Since gold and silver tend to move in same general price direction, GSR is an indicator of which of the two is currently underpriced vs. the other. It is a baramoter of where the best value lies.
<< <i>Since gold and silver tend to move in same general price direction, GSR is an indicator of which of the two is currently underpriced vs. the other. It is a baramoter of where the best value lies. >>
So what's the exact equation that determines value and what mathematical theorem is its basis?...
Simple: Of the two metals a high GSR indicates silver is the bargain, a low GSR indicates gold is the bargain. The modern average for the GSR is about 50:1. The further the ratio deviates from the average , the better the bargain for the underpriced metal. Note that a ratio does not indicate if the two assets are a bargain over other assets, it is only a comparison of the two assets being studied. Ratios that deviate from their long term average will seek to equalize at their average. Failue to exactly do so is what, over time, changes the average.
If you believe in the manipulation of PM's prices doesn't that invalidate the concept of the gold/silver ratio? To me even if there is no manipulation the fact that spot prices are set by paper traders invalidates it anyway.
Does a high GSR indicate physical silver is a bargain or paper silver?
Board members like to buy silver at spot but spot doesn't actually represent the physical market at all. It's the tail that wags the dog.
Paper traders presumably act to maximize profits. The amount of paper has no relation to real world scarcity of the two metals.
Mining gold is subject to real world difficulties , ores must be found , it has to be pulled from the ground and refined. There are costs associated that aren't present in the paper market.
Mining silver tends to happen alongside other ores and whether silver is pulled out of a copper or zinc mine sort of depends on whether its worth pulling the copper or zinc out of that mine.
<< <i>If you believe in the manipulation of PM's prices doesn't that invalidate the concept of the gold/silver ratio? To me even if there is no manipulation the fact that spot prices are set by paper traders invalidates it anyway. >>
Are not physical prices ultimately determined by the paper traders? If you believe in the manipulation, do you believe both metal markets are controlled? GSR is determined using spot prices.
<< <i>If you believe in the manipulation of PM's prices doesn't that invalidate the concept of the gold/silver ratio? To me even if there is no manipulation the fact that spot prices are set by paper traders invalidates it anyway. >>
Are not physical prices ultimately determined by the paper traders? If you believe in the manipulation, do you believe both metal markets are controlled? GSR is determined using spot prices. >>
Can't paper silver be converted to physical silver? Although I'm not sure that it's easy.
Worry is the interest you pay on a debt you may not owe.
If the price of silver and gold were set purely by physical demand I would pay attention to the ratio.
Wasn't the fact that there was a 16:1 ratio of the physical metals responsible for our coinage standards? Silver was roughly 16 times more common in nature
Paper gold is in no way rarer or harder to attain than paper silver.
Neither type of paper is scarce they are both created by fiat and destroyed the same way. If the GSR is based on scarcity then in the paper market it should be near 1:1
<< <i>Can't paper silver be converted to physical silver? Although I'm not sure that it's easy. >>
Yes and sometimes it is. Paper metal contracts are for delivery of the physical metal sometime in the future, thus "futures contracts." This is the reason that other physical metal in the various markets is based on the futures spot price. Most futures contracts are sold before delivery date which facilitates the selling of more paper than there is metal. Promises can be unlimited as long as fulfilling the promise with physical metal (delivery) keeps getting reset to a new and later delivery date (ponzi?). The metal futures exchanges basically set the current floor on metal price (spot) with a promised delivery of large bulk bullion bars months down the road. Consider this: All physical metal purchases (other than face to face cash transactions) are promises to deliver. Physical products sold in the non-exchange markets (usually with a very short, promised delivery date) will sell for a premium to the futures, bulk item spot price. This added premium is dependent on fabrication costs as well as supply and demand for the particular product and is able to exist because THESE promises are being filled and not sold before being filled. This is why different physical products carry different premiums over spot. Normally, there is good reason for higher premium when comparing two products. Consider the metal exchange bullion bars to be at the bottom of the premium ladder and actually carrying zero premium.
As long as the metal exchanges are able to satisfy those wishing physical delivery (sometimes with cash when inventory is low) physical prices will continue to be determined by futures trading. If these metal exchanges were to suddenly default on delivery, then physical price would develop a life of it's own and break away from the market where price can be controlled strickly by promises to deliver. This is why metal exhange warehouse inventories of the real stuff are important to physical metal holders.
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly.
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly. >>
The Hunt Brothers through their actions moved the physical market in 1981. Do you think they could move it the same way in 2014?
