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Gold / Silver Ratio


Pete

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I am having great difficulty interpreting the chart below and understanding why silver appears so cheap with a ratio of about 80 now.
If indeed silver has been manipulated down by bank mafia then we stackers should be piling in as a reversal is long overdue.
Maybe a fellow stacker with a knowledge of statistics can add some 'hard to pronounce' trend line and forecast the future ratio say in 5 years from now ?
Whilst doing that what will be the winning lottery numbers on Saturday ? :D

5a85c606ae9ed_ScreenShot2018-02-15at17_35_06.png.5316364eec71e57d444ce40e3aca85c7.png

 

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the rumour is the recent mean for the ratio is about 56. so

theoretically it should get back to and overshoot that point.

same deal as always with silver. it should..., but waiting for

it to do so could be up to the best part of a 40 year wait.

from the chart the ratio rose and stayed above 80 for what

looks like 2 years. so it can correct but takes time to do so.

imo there is a possible long term rising trend. maybe similar

to what the gold/copper ratio has done before it.

 

HH

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Nothing new to see here, really.. the long term average is about 63-64. Obviously there are times when it moves much higher and times when it moves much lower, but I consider this to be fair value. 

Right now at 80 GSR, favouring silver is a no-brainer, but being contrarian and buying what is cheap is remarkably rare even amongst stackers, and many who preferred stacking gold see the current GSR as a reason to stick to gold rather than stacking what is cheap.

 

Do not fret. Once this bull market gets moving, silver is going to catch up and then some. Remember back between 2001-2004 silver lagged gold badly but then revalued much higher. Same will happen this time.

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Always cast your vote - Spoil your ballot slip. Put 'Spoilt Ballot - I do not consent.' These votes are counted. If you do not do this you are consenting to the tyranny. None of them are fit for purpose. 
A tyranny relies on propaganda and force. Once the propaganda fails all that's left is force.

COVID-19 is a cover story for the collapsing economy. Green Energy isn't Green and it isn't Renewable.

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I tend not to swap metals as the transaction costs largely negate the gains.

 

GSRs like this though sway my decision over any new purchases: over 70 or so and I'd only buy silver, under 60 and I'd really favour gold.

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For myself, I doubt whether the GSR has any predictive value. Silver tends to correlate with gold, but is more volatile. So, when both go up, silver goes up more and the GSR goes down; when both go down, silver goes down more and the GSR goes up. Notice how the bottoms in the graph are in 1980 and 2011 - when both metals were peaking. But the GSR is not predictive: it is just telling you how prices stand at present. There is no fundamental reason why the GSR cannot rise and keep rising above previous highs. Gold and silver are not fully substitutable and they have different supply and demand characteristics, so there is no fundamental or causal reason why they should trade in a particular ratio.

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16 minutes ago, Bumble said:

For myself, I doubt whether the GSR has any predictive value. Silver tends to correlate with gold, but is more volatile. So, when both go up, silver goes up more and the GSR goes down; when both go down, silver goes down more and the GSR goes up. Notice how the bottoms in the graph are in 1980 and 2011 - when both metals were peaking. But the GSR is not predictive: it is just telling you how prices stand at present. There is no fundamental reason why the GSR cannot rise and keep rising above previous highs. Gold and silver are not fully substitutable and they have different supply and demand characteristics, so there is no fundamental or causal reason why they should trade in a particular ratio.

The ratio is currently over 80. On a probability basis the chance of it falling is very high . If you go long silver and short gold you will win irrespective of whether the metals go up or down b/c you are trading the ratio.

 

uploads_1502209345807-1.png

343576-1331259699560203-Plan-B-Economics_origin.jpg

Always cast your vote - Spoil your ballot slip. Put 'Spoilt Ballot - I do not consent.' These votes are counted. If you do not do this you are consenting to the tyranny. None of them are fit for purpose. 
A tyranny relies on propaganda and force. Once the propaganda fails all that's left is force.

COVID-19 is a cover story for the collapsing economy. Green Energy isn't Green and it isn't Renewable.

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1 hour ago, sixgun said:

If you go long silver and short gold you will win irrespective of whether the metals go up or down b/c you are trading the ratio.

 

in 2017 that trade would have lost you money because gold

rose while silver stayed broadly flat. fundamentals can work,

but they take time to play out.

 

HH

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14 minutes ago, HawkHybrid said:

 

in 2017 that trade would have lost you money because gold rose while silver stayed broadly flat. fundamentals can work, but they take time to play out.

HH

As with many trades patience is often rewarded. The ratio at over 80 is high. On a probability basis the ratio will fall. The upside movement is statistically limited. The downside movement could be 10% and still the ratio is high.

