• Gold: 1,423.35 20.02
  • Silver: 15.95 0.42
  • Euro: 1.122 0.001
  • USDX: 97.236 -0.159
  • Oil: 56.52 -1.01

Trade the Gold to Silver Ratio

Gary Christenson
|
Wednesday, March 6th
  • Buy gold for insurance against fiscal and monetary predations of central bankers, commercial banking and government. Yes – certainly!
  • Buy silver for insurance, profit and beautiful coins. Yes!
  • Buy both to own real money that has no counter-party risk.

WHEN?

  • The simple answer is buy silver when the gold to silver ratio (G/S) is high and buy gold when the ratio is low. The problem is defining “low” and “high.”
  • Silver prices move higher and lower, faster and farther, than gold prices so the ratio moved between 20 and 100 over the past 50 years. The historical ratio is lower, ten to twenty.

PURPOSE?

  • Maintain physical ownership of precious metals which have no counter-party risk.
  • Enlarge your stacks of silver and gold by trading between gold and silver timed with ratio extremes.
  • Sleep well knowing you own real money – gold and silver – not dodgy over-priced stocks at the end of a gigantic credit expansion and stock boom.

REALLY? SHOW ME!

The above graph of the ratio (weekly data) shows an idealized scenario for trading between gold and silver. Buy gold when the ratio is low and silver is relatively expensive. Sell gold when the ratio is high and silver is relatively inexpensive. The red arrows show 13 trades since 1971 that could have drastically increased total ounces in your metal stacks.

Begin in 1971 with $1,000 invested into gold – 23 ounces. Trade back and forth between gold and silver. By late 2018 your $1,000 in gold grew to over 177,000 ounces of silver, worth over $2,000,000 in a perfect trading world.

These theoretical trades were executed with perfect hindsight – about as likely as:

  • Everyone is above average.
  • The wind is always at your back.
  • Politicians are truthful and care about you.
  • Central bankers are good-hearted souls motivated to protect the best interests of common people.
  • Debt and deficits don’t matter.
  • The COMEX is an honest physical exchange.

IN A MORE REAL WORLD:

  • The future is unknowable.
  • Timing a market is difficult.
  • Greed and fear inhibit making good decisions.
  • Trend changes are difficult to see in real time.
  • All markets are manipulated.
  • Every transaction includes a cost.

TRADING IS BENEFICIAL EVEN IN THE REAL WORLD!

  • Buy silver when the ratio is high—40s before 1980 bubble and over 60 after the 1980 bubble. Sell silver and buy gold when the ratio is low—below 30 before the bubble and below 50 after the bubble. AND…
  • Calculate the five week moving average of the ratio. Trade positions only after the ratio has FALLEN BELOW moving average highs or CROSSED ABOVE moving average lows in the ratio. AND…
  • Calculate the 12 period Relative Strength Index (RSI). Trade positions only after the RSI has reached extreme levels—below 25 or above 75—and reversed. AND…
  • Assume each trade costs 5 percent in transaction expenses.
  • Taxes on income are NOT considered.

This simple trading strategy is less emotional because it’s mechanical. Other more sophisticated systems are possible.

Using this simple system the trades are:

Begin with $1,000 in gold in 1971 – 23 ounces. Trade weekly closing prices 15 times in 40+ years based on the above (or similar) rules. Your stash grows to over 34,000 ounces of silver, worth about $500,000, after transaction costs. This is a good increase but far less than ideal trades made with hindsight.

WHY?

  • Gold and silver prices have risen in 48 years because the banking cartel devalued dollars. Higher prices and further dollar devaluations are inevitable.
  • Each trade roughly doubled total ounces of metal. For perspective, ten doubles creates a 1,024 factor increase.

Even facing real world difficulties your stack of metal will increase with careful exchanges between gold and silver every two to four years when the G/S ratio moves to extremes.

Miles Franklin discussed gold to silver exchanges and the ratio here and here. The current ratio is 85—high. An exchange from gold into silver remains sensible at this ratio.

Call Miles Franklin at 1–800–822-8080 and exchange gold for underpriced silver. Tell them you agree with the Deviant Investor.

Keep stacking!

The Deviant Investor

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