, UP over 25% (with kaiser-perm just being 'awarded' a 34% boost for individual subscribers, in the place i'm OH so familiar with...) and NO offset in the subsidy

    and rupert&co have just this week boosted the newstand price of the wsj by another buck = 33% jump
    on top of the last bump (in '11? IIRC) = 100% increase in 4 years!!?

    'good thing theres no inflation'...
    I hear what you're saying...but the way it feels right now, it seems like the majority of people who still hold gold today after this multi-year washout are really the true believers. Again, i still believe gold is going down, but the gold hype that ran up into the 2008 crash doesn't seem to be around today except amongst the really ardent followers. Many of these speculators seem to have already bailed, and if anything, they've replaced holding gold with taking short positions on gold via ETF's and what not. In any event, i don't think it really matters at the end of the day, because anyone who buys gold at current prices will probably wish they had bought more of it 5 - 7 years from now. I think after this sharp (but short lived) deflation scare, we're going to see the mother of all reflation efforts by central banks, and probably the IMF joining in on the party as well...and gold will go to highs that will surprise even the most bullish. Gold is one of the few assets going into this that will be driven by both fear and greed, and given these two things, it makes predicting what the gold price will be in the middle of an unprecedented global bond/currency crisis next to impossible.
    Last edited by verdo; 12-07-15 at 01:25 AM.



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    Default Re: Using the Silver:Gold Ratio

    Quote Originally Posted by lektrode View Post
    therein lies the BIG question, eh?

    how much of that downstroke in 08 was the result of margin calls, etc = 'forced liquidation' ?

    and wont there be even more FEAR on the next plunge, as a result of the 'fed being out of ammo/tricks' ?
    This is my question as well. Forced liquidation of paper metals in ETFs to meet margin calls drives the price down, even though premiums on physical can be sky high. So much gold is in ETFs now. This is different than say, 1979. Will gold and silver ETFs prevent these metals from behaving as they have in the past in the event of a severe financial crisis?

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

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    Default Re: Using the Silver:Gold Ratio

    Quote Originally Posted by shiny! View Post
    This is my question as well. Forced liquidation of paper metals in ETFs to meet margin calls drives the price down, even though premiums on physical can be sky high. So much gold is in ETFs now. This is different than say, 1979. Will gold and silver ETFs prevent these metals from behaving as they have in the past in the event of a severe financial crisis?
    considering the 325:1 leverage going on at the crimex ?
    it would appear that there ISNT all that much left in em? (or in the vaults at the bullion banks)
    only if the scheisters rigging the game continue to get implicit backing/bailouts from the fed money printers - along with unlimited ZIRP leverage - could there be much of anything left in said ETF's (from what eye understand)

    methinks the very existence of these ETF things = evidence of the problem (at the crimex), as it doesnt matter the underlying fundamentals on stuff like the miner stock prices - if the short ETF's - like say DUST or JDST gets heavy inflow - the metal (paper) price goes down and takes the stocks in the miners down with em

    its going out/somewhere tho, this much is certain (? - tho dunno if anything can be ascertained anymore)...

    methinks its 'the deal' that got 'worked out' so the .gov bond market is allowed to continue bubbling up
    (read: since CONgress cant/wont come up with a REAL BUDGET, they are 'settling' the account with 'cheap gold')

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    Default Re: Using the Silver:Gold Ratio

    Not sure I get what you're saying, Lek. It's my understanding that ETFs can settle in cash; they don't have an obligation to redeem in actual gold or silver. Is that correct? Because if so, it doesn't seem to matter if they have the actual metal backing their numbers, a selloff can still crash the paper price of gold and silver, hurting those who hold physical.

    In the past when markets crashed or there was scary high inflation, gold tended to go up, didn't it? Will that happen in the next crisis if paper gold selloffs can keep knocking down the price of gold? Is gold still the safe haven it used to be?

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

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    Default Re: Using the Silver:Gold Ratio

    um... hello?