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly. >>
The Hunt Brothers through their actions moved the physical market in 1981. Do you think they could move it the same way in 2014? >>
No, but like I said price reason is irrelevent to using the GSR to your advantage. Silver prices recently hit a new high a few years back without the Hunt brothers. Naturally, so did gold since they historically move in tandem. The GSR let's us know how much that tandem is out of whack when looking at its average. Knowing which way the "whack" is leaning points out the better buy or the better sell. GSR is also handy for rebalancing holdings of the two items.
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly. >>
The Hunt Brothers through their actions moved the physical market in 1981. Do you think they could move it the same way in 2014? >>
No, but like I said price reason is irrelevent to using the GSR to your advantage. Silver prices recently hit a new high a few years back without the Hunt brothers. Naturally, so did gold since they historically move in tandem. The GSR let's us know how much that tandem is out of whack when looking at its average. Knowing which way the "whack" is leaning points out the better buy or the better sell. GSR is also handy for rebalancing holdings of the two items. >>
So you use it to judge the herd mentality amongst paper traders?
<< <i> So you use it to judge the herd mentality amongst paper traders? >>
To be honest, I don't use it all. I'm only presenting the valid case for those that do. I'm a believer in owning both at all times and my preference has always been silver. I'm an odds guy and I see the odds are that silver will provide the best returns for a number of reasons. Among those are industrial use, dwindling supplies, and a much larger buyer base (demand) during times of accelerating prices. Silver is the poor man's gold and there are many more of us poorer guys than there are richer guys. I also think that regardless of the GSR that silver is far more underpriced than gold. I also see a $20 current cap on silver by those that are able to influence price. Fortunately, the caps are temporary.
GSR is a very valuable trending tool for PM's, commodities, and even the stock market. It's a liquidity trending indicator that behaves very consistently and follows repetitive cycles. The fact that gold and silver both have repeatable cycles and trends should obviously imply so does the Gold/Silver ratio. Other liquidity ratios include currencies and bonds (ie EUR/YEN). The weekly and monthly cycles in GSR since the April 2011 bottom at 31 are easy to spot. GSR has been typically running in 8-10 cycles between peaks. The GSR bottom of 31 in April 2011 was well predicted by both a 3-3-5 ABC Elliot Wave pattern from 2008 to 2011....and landing on key support on the 2, 9 and 23 year down sloping trend lines (see the 5-10-30 yr charts below). If I didn't know better it almost looks like GSR is now overdue to bottom out the indicators on the weekly chart. It has recently put in both 10 month and 10 week peaks which is on the longer side for intermediate/short term rallies. GSR can move up or down based on 4 possible scenarios with the gold and silver movements. Those 4 possibilities include the 2 obvious ones: fully bullish (silver rising faster than gold) to fully bearish (silver falling faster than gold). It's those 2 other ones that give people a lot of trouble (such as in 1999-2003).
GSR has been in a 3 year rally that has been very tough on silver and commodities in general (liquidity leaving the commods and heading into stocks). When it goes the other way it will be very beneficial to commodities and PM's. Those trying to use GSR as a standalone tool will certainly run into trouble at some point. Many might not be aware that GSR doubled from around 40 to 80 during 1999-2003 (recessionary period). Gold went up 50% in price while silver went down. There's no guarantee that a rising GSR means a falling gold price. But, it's a good tool to coordinate with other trending tools. It accurately predicted the end of the commodities run in spring of 2011. It did not however predict that gold would still have a higher high yet to come in August/September 2011. Every tool has limitations. I reference GSR several times per week in both GLD/SLV format and spot bullion price ratio. I wouldn't do it if I were wasting my time and the results were 50-50. For anyone trading or playing with silver, I don't see why you wouldn't want to keep an eye on GSR trends, whether short term or long term depending on your goals. Some people prefer to use the SGR (the inverse)....same deal. A 3 year rising GSR is not the best environment to be continually long in silver. A longer term falling GSR with silver out-performing gold is an excellent setup to buy either metal. Gold is currently in the window for a typical 5-6 month low as well as a yearly cycle low to occur. One could couple that with the GSR's trend over the next 1-6 weeks to determine a lower/low risk entry point for gold. Volume does mean something in these ratios especially with identifying inflection points, turns, and accelerations (gsr, gdx/gld, gdx/gdxj, gdx/spy, gld/spy, gdx/spy, nugt/dust, 10yr yield ratio/2 yr yield ratio, hyg/lqd, fxe/fxy, etc.).