The probabilities favour you backing a down move in the ratio but it could still go down if metal prices fall if gold falls further than silver. As long as the ratio falls you will win irrespective of which direction metals move.

You could for example sell 10 GLD shares (which you don't have) and so end up -10 shares. This is equivalent to 1oz of gold. At the same time you could buy 80 SLV shares which is about 80 oz silver.

If metals move up you will lose on the GLD position but win on the SLV and assuming the GSR moves lower as we expect you will make more on silver than you lose on gold.

If metals move down you will win on GLD and lose on SLV but if the ratio moves lower as we expect you will make more of the GLD short than you will lose on the SLV long.

You could do the same in the futures or options markets but both are much bigger positions even with mini contracts and they are all time limited. You need to be able to go short gold which may not be possible in everyone's trading account if you have one. If you can master the trade i think this is a high probability trade for taking 10% profit.

Always cast your vote - Spoil your ballot slip. Put 'Spoilt Ballot - I do not consent.' These votes are counted. If you do not do this you are consenting to the tyranny. None of them are fit for purpose. 
A tyranny relies on propaganda and force. Once the propaganda fails all that's left is force.

COVID-19 is a cover story for the collapsing economy. Green Energy isn't Green and it isn't Renewable.

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the first majestic gsr chart is not complete. currently the ratio

is about 81 meaning if you took the gsr trade in 2016 when it

was 80+ and held for 2 years until now, you would have made

nothing on price movement. I'm not saying that silver is not the

preferred metal when the gsr is above 80. the charts are

skewed with the use of hindsight to make it look better than it

is. I'm more open to the idea that the ratio can get bigger, and

can take a year of more to do it. coming back so soon to 80+

means we are in uncharted waters and I'm leaning more

towards a watch and see approach.

 

HH

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Taking a pairs trade long silver/short gold will not win irrespective of where the prices go. I can think of several scenarios under which it would lose. The worst is probably the Jim Rickards scenario of an overnight revaluation of gold in order to back a new currency. This might take gold to $10,000 per Toz while making little difference to silver. Silver is primarily an industrial metal and is not guaranteed to follow gold around if there is a large move.

More generally, speaking of probabilities of price moves is naive. Probabilities can only be assessed relative to some model. The price of a commodity is not the result of some roll of a dice, but of a combination of factors including current supply and demand, future expectations of supply and demand, economic growth, inflation, interest rates, geopolitical events and investor sentiment. The complexity of the interplay of these factors is such that we can have little confidence that just because they have aligned in the past to stop the GSR rising above 80, they will continue to do so. Especially when we have only three data points and no ability to intervene in order to perform controlled experiments.

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Its not horses for courses though guys, the fix/spot buy sell spread on on gold is narrow and silver wide. In the UK we can buy gold for 3% above spot and sell it for 2% below easy, Silver its different its buy is around 20-23% above spot and its sell is not scrap at 89% HGM but spot price at some dealers and maybe a bit more. Please do not think i am being mean towards silver, i know i could get more if i was to sell privately but one has to think if i was going to play the ratio game and stack i would want to push my silver in when the time was right and the amount would be substantial.  I do stack silver not as much as i used to, i stack gov mint bullion mostly UK though i will buy other gov mint bullion if cheap.     

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We came close in Feb 2016 when the GSR was 83.66, but my model did not generate an extreme reading in the GSR, which I think we may still get at some point. Back then it would have needed to hit 86.94. The current reading is 87.26.

This is the price that is 2.3 standard deviations away from the 71 month simple moving average.

If and when the GSR hits this ratio then my model tells me to sell all my gold and swap it for silver. The last time this signal was triggered was Oct-08. 

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From looking at history the gsr in context of other markets over a similar time frame, say the last 50 years, signals when both metals are cheap relative to other assets and when they are expensive relative to other assets. In other words when the price is near the top and bottom. You don't get to that conclusion looking at the gsr on its own, but when looking at other markets including metal prices you see that the gsr is a massive buy and sell signal for precious metals as a group and not just a tool to use to accumulate more of one metal or another, though obviously it can be used as such if your mission is to just own lots of metal regardless of its relative value. It's better used as a buy metals when gsr is high, and sell when it is low, the peaks and troughs do indicate quite well the historic tops and bottoms of gold and silver prices, not perfect but it gives you a good idea. 

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about 10 times as much physical silver is mined each year versus

gold. the recent decades average is 30-60 gsr depending on how

far back you go(the trend is rising). imo this is a better figure for the

practical ratio within the markets we currently have. amount mined

does not directly equate to price ratios. it's a buyers driven market

and prices reflect what buyers are prepared to pay.

 

HH

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