Playing the ratios - Kitco Pool accounts

[Awoke]

OK, Before any of you start in on me for holding a pool account:

I hold 95% of my PMs as physical. I own metal.

So I had an extra bit of cash, just enough for about 20 ounces of paper pool silver, last year.

I bought into the Kitco pool account, and I have been largely ignoring the account. I intended to sell at 18 and buy back in at 16, etc, but I missed most opportunities and in the mean time, so I have only brought the pool account from the initial 20oz of silver, up to 21.5oz.
Yay! A free oz and a half.

So then, first time I bought into the account, and bought in at just under 16. Today I sold 10oz of silver at 18 even, and I'm sitting on $180 of fiat for purchasing, and 11.5 oz of silver still in the pool account. So I'm positioned to sell or buy, depending on what silver does.

Long story. Bottom line is this.
I got thinking that I am severely limiting myself by only trading with the Gold and Silver accounts. I see that although they do sometime break apart periodically, most of the time Gold and Silver remain coupled and rise and fall almost in unison.
It is difficult to catch those windows when Silver spikes and Gold drops (or vice-versa) in order to make the swap.

The same can not be said for Platinum and Palladium, when compared to Gold and Silver, based on what I have seen in the past week. (I have only been looking at the 2 P's for the last 3 days. They never crossed my mind before then)

I was wondering if there was a way to program an Excel Graph, where I could put in the prices manually, and chart the ratios between the metals, in order to get a visual feel for the ever changing ratios between all the metals. Maybe such a program already exists? I don't know. I am not into trading at all.

Anyways, I'm ready to brainstorm, or leech information from any seasoned traders. Anyone want to offer any hints?

[Awoke]

I figure if I can successfully trade this pool account to a point where I have either doubled my money or Pool Ounce holdings, I will be able to convince my wife to let me use some of our savings and work with bigger numbers some day.

Input would be appreciated.

[jedemdasseine]

If you're going to use the Kitco pool account as a trading vehicle, then I suggest platinum, palladium, and if you're a daredevil, rhodium. The PGMs have wild runs, much more than gold and silver. Just as gold is sensitive to the US dollar, platinum is sensitive to just about everything, especially perceived industrial demand. Watch the Baltic Dry Index, for instance. Notice that right now platinum is down only $2, whereas gold is down over $10. Dollar index is up right now, so gold is down. Platinum might as well be flat. Watch Asia, and the price differentials between the different markets, such as Hong Kong versus New York. There's some great information on the web about trading the time zones in gold, and the same information could be applied to platinum. Bottom line, 90% of dips are when New York or London are open. Platinum used to really lead all other metals in terms of forecasting price inflation, but recent volume and perceived volume increases in the platinum market have tamed it somewhat. Palladium is the loose canon that everyone is still trying to figure out. In really tough times of either strong deflation or hyperinflation (but not inflation!), platinum does not perform as well as gold. Platinum can sail the rough sees better than gold, but cannot hold up as well in a hurricane. The key to understanding platinum is its incredible scarcity. Go to APMEX and enter 999999 or some large quantity in the buy box to see how many they have left in stock. Try lots of different items. Do it for gold, then do the same for platinum. It's ridiculous how little platinum they have compared to gold. It's always been like that. Even Tulving sells out sometimes. But not with gold. The platinum shortage has already begun, but if times get really tough, I don't think it will hold up as well as gold, probably reach about parity. Platinum needs at least some economic activity to continue its ever-upwards trend, but if we have a repeat of '08, good luck.

I know I didn't give you any trading tips per se, but that's not what I do.

I do hope I gave you some things to think about.

[Awoke]

What a great post! Thanks Jedem!

A couple questions:
What does PGM's stand for?
What happened in '08 that you referenced? (And which metal? Platinum, Palladium, Gold or silver?)

Remember that I wasn't paying attention to the P-metals, just silver and gold in '08.

Also, you said:


Platinum used to really lead all other metals in terms of forecasting price inflation, but recent volume and perceived volume increases in the platinum market have tamed it somewhat.


....platinum does not perform as well as gold. Platinum can sail the rough sees better than gold, but cannot hold up as well in a hurricane. The key to understanding platinum is its incredible scarcity.


So what you're saying is that Platinum is a somewhat scarce metal, but there was either an increase or a perceived increase in supply that caused the volatility to smooth out somewhat?

See, a stumbling block for me:
I understand Gold and Silver, and have been paying attention to the numbers for a few years.

To me, Silver is cheap at $15, Expensive at $22, but could at anytime shoot up to >$50 or higher if manipulation was stopped.

To me, Gold is cheap at $1100, Expensive at $1250, but could at anytime shoot up to >$5000 or higher if manipulation was stopped.

I don't have a margin or envelope like that to refer to with the other metals, because I haven't been following them for a long time. I don't know what is a good Buy-in price, or a good sell-off price for trading.

