Need a little gold/silver advice from fellow GSUS'ers

[Katmandu]

Hey GSUS friends,
I am looking for a little advice here.

Let's suppose that you have a friend whose PMs consist of 67% in silver and 33% in gold. Let's also suppose that friend bought the silver in the mid/upper-30's/oz.

Now that silver is in the 20's and the G:S ratio is approaching 60:1, that friend is considering taking their 33% in gold and trading it for silver, and then after silver corrects back upward and the G:S ratio drops back near 40:1 or 30:1, converting the silver back into gold.

Would I, I mean that friend, be making a stupid move by rolling the dice on this? Don't know if this matters or not, but PMs represent nearly all of that friend's net worth.

Thanks.

[solid]

Well, it's important to not focus on what price you paid initially, focus on ounces. It's easy to think that the price paid for was higher before, so the person logically should try and dollar cost that down by selling gold for silver.

Ounces is ounces, forget the dollar price. The dollar price only matters when you decide to buy, or sell. Personally, I don't sell pm's to buy other pm's (ie play the ratio with physical). I buy and hold. The current price, I do factor though. Right now, that price seems to favor silver.

Now seems like a great time to buy, imo. It could go down further, but I just couldn't wait personally. I've got a couple of gold sov's and a couple of 10 oz silver bars on the way.

[madfranks]

Playing the ratios can work out great if you play it right. I've never been interested enough to play the ratios, but for others here who do, it seems to work well.

[Book]

...PMs represent nearly all of that friend's net worth.



http://1.bp.blogspot.com/-lLJvFFd-zQQ/TleovNwGkpI/AAAAAAAAJWs/x4GUdsKOFNQ/s400/food-storage-shelves1.jpg

http://www.nelson-world.com/pentagonsafescom/images/DSC_0944_interior.jpg

You, I mean your friend, also has all his Preps topped off...right?

:)

[Katmandu]

;)

You, I mean your friend, also has all his Preps topped off...right?

Sho' 'nuff, including a leaky boat. ;)

[Katmandu]

The dollar price only matters when you decide to buy, or sell. Personally, I don't sell pm's to buy other pm's (ie play the ratio with physical). I buy and hold.

Although I will continue stacking for the rest of my life, I will need to sell eventually, as the majority of the PMs represent my not-too-distant-future bug-out-property/retirement-property/final-residence. So I need to make judicious actions with the PMs over the next few years, as I would love to be mortgage-free when that property purchase happens. Right now the PMs don't yet cover the purchase price for the type of property that I am looking at.

[LuckyStrike]

To me silver has the highest upside potential and gold is the safer and less volatile of the two. So I think a lot of it depends on your risk appetite, and your time horizon for ownership.

Why not just hold on to the gold for safety and buy this silver dip for more of a speculative move?

[Katmandu]

To me silver has the highest upside potential and gold is the safer and less volatile of the two. So I think a lot of it depends on your risk appetite, and your time horizon for ownership.

Why not just hold on to the gold for safety and buy this silver dip for more of a speculative move?

The time horizon is flexible and is anywhere from 2-6 years out, and I am open to some risk. I guess I am asking myself the question, with silver testing the mid 20's right now, what is the risk that it will stay down in the 20's/low 30's while gold continues its slow but steady climb up towards 2000?

I would be buying more silver right now instead of considering trading gold for silver, but don't have much dry powder right now.

[Sparky]

What is the transaction cost of converting to silver, and then back to gold?

What if 6 months from now the government puts restrictions or taxes or bans on all industrial metals which cripples the price, and the new long-term ratio artificially ends up at 100:1? What if you have to leave your property in a rush and can only carry a two pockets full of metal?

If I had to guess, I'd say silver has more upside potential in the long run. Yes, you'd probably win the gamble, but the cost of a black swan loss is a little unnerving, particularly when we hold physical for security reasons. I like your current 2:1 position. If you feel itching to do it, just double your ratio to 4:1, but don't go all in. Just my opinion.

[Shami-Amourae]

I personally do 50:50, but what do I know? I'm only in my mid-20s and self taught at all of this stuff from several years of in depth research. I'm more of a Silver person, but I think the safest move you can do is 50:50 dollar average into both metals. Platinum (if you can find it) and Palladium can't hurt too much too, but keep in mind they are NOT monetary metals. You'll never have to worry about Palladium being banned, since no one knows what the Hell it is. Many people think Platinum is cheap now, but some argue that it doesn't matter since Gold will shine the most since it's the top monetary metal.

Also consider that metals will become more recognized for their monetary value than industrial if the prices skyrocket like we all hope. If you're hoping to make money in metals since of the financial collapse, then Gold is probably the place, but you should be in Silver since you understand the concept of Peak Silver, and how there is so little of it left, so it will force the price to skyrocket. The Peak Silver scenario will probably play out in 10-20 years in my opinion. What I'm trying to say is I feel Gold will outperform Silver in the shorter term, but Silver will be the better investment at the end of the day when the industrial use of it dries up the supplies, just be prepared to wait around for a while.

Lastly I'd like to say I am at a point where I don't know if I want to keep buying Silver since I have TOO MUCH of it. If something happens, and I have to run out the door, I can only take as much with me as I can carry. I can easily stuff all my Gold in my pockets, but I can't lift/carry all my Silver. Keep that in mind too.

