I was thinking more on where things might end up. People are currently piling money into silver more than gold hence silver's outperformance lately by 2.5:1 But ask many silver stackers what they aim to achieve and they'll almost always say they want to move silver to gold. Nowadays people are saying more and more to go exclusively into silver so that they can get more gold later. So most people who are piling into silver now are expecting to go into gold at 20:1 say so that they'll get 2x the gold they could now. But 20:1 is still just theoretical. There are no guarantees it will get there. I bought most of my silver at GSR of 70:1 and less since. So theoretically I have already almost doubled the amount of gold I could have with the original investment. But I didn't neglect gold since that provided me with a little bit of diversity in case. The black swan event would be the sudden one off revaluation of gold as a monetisation move. Anyone who wasn't already exposed to gold would lose out here imo. So what happens if this doesnt occur but rather silver continues to gain so that GSR keeps shrinking? What happens when suddenly everyone holding silver begins to move into gold? Demand for silver collapses and gold skyrockets. The smart money will make this move sooner rather than later. For those not in the game for long, gold was more expensive than today for a few months in 2010 due to the AUD. Gold is still a bargain imo and given the historical GSR represents a good buy now. It's not about abundance of gold imo. The central banks say they have shedloads, but are they selling it? Is there going to be increasing demand (esp when silver stackers pile in)? Where is all that gold going to come from?
You make some points there mate. I came to a similar conclusion some months ago and decided to stake just gold due to the points you raised above. Gold for me is about wealth preservation, it always has been and I don't expect to make a killing by investing in it. You make a good points about when the time comes to shift from Silver to Gold will there be enough Gold to satisfy this demand. I also like how portable Gold is compared to Silver. You can basically flee with most of your wealth in a few sturdy pockets (depending how much you have of course). I stack mainly Pamp bars, but also some 1 ounce and smaller coins.
A GSR of 32 will seriously tempt me... that's a kilo of silver for an ounce of gold. I wouldn't swap my "core" silver holding for gold at that level, but I reckon a third of the pile would go. Even if I "miss out" on the bottom of the GSR when I swap, the mere fact I'm in a primarily PMs portfolio is satisfactory.
Source? Serious question because people keep talking about a "historical ratio" with very little other than poor web references that reference other poor web references. EDIT TO ADD This is not an attack on you col0016. Far from it.
From my copy of "The Power of Gold" By Peter Bernstein (fascinating and well researched read) http://www.amazon.com/Power-Gold-History-Obsession/dp/0471252107 pge 223 pge 224
My point was more along the lines of is it's just that - a historical ratio, from when there were different forces in play determining pricing (not the least being official ratios being set, e.g. Sir Isaac Newton setting the value of the English pound etc). If the present-day GSR trends down towards 16 again, it won't be because that's the "natural" GSR - it will be because of a happy coincidence of industrial & investor demand for silver, and investor demand for gold.
This is a very salient point, thanks intelligencer. I see gold becoming everyone's reference point for the global currency system and priced much higher in today's dollars because it will have to reference all the currency and all the debt the world over so we know how much a dollar is worth the world over. Having silver is great today compared with having today's dollars but it is not the same as having the ultimate wealth reference point being gold when the black swan lands in the lake. I have already swapped some silver for a sovereign and plan on swapping a larger portion of silver for gold this year with the GSR in the 30's.
I chose to buy Gold because ultimately that is what everyone wants. People talk about playing the GSR and it made sense to me until I came to the (personal) conclusions that 1) people wanted to trade silver for gold 2) that playing the GSR was speculation. I chose to circumvent the "game" and grab the prize now whilst it is still readily available. Sure I'm potentially missing out on ounces of gold but as they say "a bird in the hand is worth two in the bush". Additionally - Ounce for ounce gold has more wealth density. Even if GSR was 2:1 I'd favour gold over silver
I 100% agree with this actually ! i started stacking gold first too, ALOT of it before i went to silver. In all honesty i read a lot about investing but im more of a chicken Sh!t with investing cause its very difficult to predict the many different parameters that can make the market shift. Thats why i bought gold cause it was basically a way to preserve a portion of my money (that i make from business & work) in the event of major disaster occurring... silver is my *speculative play* riskier then gold BUT not that risky, specially in this current market. I think with everything aside, we need to realise that gold and silver look like good plays now for many reasons 1 being that AUD and USD are at parity so its cheaper for us now 2 there is major crap happening in the world that makes gold and silver look good I think by default what many people realise here is that they want silver to make the gains and gold to store the gains... in terms of money wise my ratio of gold to silver is actually 3:1 where i have 3 times more worth of gold (in fiat) then silver simply cause i wanna store a portion of my wealth ...
A lot of people want silver simply because it is likely to out perform gold for all the various fundamentals. I stacked only silver orginally. The historical ratio was also determined to some extent by the ratio from mining. Trading the GSR would work both ways and the aim is to add to your overall weight. So if I ended up with all silver all all gold I suspect I would've added to my weight more than if I bought just one or the other. Having said that about silver though I'm buying much more gold than silver at the moment. I'll probably get some low premium gold bars now just in case the ratio does blow out again even though I suspect its not likely now. The density is a factor so the my preference would be to end up with all gold but if the gold/dow ratio looks favourable I could image swapping to solid blue chips stocks depending on the outlook.
There is a strong argument to be made that the GSR will drop below 16. Yes it was a historical ratio and as GP mentioned, it highlighted the supply/demand dynamic at the time. With all the silver being 'consumed' one could argue that the dynamics are different now ( as they are every time) and silver could be more valuable than 1/15 of gold. I do however, expect it to be shortlived as the geological ratio in the ground is 15:1. If someone has the time/knowledge to actually have a look at the gold reserves in the ground and the silver reserves in the ground I think it would be interesting.
The physical ratios in the earth's crust really shouldn't determine pricing - it's the demand that determines pricing. Otherwise what we're saying is that it "all the gold in the world is worth seven trillion dollars, then all the silver in the world is worth seven trillion, and by extension, all the platinum in the world seven trillion, all the palladium seven trillion, etc". My understanding as well is that silver tends to be available in much higher yields per ton of ore, with far lower extraction costs - until now most of the demand is being met with byproduct mining! So digging it out of the ground probably should be a negative pricing factor compared to gold, except that dedicated silver mines just haven't had to be developed by now. Bring a few new mines on line and there's the risk of a supply glut unless investor demand soaks it all up. I won't place a bet on it, I just can't see the GSR hitting 20 or lower - I reckon even 29 is a stretch. Just a gut feeling. Would love to be wrong though as long as it wasn't coupled with the arse falling out of gold.