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

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    Default Re: Using the Silver:Gold Ratio

    Quote Originally Posted by shiny! View Post
    um... hello?
    dunno, ms shiny! - not sure i even understand the relationship of the ETF's to the metal and the miners (other than the obvious; ie: the etf's hold mining stocks that are then pushed one way or tother by their leveraged 'cuzzins', ie: GDX >DUST/NUGT, GDXJ >JDST/JNUG)

    i'm (still) trying to wrap my head around all thats happening as well (and likely should just stay quiet on this stuff, hoping those with more understanding of it might/hopefully enlighten the rest of us?)

    anyone seen finster lately?

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    Default Re: Using the Silver:Gold Ratio

    Heck, lektrode, I barely have the faintest grasp of fractions, let alone ETFs and leverage...

    Onward through the fog!

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

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    Default Re: Using the Silver:Gold Ratio

    Silver matched the December 3rd inter day low at $13.80 this morning. As I said last week, I don't think the bottom is in.

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    Default Re: Using the Silver:Gold Ratio

    here's an interesting POV (from 'the heart of NA gold country' = elko NV)
    re: the gold:copper ratio

    3dec/15:
    What do copper & gold signal for 2016?

    the most salient parts (IMHO)

    A Flashing Light Grows DimThe gold-to-copper ratio (GCR) is a reliable indicator of market stress. The GCR is the price of gold in U.S. dollars divided by the price of copper and answers the question, “how many pounds of copper can I buy with an ounce of gold?” During periods of market stress, gold price typically rises as copper prices decline. In turn, the GCR increases - spiking when things get really scary.

    The second chart shows the gold-to-copper ratio over the same time period as the first. The value of gold relative to copper has trended higher (purple dashed line) and every copper price correction (shaded boxes) has included one or more GCR spikes. It’s noteworthy that an ounce of gold in mid-2006 fetched only 200 pounds of copper. As October 2015 comes to a close, an ounce of the yellow metal buys 490 pounds of the red. A July 2016 projection shows an increase to 510.

    The trend line represents a relative “fair value” for the two metals – gold and copper at price equilibrium. If the GCR rises above fair value, gold trades at a premium to copper; if the GCR falls, gold trades at a discount. Gold priced a discount prior to Lehman Brothers and correction spikes tended to only reach fair value. Post-Lehman, gold rallied not only in U.S. dollar price but in premium relative to copper. During the mega-crash, the GCR peaked at 578 pounds per ounce. This was followed by a larger spike of 621 as copper recovered from its bottom and gold popped above $1,025 in February 2009.

    Since spikes occur during market stress, the difference between peak and fair value can be viewed as a “fear premium.” Importantly, the fear premium has been in decline for the four corrections following the big crash of 2008. During the last correction in August, the GCR peaked at 517, only 30 pounds per ounce above fair value. In the 2008 mega-crash, the fear premium at 270 was a whopping nine-times larger.

    2016 Outlook
    A slowing China in combination with the end of U.S. quantitative easing pushed copper below the $3-floor – what was once support now becomes resistance. As the Federal Reserve contemplates tightening with rate increases on the near horizon; Japan, Europe and China are loosening their monetary policy to stimulate growth. This central bank divergence has ushered in a strong U.S. dollar placing downward pressure on dollarized commodities. Gold faces the additional challenge of rising interest rates in a low inflation environment.

    The GCR chart suggests that much of the post-Lehman angst has left the metal markets on a comparative basis. In the summer edition of Mining Quarterly, I predicted 2015 gold would trade in a range of $1,100 to 1,200 for the second half of 2015 with rising commodity prices slowly closing the value gap. Comex gold ends October at $1,141 per ounce trading very near fair value with the red metal - the value gap for copper has closed. A rising GCR fair value in 2016 may cause gold to trade at a discount, not premium, to the red metal. Adjusting for a probable discount, my first-half of the year gold range is $1,060 to $1,160. A rise in inflation expectations or geopolitical shock could move the top number notably higher.

    There is building consensus that copper demand will revive by 2017. In the meantime, mining giants such as Glencore and Freeport-McMoRan are cutting production to stabilize prices. Given these factors, the August low may indeed be shouting, “It’s over!” My 2016 copper price outlook is for stable trading ranges above $2.20 per pound but below $3-resistance. The coming year will be a transition period that likely avoids the 2008 $1.5-copper lows and a second famous Yogi-ism, “…déjà vu all over again.”

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