Welcome to illuminati silver, we tell you the truth about silver.
Today is Monday 27th August 2018 and we are very briefly covering the Gold to Silver ratio
and why it is important.
Anyone who has watched a You Tube channel or read an article in the gold and silver
space will undoubtedly have come across the issue of the gold to silver ratio.
Well we shall address what it is, and why to some its important and to others less so.
First, a simple definition: Basically, “the gold-to-silver ratio is the amount of silver
it takes to purchase one ounce of gold.”
I will say it again - “the gold-to-silver ratio is the amount of silver it takes to
purchase one ounce of gold.”
With gold currently standing at $1,205 and silver at $14.82 we divide the silver price
into the gold price and come up with a ratio of 81.3:1 – yes gold is 81.3 times more
expensive than silver or you need 81.3 ounces of silver to be worth the same value as 1
ounce of gold.
So why is it important and to whom is it important?
Well, Investors who trade gold bullion, silver bullion and other precious metals scrutinize
the gold-to-silver ratio as a signal for the right time to buy or sell a particular metal,
and in some cases to sell one and use the proceeds to purchase the other.
So when the GSR is high, purchasing silver is preferred and when it is low then selling
silver and or purchasing gold is preferred.
However there is a dilemma with this strategy; because the gold-to-silver ratio fluctuates
so wildly, it can be difficult for inexperienced, new or small-scale investors to read the signals
and make a profit.
So generally, because of the costs involved much of this selling, buying and swapping
strategies tend to be more confined to the paper markets as opposed to the physical although
having said that we are aware of physical holders doing this, but they have to factor
in the costs and assess whether the transactions are large enough to cover these costs and
to make it worthwhile.
So what is a high ratio and what is a low ratio?
Well lets look at this in an historic context.
Some records date back to the late 1600’s where the ratio vacillated between 14 – 100.
Come the 1900’s however, the ratio remained quite steady at or around 16 to 1.
This was likely because many countries were using gold- and silver-backed currencies.
For instance, France and the United States assigned statutory limits on what the ratio
could be.
In addition, the U.S. Geological Survey estimated that there is just over 17 times more silver
in the Earth’s crust than gold, which could provide another explanation for the pre-1900
gold-to-silver ratio average.
However, throughout the twentieth century and into the 21st Century the gold to silver
ratio has averaged somewhere between 47 – 50:1 Now please note that we say averaged.
For example, on 1st January 1970 when quite precise records were established and made
publicly available, the ratio was just over 18 :1.
On the 1st January 1991 it peaked at just above 102:1 and since then it’s been as
low as 38:1 on 1st April 2011.
But as we say currently stands at 81:1.
What we have noticed, and this isn’t a revolutionary discovery, but currently most investors, certainly
in recent years, are of the opinion, that whenever the ratio hits or rises above 80:1
that is the time to sell gold and buy silver and from a trading aspect that has tended
to pay dividends quite handsomely.
However, there is something we must point out – and please do not be fooled by the
logic, well if it comes out of the ground at 17:1 then the price should eventually revert
to that ratio.
Absolutely poppycock.
For example, a typical apples costs 40 cents, an orange 60 cents and a grapefruit 80 cents
but they don’t come out of the ground or grown in those proportions.
There is also far less platinum in the world than gold, and yet platinum is cheaper.
So, lets eradicate that thinking.
We may be more favourable to that idea if gold and silver were perfect substitutes for
one another and so one would automatically swap one for the other, but that is not the
case.
So, in theory there is nothing to stop the gold to silver ratio becoming 110:1 or 30:1
it all depends on both the speculative and real demand for one compared to the other.
What is fair to say though is that people who follow charts are in themselves pretty
predictable and so when this magical 80 figure is breached, market corrections do occur – but
having said that as any investment adviser will tell you, “the past may not be an accurate
indicator of the future.”
But for those who truly believe this stuff devoutly, then we shall feed you a little
silver porn (pardon the expression) and here it is:
“In the end, in order for the ratio to return to its pre-1900 average, at the current gold
price, the price of silver would need to rise to approximately $75 per ounce.
Likewise, if the ratio were to drop to its long-term average, silver prices would rise
to about $25 per ounce.”
And it is this porn that the porn filmmakers or in other words the pumpers will feed you
until you pick up that phone and purchase more silver.
Now this subject is much more complicated than this and there are various trading algorithms
and patterns which do indicate what one should do or not based on historical data, however
they are not always accurate for if they were then the majority of people who trade would
make money where it is estimated by professionals that less than 10% of traders make money on
a consistent basis.
We shall be discussing this in greater depth within our Inner Sanctum in September.
Meanwhile and broadly speaking, if you believe that historical data is important and does
reflect at least the psychology of traders, then in relative terms at 81:1 silver looks
like a better investment opportunity than gold – we thought you would like to know.
We hope you have found this video interesting and informative and if so, please give it
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Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics.
Having now retired from these worlds we are not qualified to give investment advice.
Therefore, this and other productions must not be deemed to be giving such advice and
merely represent the personal views of its owners.