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.
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