Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Trading the Ratios and Swapping Gold for Silver

Commodities / Gold and Silver 2014 Jun 27, 2014 - 11:44 AM GMT

By: Dr_Jeff_Lewis

Commodities

Primary gold investors versus silver investors are not exactly alike.

Swapping gold for silver is a trade always worth considering, especially when the ratio blows out as wide as it is now. Portability is one obvious reason for the reverse, as long as premiums match up in the transaction. But the main advantage to this kind of swap is that silver almost always tends to cover more ground percentage-wiser and faster when it is allowed to move in a significant way.


When the price ratio of gold to silver extends out into its higher ranges, the relationship tends to be called into question. But even when the ratio approaches 30:1, or even closer to its historic ratios, the relationship should always be at the forefront of investor’s minds. However, it's not as always as simple as the paper price ratio. 

A more interesting ratio is the relative buying measured primarily by U.S. mint data. Silver retail coin demand has been much stronger relative to gold, though obviously the overall dollar amounts pale in comparison. 

Within the silver demand lie important ratios. We have seen a steady increase in jewelry demand (much larger than coin) relative to industrial demand, which could have the effect of pushing the market back toward shortage very quickly. 

Nevertheless, one needs to consider the following as a review:

Rarity

Although it is not revealed by the price, investment-grade physical silver is actually as rare as gold; thanks to the amount that is melted, smelted, and mixed each year for a variety of consumer applications. And that is, of course, due the sheer size of the paper derivatives that mask the true value. 

Supply is under constant constraint by decades of artificially low prices that have made primary silver mining the most risky of ventures. Most silver is mined as a byproduct of base metals and gold production. 

Volatility

Due to the fact that most silver produced each year finds its way to a factory, the amount of silver that arrives on the retail market is only a small percentage of the total actually produced.

With such small amounts of the metal circulating, plus a massively managed and colluded price determining mechanism, silver is prone to volatile swings that occur with even the smallest shift in demand.  In fact, the majority of the volatility can be blamed on the battle between speculators and bullion banks at the COMEX. 

Although the volatility is short-lived, silver can move twice as much as gold in a single day, and the shiny metal is most likely to explode in price with any institutional activity.

The "Affordable" Gold

As gold heads back toward $2000 per ounce, investors will very likely experience sticker shock.  Silver, on the other hand, is still affordable. It is cheap by practically any measure, and the cheapest of all assets in terms of inflation adjusted value. An investor can take delivery of more than 60 ounces of silver before owning even one ounce of gold.

Although retail investors can buy grams and half ounces of gold, the practicality of the purchase comes into question.  Single grams or fractional gold is generally expensive, often costing as much as 15-20% over spot.  In contrast, silver ounces, which cost less than gold grams, often trade with a much lower premium.

Fractional gold or even junk silver may not even be the best to use as temporary currency - especially in a crisis. 

This is why it almost laughable to read the impression of many traders - even those who are close to the sector - who assume gold and silver in investors are always “all in” and/or have a very narrow idea of how the metals could work in a hyperinflation or currency crisis. 

The fact is, the majority of physical al silver and gold investors in daring to consider the worst have realized a much more complicated and sophisticated approach to predation. 

Room to Run

Today's silver price is significantly below the historical 1980 high in silver prices and well behind the historical gold to silver ratio.  Silver has a 200% increase in price before it reaches a new high, and this is before calculating real inflation. Gold is a bit further along, though still comparatively undervalued. 

Adjusting for inflation, silver could run as high as $160-270 per ounce before striking a new high in real dollar terms.  Although both precious metals show excellent investment opportunities, silver is certainly best positioned for double-digit growth.

Trading gold for silver or vice versa makes some sense as long as the ratios are extended out to extreme ranges and that the products match up relatively speaking in terms of premium. 

The truly interesting ratios lie below the surface. They can be found in the relative buying patterns, the movement of physical metal in and out of the COMEX and the relative size of the derivative positions held net short by the largest (bullion) banks. 

The Investment of a Lifetime

Silver is rare, inexpensive, and a protection against inflation. It is poised for one of the best bull runs in history.  Yet unlike an actual “bull run”, the move in silver will be a readjustment to reality after years of fantasy pricing. 

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2014 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules