So does the gold/silver ratio mean anything anymore?

[tulsamal]

The ratio looks to be about 33 right now. I've always been told the historical low point to watch for is 40. If it gets to 40 or below, then it is time to start trading silver for gold. 33 is a LOT below 40 so it has me wondering if we are in a new normal and history can't really guide us or..... is it really time to cash out some silver and move it into something else?

Seems like the ratio is so far from normal that we have to see some type of correction. Either silver coming down or gold going up a lot more.

Gregg

[Lugnutzpop]

I've got the same thoughts as you. Waiting for that correction, but scared shijtless it'll never come.....

-L

[ccjoe]

The ratio looks to be about 33 right now. I've always been told the historical low point to watch for is 40. If it gets to 40 or below, then it is time to start trading silver for gold. 33 is a LOT below 40 so it has me wondering if we are in a new normal and history can't really guide us or..... is it really time to cash out some silver and move it into something else?

Seems like the ratio is so far from normal that we have to see some type of correction. Either silver coming down or gold going up a lot more.

Gregg

Historical has always been 16/1.
It might be wise to ride this silver bull down to at least 20/1 as EVERY day you are making 3-4/1 more money than if you had gold. This has been going on for a couple years now so the trend is your friend as they say.

[ME Co.]

If it gets to 30 I'm taking the last of my .999 getting a couple Krugs and possibly 1/2 bag of 90% for a dozen more. HH Mark

[tulsamal]

Historical has always been 16/1.

How far back in time do you have to go for that ratio?

This is from the Montana Rarities page:

*******

One of the more interesting long term strategies for investing in precious metals is to trade on the gold/silver ratio.

The strategy is to buy silver with gold when silver is cheap, and then reverse the trade, buying gold with silver, when gold becomes cheap in terms of silver. The ratio of silver to gold has ranged between 40 and 110 over the past 20 years, and currently sits around 39:1, below the 40:1 that has marked the end of the range.

So for example you would trade gold for silver when one gold ounce buys 80 silver ounces (the ratio is 80:1). Then when the ratio drops to 40 to one we swap back our 80 silver ounces for 2 ounces of gold, doubling our gold holdings.

Understanding the gold/silver ratio makes possible very profitable arbitrage refinements to the strategy.

Timing is important, when the ratio is relatively high, we favor silver in new purchases. When the ratio is relatively low, we favor gold.

Buy the form of silver that offers a possibility of extra profit. When the silver market gets hot, new investors will be buying US 90% silver coin. That sometimes drives up the premium to 30 or 40% above the silver value. At that point you swap 90% coin for one ounce rounds or 100 ounce bars, and convert that premium to extra ounces of silver.

Play the ratio. When the ratio is high, swap gold for silver, when the ratio drops, swap silver back into gold.

There are risks, you don't know if the ratio will go beyond historical norms, and of course there is the possibility that both gold and silver decline in value.

http://www.montanararities.com/prmesw.html
******

As you can see, that article was published when the ratio was 39. Now we are at 33. Something has to change.

I've been doing the monthly plan with them for quite a while. I get $150 worth of silver automatically every month. But at these prices, soon I'm going to only be getting three ounces a month! They have a gold monthly plan so maybe it is time to switch?

Gregg

[Sheepdog]

silver is out pacing gold 3 to 1. I think new purchases should be silver!

[bulloncoins]

How far back in time do you have to go for that ratio?

This is from the Montana Rarities page:

*******

One of the more interesting long term strategies for investing in precious metals is to trade on the gold/silver ratio.

The strategy is to buy silver with gold when silver is cheap, and then reverse the trade, buying gold with silver, when gold becomes cheap in terms of silver. The ratio of silver to gold has ranged between 40 and 110 over the past 20 years, and currently sits around 39:1, below the 40:1 that has marked the end of the range.

So for example you would trade gold for silver when one gold ounce buys 80 silver ounces (the ratio is 80:1). Then when the ratio drops to 40 to one we swap back our 80 silver ounces for 2 ounces of gold, doubling our gold holdings.

Understanding the gold/silver ratio makes possible very profitable arbitrage refinements to the strategy.

Timing is important, when the ratio is relatively high, we favor silver in new purchases. When the ratio is relatively low, we favor gold.

Buy the form of silver that offers a possibility of extra profit. When the silver market gets hot, new investors will be buying US 90% silver coin. That sometimes drives up the premium to 30 or 40% above the silver value. At that point you swap 90% coin for one ounce rounds or 100 ounce bars, and convert that premium to extra ounces of silver.

Play the ratio. When the ratio is high, swap gold for silver, when the ratio drops, swap silver back into gold.

