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The Silver/Gold Ratio

01 Apr

50:1 Silver/Gold Ratio [courtesy Google Images]

50:1 Silver/Gold Ratio
[courtesy Google Images]

The “silver/gold ratio” is a measure of how many ounces of silver are required to purchase one ounce of gold.  For example, recently, the silver/gold ratio was over 82:1.  That means that, at current prices, it took 82 ounces of silver to buy 1 ounce of gold.

In the past century, that ratio has varied from 12:1 (twelve ounces of silver would buy one ounce of gold) to 100:1 (100 ounces of silver could buy 1 ounce of gold).

When the ratio is high (100:1) gold is gaining value faster than silver.  When the ratio is low (12:1) silver is gaining value faster than gold.

If you understand and can accurately predict the future silver/gold ratio, you can tell which metal is the better buy at a particular moment.

Bug Wars

I’m a dedicated “gold bug”.  I have nothing against silver, but I much prefer gold.

For the past four or five years, I’ve listened to those annoying little “silver bugs” argue that the current high silver/gold ratio (80:1) can’t be sustained.  I agree with them.  They’re right.  The current high ratio can’t be sustained.

Sooner or later, the ratio will fall.  While the ratio is falling, those who’ve invested in silver will, on a percentage basis, profit more handsomely than those who’ve invested in gold.  I get that.  I get tired of hearing it, but I get it.

The most vocal silver bugs bug me because they argue that the silver/gold ratio is due to fall to 20:1, or 15:1 or even 10:1.   Predictions for such super-low ratios are based on various facts such as that government has, in past, legislated low silver/gold ratios—or, alternatively—because the world only mines a fraction as many ounces of silver each year as it does gold, but the industrial demand for silver is far greater than it is for gold.

If those arguments were true and relevant, and if the silver/gold ratio fell below 20:1, those who invested in silver might generate profits that, on a percentage basis, were four to eight times greater than those who invested in gold.  If so, the annoying silver bugs would prove that they waaay smarter than the stuffy old gold bugs.

 

Why 50:1?

For the past five years, I’ve thought that the most likely “normal” ratio between silver and gold would wind up being about 50:1.  I had no fundamental reason of my own to pick 50:1—except for this:  The value on freshly-minted, one-ounce Gold Eagles is declared to be “FIFTY DOLLARS” and the value on recently-minted, one-ounce Silver Eagles is “ONE DOLLAR”.  I therefore concluded that the future and inevitable silver/gold ratio would have to be 50:1.

Why?  Because I couldn’t believe that the government picked the 50:1 ratio (seen by comparing Silver Eagles to Gold Eagles) out of thin air.  They didn’t throw a dart at a dart board.  They didn’t draw numbers out of a hat.  I believed they had to have a reason.

I didn’t know what that reason was.  Still, for the past five years, I was sure some good reason had to exist to support the 50:1 ratio.

Now, however, I finally know why the silver/gold ratio will most likely settle somewhere around 50:1.  Why?  Because that’s what it’s been, on average, for the past century.

How do I know?  A graph from ZeroHedge:

.

SilverGoldRatio1

 

I assume that graph is accurate—with one exception: its title.  Because today’s silver/gold ratio first measures the number of ounces of silver (80) in relation to the number of ounces of gold (1), I believe the ratio should be referred to as the “silver/gold ratio” rather than the “Gold/Silver Ratio”.  Silver is the first metal listed in the ratio; gold is second.  The ratio should be referred to as the “silver/gold ratio”.

However, the graph refers to the “Gold/Silver Ratio” and strikes me as technically incorrect.

Quibbling aside, you get the idea.  The numbers on the left side of the graph tell us how many ounces of silver were required to purchase one ounce of gold during the past century.

I also assume that the blocky, stair-step representations of the ratio on the left half of the graph reflect prices officially established by government edict while silver was still backing some or all of our paper dollars.

I also assume that the spikey representations in the price ratio on the right half of the graph represent the time after silver was no longer backing the US dollar and its price was determined by markets more so than by the government. Because the free market prices are in a constant state of flux, the silver/gold ratio was also constantly changing and therefore “spikey”.

 

Obvious Conclusions

Judging from the graph, a couple of conclusions are apparent.

 

First, the silver/gold ratio has been all over the board for the last 100 years.  There’ve been highs near 100:1, lows of 13:1, and everything in between.  Even when government was presumably legislating the silver/gold ratio, it’s unusual to find a point where the ratio held steady (flat on the graph) for more than a year or so.  There’s only one place (in the early 1960s) where the ratio held steady for 2 or 3 years.