During the 2nd week in May I used the fact that GSR mini-rallies over the past couple years haven't gone past 27 days. On day 20 (last day in April) it appeared to peak again. But, if it hadn't peaked, it made 2 more attempts on day 25 or day 27 to go higher. They both failed. Odds favored (along with the direction of the stoch-rsi and cci) that it would be heading down shortly. Sure enough, on day 28 down it went. Gold was going to act stronger than silver. On the weekly chart above, note that the last 2 macd peaks are lower than the first one on 2011 despite the slowly rising GSR. On the surface, that's a sign of declining strength. It's showing some of the same negative divergences as the stock market.
tneig
Posts: 1,505 ✭✭✭
Comments
I think the ratio is meaningless. I put no stock in it anymore
All ratios just ratios, not traded, no volume, meaningless, but can be made out to mean alot... lol ...
Give Me Liberty or Give Me Debt
<< <i>Since gold and silver tend to move in same general price direction, GSR is an indicator of which of the two is currently underpriced vs. the other. It is a baramoter of where the best value lies. >>
So what's the exact equation that determines value and what mathematical theorem is its basis?...
Give Me Liberty or Give Me Debt
If you believe in the manipulation of PM's prices doesn't that invalidate the concept of the gold/silver ratio? To me even if there is no manipulation the fact that spot prices are set by paper traders invalidates it anyway.
Does a high GSR indicate physical silver is a bargain or paper silver?
Board members like to buy silver at spot but spot doesn't actually represent the physical market at all. It's the tail that wags the dog.
Paper traders presumably act to maximize profits. The amount of paper has no relation to real world scarcity of the two metals.
Mining gold is subject to real world difficulties , ores must be found , it has to be pulled from the ground and refined. There are costs associated that aren't present in the paper market.
Mining silver tends to happen alongside other ores and whether silver is pulled out of a copper or zinc mine sort of depends on whether its worth pulling the copper or zinc out of that mine.
<< <i>If you believe in the manipulation of PM's prices doesn't that invalidate the concept of the gold/silver ratio? To me even if there is no manipulation the fact that spot prices are set by paper traders invalidates it anyway. >>
Are not physical prices ultimately determined by the paper traders? If you believe in the manipulation, do you believe both metal markets are controlled? GSR is determined using spot prices.
Give Me Liberty or Give Me Debt
<< <i>
<< <i>If you believe in the manipulation of PM's prices doesn't that invalidate the concept of the gold/silver ratio? To me even if there is no manipulation the fact that spot prices are set by paper traders invalidates it anyway. >>
Are not physical prices ultimately determined by the paper traders? If you believe in the manipulation, do you believe both metal markets are controlled? GSR is determined using spot prices. >>
Can't paper silver be converted to physical silver? Although I'm not sure that it's easy.
Worry is the interest you pay on a debt you may not owe.
If the price of silver and gold were set purely by physical demand I would pay attention to the ratio.
Wasn't the fact that there was a 16:1 ratio of the physical metals responsible for our coinage standards? Silver was roughly 16 times more common in nature
Paper gold is in no way rarer or harder to attain than paper silver.
Neither type of paper is scarce they are both created by fiat and destroyed the same way. If the GSR is based on scarcity then in the paper market it should be near 1:1
<< <i>Can't paper silver be converted to physical silver? Although I'm not sure that it's easy. >>
Yes and sometimes it is. Paper metal contracts are for delivery of the physical metal sometime in the future, thus "futures contracts." This is the reason that other physical metal in the various markets is based on the futures spot price. Most futures contracts are sold before delivery date which facilitates the selling of more paper than there is metal. Promises can be unlimited as long as fulfilling the promise with physical metal (delivery) keeps getting reset to a new and later delivery date (ponzi?). The metal futures exchanges basically set the current floor on metal price (spot) with a promised delivery of large bulk bullion bars months down the road. Consider this: All physical metal purchases (other than face to face cash transactions) are promises to deliver. Physical products sold in the non-exchange markets (usually with a very short, promised delivery date) will sell for a premium to the futures, bulk item spot price. This added premium is dependent on fabrication costs as well as supply and demand for the particular product and is able to exist because THESE promises are being filled and not sold before being filled. This is why different physical products carry different premiums over spot. Normally, there is good reason for higher premium when comparing two products. Consider the metal exchange bullion bars to be at the bottom of the premium ladder and actually carrying zero premium.
As long as the metal exchanges are able to satisfy those wishing physical delivery (sometimes with cash when inventory is low) physical prices will continue to be determined by futures trading. If these metal exchanges were to suddenly default on delivery, then physical price would develop a life of it's own and break away from the market where price can be controlled strickly by promises to deliver. This is why metal exhange warehouse inventories of the real stuff are important to physical metal holders.
Give Me Liberty or Give Me Debt
Does anyone know what the ratio of paper gold to physical might be? Or paper silver to physical?
Is it even possible to know?
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly.
Give Me Liberty or Give Me Debt
<< <i>
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly. >>
The Hunt Brothers through their actions moved the physical market in 1981. Do you think they could move it the same way in 2014?
