Silver Gold Ratio

Kd5ddo

This past August I started looking into the Silver Gold Ratio. Below is what I have come across... Forgive the chart quality, I am still new to posting on forums...










This raised a few questions. Is the avg trend since Aug 06 of 53 the average SGR to be used for relative strength of the metals? I dug deeper and found daily data back to 1996.





It looks like the average from 2006 was a little low when taken in context of the past 13+ years. But that charts looks a little familiar to me... Thats right....






Looking at the previous chart again...



It looks like the inverse of the SPX... HMMM... But if i flip the SGR...






Ah HA! That is cool... But what does it mean? This i fought with for a while... There are a few areas of interest here...




























Thoughts?

jmski52

Thoughts?

Welcome!

Thoughts?

I like silver, but I like gold too. I think that your charts are too big for my meager screen.

We do have some gold/silver ratio followers here, but for me the key is the dollar. Every other analytical variable is just frosting on the cake. If I had to choose, right now I'd choose silver. I just would.

With one caveat - I don't trade on a hair-trigger basis. I use pms as a store of value, and I am still "averaging-in", like I have been doing for the past 10 years. But that's just me.

gecko109

The biggest problem IMO with trying to interpret the ratio, if you believe its out of whack, is that which will happen? Will gold prices fall to return the ratio to normal levels, or will silver prices rise?

roadrunner

Those are excellent graphs showing the various relationships. GSR is a very effective means for tracking gold and silver movements. And as you have shown, it relates to stocks (and bonds) as well since it is dependent on money flows. Nothing to apologize for on those charts. They are as good as anything I've seen posted on line...and far better than I can do.

I like to look GSR (or inversely SGR) as basically a liquidity index. If GSR is increasing, liquidity is leaving the markets....both in metals and in stocks. Metal prices could be increasing or decreasing but the ratio is what's important. When GSR is decreasing, increasing liquidity is usually pushing the price of silver up faster than gold, though a gold price falling faster than silver can do the same thing.

The deleveraging event of Sept-Oct of last year whalloped silver as liquidity ran away from metals and stocks into dollars/TBonds. It didn't hurt that the short otc derivatives position in silver was doubled from $90 BILL to $190 BILL in July, just before the "crash." The intent was certainly to hurt silver more than gold. And as you have shown it's in a reversion channel heading back to normal ranges. I see the current reversion channel as showing 5 waves down for SGR followed by a pullback in August to the channel top. It may have already begun its next series of legs down or might have one more move to retest the top of the channel. But then it should be back on track to continue down the channel which means higher gold and silver prices.

roadrunner

Kd5ddo

If you are referring to the historical ratio of 15 or 16 to 1 then of course silver in was undvalued.

I kinda believe in the preservation of wealth in PM. However one thing still worries me...

In 1985 silver was $6/oz. Adjusting for inflation using an annual inflation of 2.9% (see cited link below), that silver cost $11.58/oz in today’s dollars. This would seem like a logical support level for silver if the spot price of silver had any measurable uptrend in its moving average from 1985-2004 but it didn’t. It started 1985 at $6/oz, averaged $6/oz for 2 decades, and ended 2003 at you guessed it… $6/oz. The last few years is the only measurable increase in the value of silver since the giant spike in the 70's...

I know I am very new to the PM game, but why didn’t silver move in price for two decades? In fact, why did it essentially lose money for years when you account for inflation? It gets used in a number of industrial and technical applications, more conductive than copper, and has been used in the semiconductor industry since early 2000’s… Am I missing something?

Does silver offer inflationary protection (remember silver stayed under $6/oz avg from 1980's till 2006...) or only peace of mind knowing you are holding something in your hand that unlike stocks will never be worth zero?

coynclecter

<< <i>Am I missing something >>



You need to do some research. You are assuming a free market. Thats not what weve seen the last 20 years. Read all these threads going back a few months and also look up Ted Butlers archives.

In a few quick answers

A) The US Gov dumped about 2 billion ounces of silver in the last 20 years and now its all gone.

The silver users and the banks have used the futures markets to manipulate prices.

Youll have to read a lot to get the details

Welcome to the forum, You have a lot to catch up on.

gecko109

<< <i>If you are referring to the historical ratio of 15 or 16 to 1 then of course silver in was undvalued.

I kinda believe in the preservation of wealth in PM. However one thing still worries me...

In 1985 silver was $6/oz. Adjusting for inflation using an annual inflation of 2.9% (see cited link below), that silver cost $11.58/oz in today’s dollars. This would seem like a logical support level for silver if the spot price of silver had any measurable uptrend in its moving average from 1985-2004 but it didn’t. It started 1985 at $6/oz, averaged $6/oz for 2 decades, and ended 2003 at you guessed it… $6/oz. The last few years is the only measurable increase in the value of silver since the giant spike in the 70's...

I know I am very new to the PM game, but why didn’t silver move in price for two decades? In fact, why did it essentially lose money for years when you account for inflation? It gets used in a number of industrial and technical applications, more conductive than copper, and has been used in the semiconductor industry since early 2000’s… Am I missing something?