The ratio’s volatility has been persistent and significant.

Why?  Because that volatility proves that the prices of gold and silver do not move in lockstep.  If the prices of gold and silver both went up by 20% or both went down by 30%, the graph of the silver/gold ratio would be fairly flat. Because the graph of the silver/gold ratio is “spikey” we see evidence that gold and silver do not more in lockstep and therefore respond very differently to changes in the economy and monetary system.

 

Second, the silver bugs were right in alleging that the silver/gold ratio has been between 12 and 20 in the past.  But if you look at the graph, you’ll see that such events were rare (only three times in a century) and short-lived.  If the duration of all three, sub-20:1 instances were combined, I doubt that they’d add up to more than a total of one year out of the past century.  That tells us that any silver/gold ratio below 20:1 is unlikely.

 

Third, although some silver bugs have argued that silver/gold ratios below 20:1 are somehow “inevitable” and an historical norm, they weren’t basing their arguments on the data for the past century.  In the three instances when ratio fell below 20:1, the result was an almost instant “bounce” back upward.

Implication?  A silver/gold ratio below 20:1 is not the norm—or close to it.  Instead, it’s a lower limit that signals extreme market irrationality and predicts a sudden and significant bounce back up to higher, more reasonable ratios.

 

Fourth, silver bugs who argue that the silver/gold ratio must inevitably fall below 20:1 and stay there for any length of time are fibbing.

(I know, I know.  Who could dream that anyone selling silver would fib about the reasons to buy that metal?  Nevertheless, given the data for the past one hundred years, the silver bugs’ argument that the silver/gold ratio must return to below 20:1 is silly and can only be explained by silver bugs being ignorant or fibbing.)

 

Fifth, if we were to subjectively level this graph and fill in the low valleys with the high peaks, it looks to me as if the average silver/gold ratio in this extremely volatile century of data is about 50:1.  Thus, the government’s 50:1 ratio implied by the prices on modern Silver and Gold Eagles makes sense.

Sure, the ratio could fall from 80:1 to 40:1 or even to 30:1.  But if it does, it will probably bounce back up towards 50:1.  The silver/gold ratio is too volatile to ever stabilize at 50:1.  Still, if you want to bet on one silver/gold ratio that’s most likely to be coming, bet on something closer to 50:1 than to 15:1

 

Sixth, the spectacular profits predicted by some silver bugs when silver goes back to 15:1 are contrary to the last century’s data on silver/gold ratio.  Future profits in silver should be good, but not fabulous.

 

Possible Silver Profits

Of course, a fall from today’s 80:1 ratio to a future 50:1 ratio is nothing to sneeze at.

If the silver/gold ratio falls from 80:1 to 50:1, those who invest in silver could make about one-third more than those who invest in gold.  Those who invest in gold, should do well.  Those who invest in silver should do better.

However, a future silver/gold ratio of 100:1 is also possible and also nothing to sneeze at.

The silver/gold ratio has hit 100:1 twice before in periods of extreme crisis (WWII and Viet Nam war) and, in theory, if global economic crises continue or increase, the current 80:1 ratio might rise to 90:1 or even 100:1.  If the ratio rises from 80:1 to 90:1, those who’ve invested in silver will lose about 12% as compared to investing in gold.  If the ratio rises from 80:1 to 100:1, silver investors will lose about 25% as compared to gold investors.

So long as the silver/gold ratio is rising, gold is a better investment than silver.

But that’s the question, isn’t it?  Will the silver/gold ratio rise or fall?

 

Mostly Similar or Mostly Different?

ZeroHedge.com recently published the article “Silver Soars Post-Fed As Gold Ratio Tumbles Most In 5 Months.”  According to that article,

 

“Two weeks ago, the Silver/Gold ratio exceeded 82:1 . . .  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 Great Recession, the Gulf War, and World War II.”

 

The relationship of the silver/gold ratio to geopolitical and economic crises tells us that, in times of extreme crisis, the go-to metal is gold—not silver.  Gold.

Over the past century, the silver/gold ratio’s volatility illustrates that:

 

1) In times of crisis, the relative performances of gold and silver is significantly different; and,

2)  Gold and silver are so fundamentally different that they can’t be expected to rise or fall in lockstep.  Yes, both metals can rise at the same time or fall at the same time.  One can go up while the other goes down.  But the relative difference between both metal’s rise or fall can be significant.

