If you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver. Here’s why.
The following article by Simon Black (sovereignman.com) is presented in an edited ([ ]) and abridged (…) format to provide a fast & easy read.
…Given that gold is still traditionally seen as a safe haven the gold:silver ratio tends to rise dramatically in times of crisis, panic, and economic slowdown. For example:
- just prior to World War II as Hitler rolled into Poland, the gold/silver ratio hit 98:1;
- in January 1991 as the first Gulf War kicked off, the ratio once again reached 100:1, twice its normal level of about 50:1 throughout the 20th century;
- in nearly every single major recession and panic of the last century:
- the crash of 1987;
- the Dot-Com bust in the late 1990;
- the 2008 financial crisis there was a sharp rise in the gold/silver ratio which invariably led to a gold/silver ratio in the 70s or higher. In 2008, in fact, the gold/silver ratio surged from below 50 to a high of roughly 84 in just two months.
- We’re seeing another major increase once again. Right now as I write this, the gold/silver ratio is 81.7, nearly as high as the peak of the 2008 financial crisis. This isn’t normal.
In modern history, the gold/silver ratio has only been this high three other times, all periods of extreme turmoil—the 2008 crisis, Gulf War, and World War II – which suggests that something is seriously wrong or, at least, that people perceive something is seriously wrong. There are many macroeconomic and financial indicators suggesting that a recession is looming, if not an all-out crisis.
- In the U.S., manufacturing data show that the country is already in recession;
- default rates are rising; corporate defaults in the U.S. are actually higher now than when Lehman Brothers went bankrupt back in 2008…putting a ton of pressure on banks, whose stock prices are tanking worldwide as they scramble to reinforce their balance sheets against losses….
Good times never last forever, especially with governments and central banks engineering artificial prosperity by going into debt and printing money. These tactics destroy a financial system, and the cracks are visibly expanding so, while the gold/silver ratio isn’t any kind of smoking gun, it is an obvious symptom alongside many, many others. Now, the ratio may certainly go even higher in the event of a major banking or financial crisis. We may see it touch 100 again.
[The above being said, however,] it is reasonable to expect that someday the gold/silver ratio will eventually fall [from the current 80 or so] to a more historic norm of 55 (remember, it was as low as 30 in 2011)…which means that in the future you’ll be able to trade the 80 ounces of silver you acquired today for 1.45 ounces of gold…The final result is that, in gold terms, you earn a 45% “profit”. Essentially you end up with 45% more gold than you started with today.
The bottom line is that if you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver.
Disclosure: The original article by Simon Black (sovereignman.com) was edited ([ ]) and abridged (…) by the editorial team at munKNEE.com (Your Key to Making Money!) to provide you with a fast and easy read. “Follow the munKNEE” on Facebook, on Twitter or via our FREE bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner)
Related Articles from the munKNEE Vault:
Should you buy & hold your gold or silver or switch back and forth depending on the gold/silver ratio? This article examines 3 scenarios and identifies certain rules that should be followed to make the most of the ups and downs of the gold/silver ratio to substantially increase your holdings over time.
The majority of analysts maintain that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 – 95% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold and it is realistic to expect that silver will eventually escalate dramatically in price. How much? This article applies the historical gold:silver ratios to come up with a range of prices based on specific price levels for gold being reached. Words: 691
You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain.