There are no get rich quick schemes, but sometimes wealth just seems to lie on the street, waiting to be picked up by a patient buyer. This may well be one of those times with the gold to silver ratio over 82 and silver nearing a 21 year low in terms of gold so, regardless [of] whether [or not] precious metals fall or raise in the near term, the likelihood that silver will outperform gold is historically very high over the next few years.
Throughout most of our history, silver and gold were interchangeable at a ratio of 15 to 1 – the value of a [troy] ounce of gold…being equivalent to 15 [troy] ounces of silver. This ratio roughly mirrored the natural occurrence of silver to gold as mined from the earth.
It was only in the 20th century with the widespread introduction of fiat currencies and the abandoning of silver as backing for currency, that this ratio skyrocketed and started to fluctuate dramatically. Throughout the 20th century the gold to silver ratio averaged 47 and spiked to an all-time high of over 100 in 1991.
For the last 30 years the ratio has consistently ping-ponged within a wide range, characterized by rough lows of 40 to 45 and rough highs of 80 to 85. A simple strategy of converting silver ounces to gold when the ratio was 45 and swapping those silver ounces for gold at 80 would have resulted in 100 ounces of gold to become 562 ounces in 30 years. Yes, $665,000 US worth of gold rather than $122,000 US!
The 45 and 80 gold to silver ratio (GSR) rule would have required just 7 transactions in the last 30 years, so it is neither difficult nor expensive to implement. There is no need to time trades to a given day or try to guess tops or bottoms… simply buy gold when it is cheap relative to silver (around 45), wait, and a few years later buy silver when it is cheap relative to gold (around 80).
- Start with 100 ozt of gold.
- In late 1989 when the ratio is at 80, convert the 100 ozt of gold to 8,000 ozt of silver.
- In mid 1998 when the ratio is at 45, convert 8,000 ozt of silver to 177.8 ozt of gold.
- In late 2003 when the ratio is at 80, convert 177.8 ozt of gold to 14,222 ozt of silver.
- In mid 2006 when the ratio is at 45, convert 14,222 ozt of silver to 316 ozt of gold.
- In late 2008 when the ratio is at 80, convert 316 ozt of gold to 25,284 ozt of silver.
- In mid 2011 when the ratio is at 45, convert 25,284 ozt of silver to 561.9 ozt of gold.
- In early 2016 when the ratio is around 80, convert 561.9 ozt of gold to 44,949 ozt of silver.
An increasing number of customer have already switched from gold into silver or prioritized silver purchases over gold, as they wait for the ratio to fall and eventually switch back to gold. A similar argument to be made for platinum, which used to be valued at twice the price of gold but is currently selling at prices 25% below gold…
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