I.e., just because the price of gold is rising, doesn’t necessarily mean that the price of silver will also rise in direct proportion.  Gold could rise by 20% while silver rose only 5%.

Just because the price of silver is rising, doesn’t necessarily mean that the price of gold will also rise in direct proportion.  Silver could rise by 20% while gold rose only 5%.

In fact, since the 1st of January (until March 25th) the price of gold was up 14.7% while the price of silver is up only 8.6%.  The prices of both metals have enjoyed significant increases, but those increases have not been equal.  The two metals are not moving in lockstep.

Whichever way and to whatever extent either metal moves will depend on the economic and geopolitical context.  Gold could go up while silver goes down.  Silver could rise while gold falls.

If you look at the graph, you’ll see that the highest silver/gold ratios (80:1 to 100:1) take place in times of crisis (WWII, Viet Nam, Lehman Brothers’ collapse, the 2008 Great Recession) when the price of gold is rising much faster than the price of silver.  The prices of both metals may be rising, but crises favor gold significantly more than silver.

Conversely, look at the graph again, and you’ll see that and price of silver rises faster than gold during periods without crisis.  The result is low silver/gold ratios below 20:1.

During these non-crisis periods, silver gains more than gold because silver is primarily an industrial metal.  I.e., when there’s no crisis, the economy and industrial production do well, industrial demand for silver swells, and the price of silver rises faster than that of gold, causing the silver/gold ratio to fall.  The prices of both gold and silver might both rise, but the price of silver will rise faster.  Periods without significant crises favor silver more than gold.

In short, during good economic times, the price of gold (primarily a monetary metal) should drop in relation to silver while the price of silver (primarily, an industrial metal) should rise (in relation to gold).

Conversely, during periods of crisis (like the onset of WWII and the Viet Nam war) the price of gold—primarily, a monetary metal—should rise faster than the price of silver which is, primarily, an industrial metal.

Judging from the graph and generally speaking, good economic times are best for silver; bad economic and bad monetary times are best for gold.

 

Very Different Metals

The silver/gold ratio provides strong evidence that gold and silver are two very different metals whose prices move up or down for very different reasons.  Therefore, the price distinctions and constant volatility seen in the graph of the silver/gold ratio indicate that, contrary to the silver bugs’ siren song, silver is not precisely a “poor man’s gold”.

Yes, silver is, to some extent, a monetary metal. To that extent, silver is a “poor man’s gold”.  But silver remains, primarily an industrial metal.  To that extent, silver might be more of a “poor man’s platinum” (another industrial metal) rather than a “poor man’s gold”.

For the sake of comparing the “natures” of silver and gold, I’d guesstimate that the nature of silver is, say, 80% industrial and 20% monetary.  If so, the price of silver will move up or down based primarily on changes in the GDP and, particularly, on industrial demand.  Monetary influences (money supply, interest rates, inflation/deflation) will affect the price of silver, but to a lesser degree than “industrial” influences.

Gold, on the other hand, strikes me as more like 90% monetary and 10% industrial.  Changes in industrial demand for gold will affect its price, but only to a minor degree.  Changes in monetary policies or monetary fears (OMG—is the dollar going to die?!!) will have the major impact on the price of gold.

We can quibble over whether correct industrial/monetary mix for silver is 80/20 or 60/40, but the point remains that silver is predominately an industrial metal. As such, we can hypothesize that silver’s price will therefore primarily reflect industrial forces such as supply and demand.

Likewise, gold’s monetary/industrial ratio might be 90/10 or 70/30.  But the fact remains that gold is primarily a monetary metal.  While its price may vary to some minor extent based on industrial demand, gold moves mostly due to monetary issues (national debt, currency supply, inflation/deflation, interest rates, the life-expectancy of any currency and/or geopolitical conflicts).

 

Predicting the Future

Given the differing natures of silver and gold, if you want to invest in precious metals, your first step should be to decide how you believe the economy and monetary system will change in future years.

As you peer into our economic future, are you optimistic or pessimistic?  Do you expect to soon see an economic “recovery”?  If you do, then the price of silver should rise in relation to gold, the silver/gold ratio should fall from 80 to, say, 60 or even 40—and industrial silver is a better buy than monetary gold.  The prices of both gold and silver may rise, but if the economy is recovering, silver should rise faster than gold.