[mamboni]

It's too bad Saulmine deosn't post anymore. He was a serious ratio trader and claimed to be profitable at it. If you plot the Gold silver ratio over the last 10 years, then draw 2 SD lines on either side of the mean, you trade gold into silver when the ratio is very high and the opposite for low. The trick is to be patient and disciplined because you can't time it and the ratio can hang for months in a tight range.

That said, I don't like this "trade the ratio" strategy at this particular time. I think we are heading into a severe economic and monetary crisis within a year. Now is not the time to try to make a marginal profit waiting for the ratio to rotate. Now is the time to stockpile food, water, home protection, and physical gold, silver and cash. I think it's hunker down time, not trade for profit time. It's time to secure what you have and prepare for the coming "winter of discontent."

Just one man's opinion.

[TomD]

If you plot the Gold silver ratio over the last 10 years, then draw 2 SD lines on either side of the mean, you trade gold into silver when the ratio is very high and the opposite for low.



Would you happen to remember what the mean ratio and standard deviation is? Just off the cuff, I'd guess the mean over the past 10 years has been close to 50:1 but it would take an hour or two of research to peg it and find the SD. Actually, that might be worthwhile, all the data is available on the Kitco historical charts.

[mamboni]

Would you happen to remember what the mean ratio and standard deviation is? Just off the cuff, I'd guess the mean over the past 10 years has been close to 50:1 but it would take an hour or two of research to peg it and find the SD. Actually, that might be worthwhile, all the data is available on the Kitco historical charts.

Yeah, I don't know but sure as shit somebody has done the plot and calculation already.

Check this guy out - hard core!!!
http://peterlbrandt.com/goldsilver-ratio-on-its-way-to-50-to-1/

1979

[Katmandu]

Thanks everyone for the comments. I have decided to hold off on doing a G/S trade for now.

[TomD]

It only took an hour but I went through Kitco historical and picked up gold and silver closing data for 10 years, 3 points a year: the trading price on the last trading day of April, August, December for the years 2002 through 2011 inclusive. I used the data to create two numbers: the mean Gold:Silver ratio and the standard deviation of the data set.

For anyone not familiar with statistics, the mean is a better indicator than average. It is the number at which 1/2 the data are (the word "data" is plural) above and 1/2 below. If you use average, a skewed number (outliers) or two will distort the picture.

Any rate, from 2002 to 2011 the mean Gold:Silver was 62.8:1 and the standard deviation was 10.7. So, to use Saulmine's example of when to move from gold to silver or vice versa, when the ratio is 41.4:1 (or less) trade silver to gold and when the ratio is 84.2:1 or greater, trade to silver.

Tell you the truth, the low limit sounds close to right but the upper sounds too high. Totally unscientific but the numbers of -2 SD's and +1 SD from the mean sounds a lot better to me.



Anyone wants the data, let me know.

[TomD]

Thanks everyone for the comments. I have decided to hold off on doing a G/S trade for now.

Based on the 10 year "average" gold:silver ratio of 63:1, it would be a horrible move to trade into silver at a 56:1 ratio even before transaction costs are factored in.

[1970 silver art]

Hey GSUS friends,
I am looking for a little advice here.

Let's suppose that you have a friend whose PMs consist of 67% in silver and 33% in gold. Let's also suppose that friend bought the silver in the mid/upper-30's/oz.

Now that silver is in the 20's and the G:S ratio is approaching 60:1, that friend is considering taking their 33% in gold and trading it for silver, and then after silver corrects back upward and the G:S ratio drops back near 40:1 or 30:1, converting the silver back into gold.

Would I, I mean that friend, be making a stupid move by rolling the dice on this? Don't know if this matters or not, but PMs represent nearly all of that friend's net worth.

Thanks.


I did not read all of the responses on this thread so I might be repeating what was already said but I would say DO NOT swap in and out of metals based on the G/S ratio and concentrate your FRNs on adding to the metal where the G/S ratio is currently favorable. For example if the G/S favors silver, then you should concentrate your future FRNs to buying more silver. Down the road, if the G/S ratio favors gold, then you should concentrate those future FRNs to buying more gold

Your friend would also have to factor in the transaction costs (premium on the buy side and a discount on the sell side) that you would incur to constantly swap in and out each time the G/S ratio favors another metal.

[gunDriller]

Based on the 10 year "average" gold:silver ratio of 63:1, it would be a horrible move to trade into silver at a 56:1 ratio even before transaction costs are factored in.

nope, got to disagree.

among other things, silver is something you can use to buy gold. so if you can buy silver for $30 an ounce delivered, you're getting 33 ounces for $990 - call it $1000.

if you are patient and have enough fiat income to 'pay the bills' so you won't need to touch the silver before it's day comes, you are buying something that can be traded for 1.1 ounces of gold - for $1000.

that's for a GSR of 30. we saw that in April 2011. among all the PM forecasters, that is the most conservative GSR - most of them are 25:1 or tighter, and they have good reasons (tight physical supply).


Also, there is a wild card which plays hugely to Silver's favor. That is the moment in time when central banks begin to accumulate Silver as well as Gold. China is already doing this, though they don't talk much about it. Maybe their gold is at the 'bank' and the silver is in an 'industrial warehouse' - though both with tight security.

we are not alone in having insight into the value of silver.

as far as the concern about silver being too bulky - heck, that's the kind of problem a central banker wants to have.

i'll bet 20 years from now one of the top central bankers in the world will have got there because earlier in their career they lobbied successfully to diversify their country's reserves into silver - not just for the silver, but as a trading tool for acquisition of gold.