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A couple of weeks ago, Wheaton Precious Metals released a very useful study on the gold-silver ratio…[and concluded] that there is no characteristic value for the gold-silver ratio – that there is no mythic value (16, for instance) to which it is attracted, and to which it would return if only the world stopped manipulating its price…[Rather,] the gold-silver ratio rises during deflationary periods and disinflationary periods…[and] falls during inflationary periods…@A Financial Site For Sore Eyes & Inquisitive Minds
Let’s test this against some measures I’ve used for deflation/inflation. I’ll use the weekly chart of USDX vs gold price, weekly, going back to the beginning of 2008.@Gold&Silver
It is a busy visual, but what we want to do is look at longer-scale variations.
- Intervals when both the USDX index and the gold price rise are considered deflationary.
- If gold rises and the US dollar index falls, we have inflation (hence inflation and deflation are not opposites).
- Gold falling and the dollar rising will be disinflation,
- and I suppose that if both gold and the US dollar fall, we must have disdeflation, although I have never seen that word anywhere and, remember, if that ever happens, you should be shorting gold stocks.
The graph above suggests that:
- through most of 2008, we experienced disinflation, and over that interval, GSR rose from 55.7 to 77.1,
- much of 2009 was characterized by inflation, and the GSR fell from 77.1 to 63.3,
- until the middle of 2010, we had disinflation, and the GSR rose slightly,
- into late 2011 we had a big inflationary pulse,and the GSR fell to 40.8…
- through 2013 we had a disinflationary episode and the GSR rose to 65.9,
- through early 2015 the trend was deflationary and the GSR rose to 74.5,
- over the past 18 months the dominant trend has been deflationary and the GSR rose to 88.6 and
- over the entire chart (twelve years) the big picture is deflation, but most of that has been accommodated through cycles of inflation and disinflation.
Why Gold Remains A Better Investment Than Silver
As long as debts are created beyond any ability to repay them, deflationary conditions will rule [and], as long as deflationary conditions persist, the GSR may rise without limit and under such conditions, despite the GSR being pretty much the highest in history, gold remains a better investment than silver. As much of the actual deflationary effect is brought about by cycles of inflation and disinflation, however, there are brief intervals where silver makes a better investment than gold. @Follow the munKNEE
Rather than using the level of the GSR as your selection criterion, you need to look closely at monetary policy instead.
Editor’s Note: The above excerpts from the original article by The World Complex have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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