What is the Gold to Silver Ratio and why is it important?

What is the Gold to Silver Ratio and why is it important?


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. We hope you have found this video interesting
and informative and if so, please give it a thumb up and share it on twitter. Also kindly
visit our website at illuminatisilver.com and if you haven’t already done so please
subscribe as a free member for regular email updates and offers. Our Facebook page which
is updated daily can be found at facebook.com/illuminatisilver 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.

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