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 a thumbs up and share it on twitter. Please
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updates and offers. 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.