There are risks, you don't know if the ratio will go beyond historical norms, and of course there is the possibility that both gold and silver decline in value.

http://www.montanararities.com/prmesw.html
******

As you can see, that article was published when the ratio was 39. Now we are at 33. Something has to change.

I've been doing the monthly plan with them for quite a while. I get $150 worth of silver automatically every month. But at these prices, soon I'm going to only be getting three ounces a month! They have a gold monthly plan so maybe it is time to switch?

Gregg

Key word here are : "over the past 20 years"...

http://goldsilverrealestate.com/?p=278

[ccjoe]

silver is out pacing gold 3 to 1. I think new purchases should be silver!

I think so too, but how long can ag go like this actually up 60% for the year to gold's 6%.
That's why I bought the copper. Now my wife is always yelling at me that I should have bought another 1700 ozs of silver.
What happens if silver doesn't double next year and copper quintuples to 25 like I think it will?
My wife will get off my back and love me again
Only 4 words matter to long time married people "Happy wife happy life" as unhappy wives make you pay dearly

[tulsamal]

Travis,

That's an interesting graph but they haven't put 2011 on it yet. Just eyeballing it, we haven't seen the ratio this low since the early 70's. Looks like the modern record was 1970 in the low 20's?

At some point, anything that goes up way over 100% in 12 months has to be considered a bubble. I _think_ the ratio is pointing that out.

The other thing I'm trying to remember is that I don't buy gold or silver "to make money." I buy it as a hedge against inflation and as a store of value long term. So if the value of the dollar falls, the dollar value of my gold and silver will go up. It isn't actually worth more, just the dollar is worth less. And I can see the rise in gold over the last year reflecting that. But silver has gotten into speculation mode and far outpaced the decline of the dollar. In order to hold that price over the long term, it will have to be seen as worth that much more intrinsically. Not just because "it's going up fast so I'm going to buy some."

I obviously could be totally wrong. But it feels to me like silver has risen too fast. At least compared to gold. Not saying gold is going to double from here and silver isn't. The market isn't always rational. But I guess I'm saying that the current price of gold feels "safer" to me than the current price of silver.

Gregg

[ccjoe]

Travis,

That's an interesting graph but they haven't put 2011 on it yet. Just eyeballing it, we haven't seen the ratio this low since the early 70's. Looks like the modern record was 1970 in the low 20's?

At some point, anything that goes up way over 100% in 12 months has to be considered a bubble. I _think_ the ratio is pointing that out.

The other thing I'm trying to remember is that I don't buy gold or silver "to make money." I buy it as a hedge against inflation and as a store of value long term. So if the value of the dollar falls, the dollar value of my gold and silver will go up. It isn't actually worth more, just the dollar is worth less. And I can see the rise in gold over the last year reflecting that. But silver has gotten into speculation mode and far outpaced the decline of the dollar. In order to hold that price over the long term, it will have to be seen as worth that much more intrinsically. Not just because "it's going up fast so I'm going to buy some."

I obviously could be totally wrong. But it feels to me like silver has risen too fast. At least compared to gold. Not saying gold is going to double from here and silver isn't. The market isn't always rational. But I guess I'm saying that the current price of gold feels "safer" to me than the current price of silver.

Gregg

It's just that supply/demand dictates that 3 Billion Asians feel safer buying @ 45 than @ 1500. Very few Asians can afford gold.

[Silver Buck]

Travis,

That's an interesting graph but they haven't put 2011 on it yet. Just eyeballing it, we haven't seen the ratio this low since the early 70's. Looks like the modern record was 1970 in the low 20's?

This is why I like to compare to after the US was taken off of the Gold Standard.

This chart goes from '71-'10:



I just found a chart that is current:

[azxcvbnm321]

I don't think it's the Chinese that can't afford gold. Is the regular Joes, like the ones here on this board that have a problem with paying $1490 per oz. for gold so they go for a few ounces of silver instead. There is also a larger premium for gold it seems. I can find Sovereigns for $9.99-$14.99 above spot, but that's more than the $1 or less for an ounce of silver.

The run-up in both gold and silver is frightening to me. I've been trying to save up to buy more gold or silver, but then taxes are due or something happens that sucks away my money. I'm looking to buy a few sovereigns or French Roosters, I believe that both gold and silver are going to go up, but gold is undervalued relative to silver now and it's time to stock up on gold.

[Savage]

Interesting article.


/"]http://http://news.coinupdate.com/is-it-time-to-swap-your-physical-silver-for-gold-0780/[/URL]

[Rusty Shackelford]

Key word here are : "over the past 20 years"...

http://goldsilverrealestate.com/?p=278

From the chart you can practically say 40 to 110 over the last hundred years.

[Irons]

From the chart you can practically say 40 to 110 over the last hundred years.

