I'm trying to keep my gold:silver ratio at around 40:60 by current value. So when I am buying, if silver has recently outpaced gold and my ratio has dropped to say 37:63, then I will buy gold. In effect I am buying the "better value" of the two on each purchase, and since I am still in accumulation mode, it works for me. I have mostly been buying gold in recent months, but did top up on a little silver during the pullback. I think this is much same as you are suggesting. edit: spelling
Here in Limey land you can buy gold bullion very close to spot price and sell it also very close to spot price. There are no taxes so your gold stack can make money if gold rises a few percent. Silver however is a bit of a problem especially coins as there is an intrinsic cost to a coin plus 20% sales tax buying but not when selling. You pay say $40 for a coin and can only expect $30 selling say so silver needs to rise 25% or more to break even.
What exactly do you mean by "Better Value" within the context above ? So after you have been buying gold for a few months in above scenario, and x months later your new gold/silver ratio is 43:57 - would you than stop buying gold and consider silver as better value of the two at time of purchase? Note: premiums on metals not taken into account/assumed the same.
You can't use your own ratio to measure when you get the most value between gold/silver. You have to use the GSR at the time of purchase, ie if the GSR is at, let's say 20 and you are buying silver because your own GSR is at 45:55, you are buying the wrong metal.
OK, let me give an example. Say I have $10,000 invested when silver was $20 and Gold $1200, and my ratio was 60:40 I have 300 oz of silver ($6000) and 3.33 oz gold ($4000). As price went up to $45 and $1500 in mid april, I balance my holding (I wanted to add to my stack anyway), but maintain my ratio. My 300oz is now worth 13,500 and my gold, $5000. My ratio is 73:27. To balance I buy gold, $4000 (2.67 oz). Now my ratio is back to 60:40 (13500:9000) Later, silver price drops back to $35, but gold is still $1500. New ratio is 54:46 (10,500:9000), so I need to buy silver to increase my $ value of silver and keep my ratio. To balance my ratio, I need to buy silver worth $3000 (86 oz@ $35) The end result is I keep adding to my stack, but I didn't buy silver when it was overvalued at $45, I added silver when it pulled back to $35. As we know silver is the more volatile metal so we can assume it will run up and pull back from time to time. If I am disciplined, then whenever I am adding to my stack, if I buy the metal that moves me back toward my target ratio, then I am buying the metal I consider to be "better value". Maybe when I come to buy next my ratio is at my target. So I buy a little of both. Does this make sense?
It's all about balance, so there are two sided scales on these GSR thingy. wow I just visualised that.
If you have the capacity to buy more gold and silver to balance your GSR that would be better option than swapping.
Agree with SG here that Silver is on par with gold as a hedge against inflation,SG can you explain further this is an interesting point of view. Cheers REDBACK PS Pretty sure PROJACK already gave an excellent example of trading with the GSR Ratio on another thread.
that is paper / plastic backed currencies fare worst with no comparison. but swap from different locations is still worth the risk to take
