Welcome to illuminati silver, we tell you the truth about silver.
Today is Monday 5th December 2016 and we are producing this video particularly for those
who are relatively new to gold and silver investing or stacking.
We are addressing what is meant by the Gold to Silver Ratio, how it has performed and
why it can be important.
Basically, the gold-to-silver ratio is the amount of silver it takes to purchase one
ounce of gold.
At present, the gold-to-silver ratio stands at 70 to 1.
This means, at the current price, it would take 70 ounces of silver to buy 1 ounce of
gold.
Investors who trade gold bullion, silver bullion and other precious metals examine the gold-to-silver
ratio as a signal for the right time to buy or sell or exchange one for the other.
When the ratio is high, the general consensus is that silver is favoured.
This is because; relative to the ratio, silver is somewhat cheap.
Conversely, a low ratio tends to favour gold and may prove to be a signal that it’s a
good time to buy it.
Many large-scale, experienced investors may trade their silver for gold as the ratio drops
and vice versa.
This enables them to diversify their precious metal holdings and take advantage of favourable
trends and prices.
Whilst this sounds easy to do, we caution novice or small-scale investors to beware
as the ratio can and has fluctuated quite widely.
For example, accurate records date back to 1687 and since then the ratio has vacillated
between roughly 14 and 100.
Should you get it wrong you may find yourself holding onto one particular metal for far
longer than you ever anticipated.
Indeed, prior to 1900, the gold-to-silver ratio hovered around 16.
This was likely because many countries were using gold- and silver-backed currencies.
For instance, France and the United States (among others) assigned statutory limits on
what the ratio could be.
In addition, the U.S. Geological Survey has 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, the ratio has averaged between 47-50 with
considerable highs and lows in between.
We have noticed more recently that at 80:1 silver is generally regarded as cheap compared
to gold and at 50:1 gold appears to offer better value.
So here is a hypothetical for you: Assume you have a choice to either purchase
1 oz of gold at $1100 or silver at $20 an oz
You check the GSR and notice it is 55:1 – quite low compared to recent trends.
So silver is deemed a little expensive but you prefer silver so what do you do?
Well you purchase the 1 oz of gold and hope the GSR widens.
Low and behold 4 months later gold has risen to $1500 and silver has risen to just $21.
The GSR now stands at 71 so you sell your gold and purchase the silver or exchange them
if you can.
You are now in receipt of 71oz of silver as opposed to the 55 you would have received
had you purchased the silver originally.
Now this is a simplistic example and doesn’t fully take into account the costs of buying
and selling or premiums.
But this is the principle which many large investors consider, and when the GSR falls
again, they then exchange that silver back into gold.
Whilst the GSR offers a guide, there are many other factors which could determine whether
you should swap one for the other e.g. taxation issues such as Capital Gains Tax or Value
Added Taxes, ease of convertibility, and premiums charged or obtained.
As you can see from our chart, assuming gold is trading at $1250 with a ratio around 50:1
the average for the 20th century, then silver would trade at $25.
So when you hear pumpers telling you that silver will rise to $50 any day soon, then
bear in mind that the ratio would have to fall from the current 70:1 to 50:1 and the
gold price rise to $2500 more than double its current price.
Is it possible?
Yes indeed, however the highest price gold has ever been in US dollar terms has been
approximately $1900 so a number of challenges have to be met before that elusive $50 silver
is reached.
We hope this explanation is helpful and should you have any questions then by all means place
them beneath this video.
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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.