You are such a buffoon Rusty, real experts know Historical has always been 16/1.~~

EDIT: What number buffoon are you? I never got my buffoon number, or I forgot it.

[ccjoe]

You are such a buffoon Rusty, real experts know Historical has always been 16/1.~~

EDIT: What number buffoon are you? I never got my buffoon number, or I forgot it.

#1and #3 respectively

[~BS]

it means that gold achieved orbit around earth while silver continued on... to da moon!

[ccjoe]

Man-- I just shut the computer off half hour ago to settle in bed to watch the usual Asian Squawk and I see silver go parabolic when I thought we had "settled in" for a cozy night's sleep at 45.20 or so.
Tell me this is not the most exciting financial thing ever? For ME it is as I was on the opposite side of the real estate trade which was the ultimate high for a year or so.
Silver may be the investment of the decade. Damn it as my wife may have been right to put that 50K into another 1700 ozs of ag instead of cu.
Oh well

[ccjoe]

#1and #3 respectively

Thanks for thanking me irons
Even my wife doesn't thank me too often> jk just kiddin

[Irons]

Thanks for thanking me irons
Even my wife doesn't thank me too often> jk just kiddin

You will address me as buffoon #3 from now on. Thank You.

[KGMe]

EDITED: Removing source material that has not been approved by the GIM2 staff as concession to our advertisers.

[ME Co.]

Hey, mind if I just call you B3?

I was thinking 3 Iron but maybe he would get a Wedge if I called him that. HH Mark

[Irons]

Hey, mind if I just call you B3?

Works for me, I'm as flexable as a Siamese w****.

[curmudgeonista]

Hi guys!

Just popped in for more life lessons on how to win friends and influence celebrities.

What do you want to hear first?

1. How much play money I made today?
2. How much silver I have in my high-tech security facility?
3. What idiots I think you are?

[ttazzman]

here is a article from Sprott....predicting single digit ratio's

Expect The Gold To Silver Ratio To Hit Single Digits
Eric Sprott and Andrew Morris

Follow The Money

You know silver's doing well when the commentators start giving it the 'gold' treatment. Silver's recent rise has been so spectacular that it's caught many investors off guard. It's natural to be sceptical when you don't know the fundamentals driving strong performance, and many pundits and commentators have been quick to downplay it as a result - much like they do towards gold when it enjoys a run. Silver is also an awkward metal for them to categorize. Is it a commodity, a monetary metal, or both? And which side is driving demand? If it's industrial demand, that's ok, because that's bullish. But if it's investment demand for silver as 'money', well then that's sort of bearish, isn't it? The fact remains that most commentators have failed to grasp the monetary shifts that silver is signaling today, and in doing so they've failed to appreciate just how high it could actually go.

The financial media's failure to grasp the benefits of precious metals ownership continues to perplex us, and it's not just the commentators who are prone to perpetual disbelief. The sell side analysts are equally as irresolute. According to Bloomberg, the 'expert' consensus silver price forecast for 2011 is $29.50, representing a 31% discount from the current spot price. This same group of analysts also predicts prices will decline another 25% in 2012 and a further 9% in 2013 to $20 an ounce. When you consider that the silver price has appreciated by over 21% annually over the past 10 years, these forecasts suggest a very dramatic change in the long-term trend. Will this reversal come true? Probably not. These were the same analysts who predicted that spot silver prices would average $18.65 this year - so they've missed the mark by over 100% thus far.

We don't mean to bash the silver analyst community, and there are several whom we highly respect, but it is important for silver investors to appreciate that these price forecasts are being plugged into financial models that dictate equity valuations. These models are used by traders, bankers, analysts, and portfolio managers to derive valuations for silver stocks and create asset allocations for portfolios. To anyone questioning current silver equity valuations, we would ask: what price assumptions are you using? Of course we as allocators of capital are thankful for this phenomenon, as it allows us to buy our favourite silver stocks on the cheap, knowing full well that the herd will be following behind in due course as those backward-looking forecasts get ratcheted higher.

How can we be so confident that the price of silver will continue on its upward trajectory? Our thesis is premised on the most rudimentary of economic principles - supply and demand.

One of the key indicators that we've been monitoring is the gold/silver ratio. Much has been written about the ratio of late, and we won't go into great detail on the subject, other than to note that the last time money was synonymous with defined amounts of gold and silver, the ratio was set at 16-to-one. In fact, for most of the past millennium, one ounce of gold would have been convertible to somewhere between 10 and 16 ounces of silver - an amount roughly in line with the relative occurrence of each mineral within the earth's crust.1 For the better part of the past century, due to the world's abandonment of bimetallism and then the gold standard, the gold/silver ratio has fluctuated widely, twice reaching lows near the 15-to-one mark and a high of 100-to-one back in the early 1990's. The most recent high reached in the latter part of 2009 was nearly 80-to-one. Since then the ratio has been tumbling to where it stands now at 35-to-one - which reflects the incredible outperformance of silver over that time period. In our opinion, this ratio will continue to move lower, driven by nothing more than basic supply/demand fundamentals.