Does silver offer inflationary protection (remember silver stayed under $6/oz avg from 1980's till 2006...) or only peace of mind knowing you are holding something in your hand that unlike stocks will never be worth zero? >>




A big part of why PM's are rockin and rollin right now is the huge slap in the face we all took with the bubbles bursting in the financial and housing sectors. High PM prices are here to stay as I doubt that people will forget just how bloated the value of our green toilet paper....I mean US dollars.....has become.

roadrunner

Silver is kept more in line than gold due the huge number of paper shorts in existence (derivatives, futures, options, etc.). The last time I figured out the equivalent ounces in the derivative's contracts it worked out to be 17 years of world silver production. What other commodity legitimately and legally shorts like that? And if you look at the Comex futures, the % of short positions held by 2 or 3 banks is a very large percentage of the total short position...much higher than grains, foods, oils and other metals.

It was only a year or two into this bull market where the commercials went from a net long to a net short position and have held it ever since. Look at silver commercial short position in 2008 before the "crash." Those few banks really loaded up on silver. Without those guys playing in this market the silver price would be much higher. It is suggested that the Chinese are the source of the money behind those banker's shorts. And now they are beginning to realize the precarious position they were placed in.

Any why manipulate silver rather than say gold or something else. For one it's a much tiny market. It's not as visible as those others. Silver is not as high on the monetary metal's list like gold. Silver is used up and unlike gold is not so readily kept in stockpiles/vaults around the world. Whatever silver is out there is widely dispersed. As the Hunt's and even Warren Buffet showed, you can secretly get a big stake without drawing too much attention. Bang for the buck, silver does seem to effect the price of gold and even the dollar. If the silver price stays down, other PM's tend to stay down...and currencies tend to remain stronger. Govt's don't want to see high gold or silver prices....at least not until they own all they can handle.

roadrunner

Kd5ddo

<< <i>

I like to look at SGR (or inversely GSR) as basically a liquidity index. If SGR is decreasing, liquidity is leaving the markets....both in metals and in stocks. And silver falls faster in price than gold (or silver increases in price more slowly than gold). When SGR is increasing the opposite happens and increasing liquidity is pushing the price of silver up faster than gold.

>>



Ooops... It is the Gold Silver Ratio (oz silver per oz gold...) Thanks for the correction

You mentioned that the intent was to hurt silver more than gold... Why?

Also, why/how is it possible to have more paper guarentees for silver than there is silver available?

I know these may be silly questions but I am very new to PM's.

jmski52

When I was a kid in the early '60s, silver was $1.29/oz. I remember that it was $6.00-$7.00 and rising in the late '70s.

Let's just use the round numbers $6.45/$1.29 = 5X. Silver increased five-fold in about 16-18 years. That's 500%, and that's BEFORE the spike that went to $50 and then settled in the mid $30s.

So, your observation that silver didn't move at all from 1985 to 2003 needs to be put into perspective. As coynclecter notes, the government was busy - selling off the strategic stockpile of silver during those years.

Seeing that the price of silver has risen from $6.00 to $18.00 (a 300% gain) in the span of 6 years (from 2003 to 2009) it may seem as if silver's rise has mostly run it's course already.

That conclusion doesn't account for the financial condition of the country in which we find ourselves. In 1978, we didn't have anything resembling the financial mess we are facing now - a huge deficit that is getting larger, a Congress that is bent on making government much, much larger at the expense of future generations by piling on debt 5X faster than the previous administration, an overhang of bad corporate, mortgage and banking debts in the tens (maybe hundreds) of Trillions of dollars that's being dumped onto the taxpayers, and a baby boom generation that is just now finding out that their retirements are not at all funded (whoops!).

If the Fed doesn't inflate, there will be no end to the economic misery, and your dollars will still be worth something. On the other hand - if they do inflate (which they must), you can bet your last cent that silver (and gold) will both shoot through any manipulated ceiling that the Comex can conjure up with paper puts against them. As evidenced by your arrival here, the word is getting out. I'm thinking that it won't be too much longer before the real action starts.

gsa1fan

"Govt's don't want to see high gold or silver prices....at least not until they own all they can handle.

roadrunner"

JMO, but I think this is key to recent small bumps in price.

Raise it enough to get people to sell. Buy all they( Gov'ts) can then when supply's dwindle bump it again to get some more stock piles.

Then when they get a big % of physical supply??? Let the SHTF!!!

Opinions~PLEASE!!!

Kd5ddo

I graduated from college a couple years ago and the more I learn about what is actually going on around me, the less I trust any gov't. The constitution wasnt written to the people can fear the gov't it was written so the gov't fears the people.

I agree with you WRT the gov't manipulating the price of PM. But not with the gov't waiting for the SHTF senario. I think that would be something theywould try to prevent because it would be a loss of control.

Personally i think the US is being stretched too far. The debt to gdp ratio is so high (and parabolic) that if we were a country in europe at the end of WWII the US would have forced it to dissovle and start over. This is the thing that worries me. We are a debt laiden society from the average adult having over 20k in credit card debt to the govt being 11.8Trillion in the whole (not to mention the $59.1 Trillion in unfunded liabilities or the almost $400 Billion annual interest we owe on our debt - source- usdebtclock.org).