Would a major increase in the gold price trigger a large GSR drop?

If the gold price were to increase substantially, potentially due to an economic shock, then would silver demand (and hence the price) eventually increase at a faster rate than for gold as people who can't afford gold look for some other precious metal store of value? This then would bring the GSR down substantially.

Has this ever happened in the past? Or do people react differently?

 

2011, gsr swaps at 32:1 I swapped 1kg of 50s for 1 kruggerand

 

Traditionally silver increases at a faster rate than gold, thus dropping the GSR. There is then a period of stability when both plateau, then silver drops much faster than gold.

 

- gsr would go up (been happening, because the credit crunch has already started, as anybody following the spreads knows).

- then gsr would crash down sub 35

in other words, silver usually lags gold, and then over-performs it.

 

Why would you claim sub 35 - what specific evidence do you have to support that specific number? Why not just claim sub 2? Arguably, there's just as much or little evidence for either?


There's absolutely nothing wrong with this statement from SammySilver since he is not making a specific claim:

.

 

Chill out ML. Anyone can have an opinion on where they think the GSR will end up.

hiho swapped his silver for gold in 2011 at GSR of 32:1, which is sub 35. So why can't it get there again?

In 1980 the GSR was what 17:1?

Gold and silver are strongly correlated, when they go up silver goes up more and GSR falls, when they go down silver goes down more and the ratio goes up.

So yes based on historical patterns a substantial rise in the gold price will cause the GSR o fall, because silver will go up substantially more.

Speaking of which the GSR is pretty high right now, maybe precious metals are going to go up now.

 

Of course it can go below 35... If we base future expectations on past behaviors then I'm expecting the GSR to be less than 35 for a short period of time in the next 30 years (as this has been the latest trend).
As soon as the GSR gets there I'll swap all my silver for gold. I only hope it won't take the whole 30 years to get there, though, as I might as well be dead by then.

 

100% agree, all things being equal.

Though I do think it could get worse before it gets better but I can't time it so at some point, it's got to be appealing. I do know others who believe gold will outperform silver in the end, I am not of that view. Also other people run out of space in their SDB, they're just too small to store large quantities of silver (especially silver in capsules) unless you go for a big SDB if the facility offers it, so people resort to buying gold or changing out.

I think it's a good idea to have both.

Yes, lots and lots of people thought back in the 1980's that the whole thing was going terminal and it was going to be the death of fiat currency. That was 35 years ago! Guess how many of them are now dead? Lots!
So many people have died in the "hopes" that the system would eventually crack and fail and here we are in 2015! Past the year 2000!!! People use to say 2000 like it was a science fiction movie but it's come and we're into it.
In short I expect it may happen and am gambling all my precious 3 ounces of silver on it. But I think we have bigger issues like totalitarianism to be worried about vs. financial gain or financial stability.

What we can all agree on is that the relative purchasing power of silver is incredibly undervalued. To me it's the purchasing power that's important not any dollar value. With houses in the millions, art, cars, rarities all going up and silver being relatively worthless. You'd like to think that it can't continue.

Gordon T. Long's from Long-wave Analytics has a series called Financial Repression Authority (FRA) in which he features some credible guests. Gordon's perspective is terrific, I like him and Jay Taylor.

I think everyone sees silver as being undervalued and it's virtually certain that we will see the GSR drop during the next bull market upswing. (in the grand super cycle, it's still a bull market)

 

I would suggest that its not totalitarianism (e.g. in the Soviet sense) that we are heading towards, but rather a neo-fuedalism where the 'selected' powerful aren't based on their skills in battles but based on their ability to accumulate wealth (power) initially and then their ability to hold it. We have the super-wealthy and their "kin" as the kings/queens, those associated with power through political connections or through just wealthy and socially connected being the lords and ladies. Those who simply work for wages are subject to the machinations or these new gentry, but the better off being components of the bureaucracy or the various merchant 'guilds'. We aren't there yet, but I have seen it developing for the last 20+ years. The way to stay on top of the wave, or at least surfing, is to maintain the value of your assets and avoid letting out control as much as possible.
So many see socialism as the enemy, but if you want to see the future, look back to the 1300-1700s and then recast the modern players into that structure. It's not a pretty picture if you can't at least position yourself in the role of, say, a merchant and free-man. Those who don't look to their own financial future will personally, and their families after them, be cast in the role of serfs.

 

There is a good argument to be made with neo- feudalism over soviet communism, but the average person on the street will feel oppressed either way.

 

best post I have read in a long time!

Add to that technology and a new religion (Science), and Neo-Feudalism could have a pretty long run.

In other words:

FREEDOM WILL BE AT A PREMIUM.

(It already is)

 

Was just reading something on this today. It's a rather large paper [PDF] and this is a very small extract:

 

Are you familiar with the idea of Inverted Totalitarianism?

From a thread (with video) started by JulieW: http://forums.silverstackers.com/message-731993.html

 

If there was an economic shock and people started off loading everything in their portfolios which include paper PMs, then PMs spot would drop?
Just asking because I remember Maloney said that to explain why PMs went down during last GFC.

 

That's a separate point (but still a good one). The two ideas are not mutually exclusive. I was just asking about a scenario where gold was rising significantly. But the event could be preceded by a big drop. And would gold drop more than silver in that case?

 

^ No idea, I am not an expert or even knowledgeable of PMs.

 

Depends on the type of shock, in 2008 at the start of the crisis silver dropped hard because of percieved deep in future industrial demand. The same could happen again. If it's a currency/banking/credit/bond/liquidity shock as in 2010/11 then silver goes lunar as the world looks for hard assets.

I think the global slow down is already happening, we're seeing 2008 style depressions in copper, oil, silver and platinum, I think the next shock is going to be of the second kind and so I am overweight silver (maybe a little too much).

 

Gold and silver are commodities so in a economic downturn, they act like commodities and sell off as the USD is sought after for safety. As a central bank cuts nominal interest rates as a response to the downturn, real interest rates drop as inflation drops. Gold and silver only take off when inflation drops to the point where real interest rates become negative enough that holding USD is a bigger loss. A point where holding a zero yielding asset becomes more valuable than a negative yielding asset.

That's why gold and silver took off at the beginning of QE2 in 2010. Inflation was going up, but nominal interest rates stayed the same causing real interest rates to go further negative, making holding cash unappealing. Who wants to hold cash when you're getting a -4% yield in real interest rate terms?

 

Caput, thanks for the thanks to my admittance of my lack of knowledge of PMs.

 

I want to hold cash in hand not in the bank though, picking the time to put the cash into hard assets is the key. I'm staying in USD until a few months before the Chinese are in the SDR. Having gold and silver as a hedge inthese times is also prudent.