The US Mint, which is the world's largest silver and gold coin manufacturer, recently reported that it had sold 13 million ounces of silver coins and 370 thousand ounces of gold coins on a year-to-date basis.2 This means that the US Mint is now selling roughly equal amounts of silver and gold in dollars so far this year. Furthermore, bullion dealers like Sprott Money and GoldMoney have confirmed with us that they are now selling more silver than gold in dollar terms. For additional confirmation of this investment trend, just look at the flows for the two largest gold and silver ETFs. Investors have withdrawn approximately $3 billion from the GLD so far this year while the SLV has seen net inflows of $370 million over the same period. Dollar for dollar, investors are allocating as much if not more money to silver than to gold. And why shouldn't they? Silver is much more of a "precious" metal than the current ratio of 35-to-one would suggest.

To explain, we must first address mine supply. In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold.3 The world also produced an additional 215 million ounces of silver and 53 million ounces of gold from recycled scrap.4 Adding both together brings us 951 million ounces of silver and 139 million ounces of gold supply, for a ratio of nine ounces of silver to one ounce of gold.

Interestingly, this 9-to-one ratio is very similar to the ratio of available in-situ silver and gold reserves. The U.S. Geological Survey estimates that there are current in-situ reserves of approximately 16.4 billion ounces of silver versus 1.6 billion ounces for gold, or about a 10-to-one ratio.5

The case for silver is even more compelling when one considers the ramifications of its dual role as both an investment and industrial metal. Last year, non-investment demand for silver (which includes industrial, photographic, and silverware demand) totaled approximately 610 million ounces.6 This represents approximately 64% of primary supply, leaving approximately 341 million ounces to satisfy investment demand.7 On the gold side, industrial usage totaled 13 million ounces, or about 10% of primary supply, leaving approximately 125 million ounces left over for investment demand.8 So, after netting out the industrial usage the primary supply left over for investment demand is about 2.7 times that for gold. However, if we convert those ounces to dollars at current prices, we're left with $15 billion worth of silver available for investment versus $186 billion worth of gold, or a one-to-13 ratio of silver to gold! This means that in terms of primary supply, silver only has 8% of the capacity for investment that gold does despite having equal if not more dollars flowing into it.

Now, it's true that another potential source of supply is the very silver that investors already own - and at the right silver price these inventories of silver and gold bullion may be sold into the market to supplement any supply shortfalls. As we've noted previously, however, due to decades of underinvestment, the amount of silver bullion inventories are actually extremely small, even compared to those of gold.9 Recent estimates suggest that reported silver bullion inventories stand at roughly 1.2 billion ounces versus 2.2 billion ounces of gold bullion, or roughly a 0.5-to-one ratio.10 To put that amount in perspective, consider that at present there is only $52 billion worth of silver bullion/coins and over $3.3 trillion worth of gold in inventory which could potentially be recirculated into the market. Converting this to a ratio, you get a one-to-63 ratio of silver to gold inventories. So how is silver still priced at 35-to-one?!

All indications lead us to believe that there is now roughly an equal amount of investment flowing into silver and gold on a dollar-for-dollar basis. And although the price ratio of silver to gold has fallen substantially since the highs of 2009, our analysis strongly suggests that this ratio must move lower to restore a fundamental balance between supply and demand. Only time will tell how much lower it will go, but we would not be surprised to see it hit single digits before settling into a more sustainable equilibrium.

What the so-called silver 'experts' neglect to account for in their models and projections is that the fiat money experiment has failed. And in this context, we believe the Market has assigned world reserve currency status to gold - not USD, not EUR, and not JPY. In our opinion, gold's continued appreciation vis-Ã*-vis every currency is assured because the great flight from fiat has only just begun. Like gold, silver also has a long monetary history, and as such, investors are now also buying silver as protection from the ravages of fiat currency debasement. Yet, when compared to gold, it is silver that offers the most attractive value proposition by virtue of the gross mispricing of its scarcity, which, we might add, has existed for many years. Thus, in our opinion, as this new bimetallic standard takes root, silver investors will continue to be justly rewarded with marked outperformance. We truly believe that this is the investment opportunity of a lifetime, and increasingly so, others are taking heed. What is clear to us is that with equal investment dollars now flowing into silver and gold, the current 35-to-one ratio is unsustainable and has only one direction to go: lower.

[Rusty Shackelford]

Don't get banned curm. I really appreciate your presence.