I'm not asking you to provide me with those numbers, because that is no-one's responsibility but mine to determine that. However, I appreciate your insight and anyone elses that have experience with the history of the P-metals, so feel free to post more on the subject!

Thanks again!

[Luis337]

Hi Awoke,

PGM's is short for Platinum Group metals. The metals that form this group are platinum, palladium, rhodium, rhuthenium, osmium, and iridium.

I think perhaps Jedem meant the huge dip platinum took in 08, which at one time was matching gold's price.

It's a very important metal. If you want to have a war, you need platinum to have large explosions. Palladium is likely
to be used in larger quantities in catalytic converters alongside platinum. Right now there is more platinum in a catalytic converter than there is palladium. It is probable that palladium will be used as the main catalyst and smaller amounts of platinum supporting it will follow.

[Awoke]

Thank you very mcuh for the input. I love the learning process that comes from this community.

Definiately a good reason to keep my options open regarding PGMs.

[Luis337]

BTW Awoke,

seeing as how you have a kitco pool account,

you may want to consider rhodium as a pool investment. This is the only way I know of at the moment of investing in rhodium. Perhaps now is not the best time to buy, as it is a bit expensive. But, if you're looking for huge gains this metal has been known to sit around $200 and soar to $10,000. If you ever see it around $1,000 or less it is pretty much a buy it and forget it kind of investment. Just don't forget to sell it if the price jumps! It's very volative in price so you really have to keep an eye on it. Definitely something to consider but not to bet the whole farm on.

[jedemdasseine]

Platinum is a war metal....
makes for good fundamentals.

Speaking of which, don't get too obsessed with technical analysis over fundamental analysis.

There's an art to TA, like quality candlestick charts that can make one good money, but understanding the fundamentals should be one's top priority. The TA traders rarely last.

[Saul Mine]

The advantage of a pool account is that the costs of trading are quite low. The disadvantage is that you never own anything of actual value, only a ledger entry. A further disadvantage is that all transactions are recorded in USD so customers are highly predisposed to think only in USD. If you can make the break and stop thinking in USD you can make much better profits.

Suppose you bought gold with silver, and bought silver with gold. You would no longer care what the price is in USD. Since very few people do this you can make large profits as the gold/silver ratio swings. That ratio swings from 50 or so to 70 or 80 or so every year or so. If the ratio is 70 that means you can have 70 ounces of silver or one ounce of gold for the same price. So you buy the silver. When the ratio goes to 50 you sell your silver and buy 1.4 ounces of gold. You have just bought gold at a 40% discount. When the ratio goes back to 70 you sell the gold and buy 98 ounces of silver, a profit of 28 ounces.

The value of junk silver also swings above and below the spot price, so you can make a buck on that ratio the same way. And of course you can do the same thing with any metal. That helps to relieve the one disadvantage of this method: it is very boring. You buy metal and you might wait two years or more for the ratio to swing in your favor. But if you are prepared to swap for any of the precious metals that gives you several more ratios to watch and potentially several swaps per year instead of one.

In March 2008 I sold 320 ounces of silver and bought 8 ounces of gold. Gold was $1030 then. Eight months later in October I sold the gold and bought 570 ounces of silver. Gold was $830 then. I made a 78% profit in eight months by buying gold at $1030 and selling at $830, at a time when everybody else was whining about falling prices. But I haven't had another trade since then because I don't deal in other metals. It's too hard to find a market for physical, and the premiums are too high. But I have absolute safety: I am always 100% invested in physical metals insured by Smith and Wesson.

[Awoke]

Wow! Hey, thanks guys. This is the kind of discussion that I was hoping for!

Luis, thanks for the tip on the $1000 rodium dip margin. I will keep an eye on it.

Saul, that is amazing. That is what I am hoping to learn how to do. I just need to learn how, when and where to make the jump.
Also, note that Kitco pool accounts can be traded in USD, CAD, EUD or Pounds Sterling now.

Jedem, I don't know the first thing about TA or FA. I don't know anything about any type of analysis. All I know is that there must be a way to bouce between these metals and increase my holdings.

[bootstrap]

Awoke,

I am been thinking about using the Kitco Pool accounts too profit off the ratios. I am starting to build a spreadsheet data set and graphs to track the various ratios.

[bootstrap]

Looking at just 2010 data... There is a lot of violtality in the gold to silver ratio. Other ratios are less variable and seem more consistent.

[Awoke]

Well hey, Bootstrap, if you get an excel charting program made up, and you're willing to share, I would love to have a copy. I would have known how to do it 10 years ago, but now days I forget how to use that program.

(I assumed Excel because you said "spreadsheet data".

[bootstrap]

Awoke, shoot me a PM and I can share my Excel file with you.