<< <i>
<< <i>
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly. >>
The Hunt Brothers through their actions moved the physical market in 1981. Do you think they could move it the same way in 2014? >>
No, but like I said price reason is irrelevent to using the GSR to your advantage. Silver prices recently hit a new high a few years back without the Hunt brothers. Naturally, so did gold since they historically move in tandem. The GSR let's us know how much that tandem is out of whack when looking at its average. Knowing which way the "whack" is leaning points out the better buy or the better sell. GSR is also handy for rebalancing holdings of the two items.
Give Me Liberty or Give Me Debt
<< <i>
<< <i>
<< <i>
<< <i>If the price of silver and gold were set purely by physical demand I would pay attention to the ratio. >>
What sets the price is irrelevant when comparing price between two assets using a ratio. Purpose of the ratio is to identify, at the moment, which is underpriced compared to the other. When the Hunt brothers tried to corner the silver market and sent prices soaring, the GSR suddenly identifed silver as overpriced. It didn't matter what caused the price spike. What did matter was that those who saw it as a time to sell silver and buy gold benefited greatly. >>
The Hunt Brothers through their actions moved the physical market in 1981. Do you think they could move it the same way in 2014? >>
No, but like I said price reason is irrelevent to using the GSR to your advantage. Silver prices recently hit a new high a few years back without the Hunt brothers. Naturally, so did gold since they historically move in tandem. The GSR let's us know how much that tandem is out of whack when looking at its average. Knowing which way the "whack" is leaning points out the better buy or the better sell. GSR is also handy for rebalancing holdings of the two items. >>
So you use it to judge the herd mentality amongst paper traders?
<< <i> So you use it to judge the herd mentality amongst paper traders?
To be honest, I don't use it all. I'm only presenting the valid case for those that do. I'm a believer in owning both at all times and my preference has always been silver. I'm an odds guy and I see the odds are that silver will provide the best returns for a number of reasons. Among those are industrial use, dwindling supplies, and a much larger buyer base (demand) during times of accelerating prices. Silver is the poor man's gold and there are many more of us poorer guys than there are richer guys. I also think that regardless of the GSR that silver is far more underpriced than gold. I also see a $20 current cap on silver by those that are able to influence price. Fortunately, the caps are temporary.
Give Me Liberty or Give Me Debt
GSR has been in a 3 year rally that has been very tough on silver and commodities in general (liquidity leaving the commods and heading into stocks). When it goes the other way it will be very beneficial to commodities and PM's. Those trying to use GSR as a standalone tool will certainly run into trouble at some point. Many might not be aware that GSR doubled from around 40 to 80 during 1999-2003 (recessionary period). Gold went up 50% in price while silver went down. There's no guarantee that a rising GSR means a falling gold price. But, it's a good tool to coordinate with other trending tools. It accurately predicted the end of the commodities run in spring of 2011. It did not however predict that gold would still have a higher high yet to come in August/September 2011. Every tool has limitations. I reference GSR several times per week in both GLD/SLV format and spot bullion price ratio. I wouldn't do it if I were wasting my time and the results were 50-50. For anyone trading or playing with silver, I don't see why you wouldn't want to keep an eye on GSR trends, whether short term or long term depending on your goals. Some people prefer to use the SGR (the inverse)....same deal. A 3 year rising GSR is not the best environment to be continually long in silver. A longer term falling GSR with silver out-performing gold is an excellent setup to buy either metal. Gold is currently in the window for a typical 5-6 month low as well as a yearly cycle low to occur. One could couple that with the GSR's trend over the next 1-6 weeks to determine a lower/low risk entry point for gold. Volume does mean something in these ratios especially with identifying inflection points, turns, and accelerations (gsr, gdx/gld, gdx/gdxj, gdx/spy, gld/spy, gdx/spy, nugt/dust, 10yr yield ratio/2 yr yield ratio, hyg/lqd, fxe/fxy, etc.).
GSR charts
3 year GSR trends
During the 2nd week in May I used the fact that GSR mini-rallies over the past couple years haven't gone past 27 days. On day 20 (last day in April) it appeared to peak again. But, if it hadn't peaked, it made 2 more attempts on day 25 or day 27 to go higher. They both failed. Odds favored (along with the direction of the stoch-rsi and cci) that it would be heading down shortly. Sure enough, on day 28 down it went. Gold was going to act stronger than silver. On the weekly chart above, note that the last 2 macd peaks are lower than the first one on 2011 despite the slowly rising GSR. On the surface, that's a sign of declining strength. It's showing some of the same negative divergences as the stock market.
daily GSR chart
Two analysts that actually use it....go figure.