On the other hand, if your crystal ball tells you to expect several more years of recession, possible depression and continued crises in Syria, the South China Sea, the EU, Japan, Ukraine, Venezuela, Brazil, Belgium, the “oil patch” and perhaps Wall Street, Main Street and Pennsylvania Avenue—then the prices of both gold and silver may rise, but the price of gold should rise faster.  We might see a silver/gold ratio of 90:1 or even 100:1.  In that case, the smart buy is gold.

So—what do you see coming?  More of the fabled “recovery”?  Or more crises?

In broad strokes, your answers to those questions should tell you whether your best current investment bet is gold or silver.

 

Hedge Your Bet

Can’t make up your mind?  Then maybe you can hedge your bet by buying both gold (in case of monetary crisis) and silver (in case of an industrial recovery).

In fact, based on the previous conjecture, silver might be viewed as less of an alternative to gold than as a hedge.  If so, then if you thought that the odds of continuing crises compared to the odds of an economic recovery were, say, 80:20, then you might want to spend 80% of your investment dollars on gold and 20% on silver.  If you thought the likelihood of continuing crisis was 50% and the likelihood of economic recovery was 50%, you might choose to spend 50% of your investment dollars on gold and 50% on silver.

The best precious metals investment will be the one that conforms most closely to our economic and political future.

 

Personal preference and Convenience

In addition to investing based on your personal predictions of future economic and monetary policies, you can also base you investments on personal preference and convenience.  For example, I have a little gold and a little silver.  Even though I expect silver to enjoy larger profits on a percentage basis than gold, I still prefer to hold gold over silver.  My preference reflects my age, personal circumstances, the difference in weight of the two metals and the difference in the two metals’ natures.

If I were younger, I might jump into silver.  But, being a senior citizen, I can appreciate a measure of stability.  The price of silver is in a constant state of flux.  Whatever that price is today, it won’t be that tomorrow.  It could go much higher, it might go much lower.  I don’t want to be asking myself on a daily or hourly basis if I should have sold silver because it might be at its peak or if I should’ve bought silver because it might be at its bottom.

Compared to silver, the price of gold is less volatile and feels more conducive to my rocking-chair lifestyle.  I don’t like the stress that silver offers, so I prefer gold.  I have more confidence in gold than in silver.

And then there’s the weight issue.  At today’s 80:1 silver/gold ratio, it takes five pounds of silver to purchase one ounce of gold.  Even at 50:1, it still takes three pounds of silver to equal the purchasing power of one ounce of gold.

It’s a lot easier to hide or transport one ounce of gold than it is to hide/transport three pounds of silver.  I could hide a small fortune in gold in the attic without adverse effect.  If I tried to hide an equivalent fortune in silver in the attic, there’d be visible lumps in the insulation, and the weight of the silver might even cause some of the ceiling on the first floor to cave in.

On the other hand, silver has utility precisely because it has less value per ounce.  In a worst case scenario, it will be hard to use one-ounce of gold worth $1,500 to buy a loaf of bread and some hotdogs at the grocery store.  How will the store owner make change?  But, at a 50:1 ratio, my silver eagle will be worth $30 and should therefore be convenient for making my small grocery store purchases.

Of course, if the silver/gold ratio were 50:1 and I wanted to buy a used pickup priced for $10,000, would I rather pay with 7 ounces of gold or 22 pounds of silver?

Gold is more convenient for saving, hiding, transporting or making large purchases.  Silver should be more convenient for small, day-to-day purchases.

 

Win-Win?

Both gold and silver are smart investments.  In today’s economic and political climate, they’re better investments than almost anything else.  In either case, you’re likely to profit handsomely.  But, for some, gold is a better “fit”.  For others, silver.

If you invest in silver and if we see some economic and industrial recovery, you might make 30% to 50% more than you’ll make investing in gold.  But you won’t make 400% to 800% more on silver than you will on gold.  Any silver bug who tells you differently is probably fibbing.

If you invest in gold and the geo-political and monetary crises continue or increase, your profits should be greater than if you invested in silver.

The question remains:  Where do you think the U.S. and world economies are headed?  Back towards economic recovery or deeper into crises?  Your answers to those questions should guide your investment decisions.

 
23 Comments

Posted by on April 1, 2016 in Gold & Silver Coin, Values

 

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23 responses to “The Silver/Gold Ratio

  1. timmy

    April 1, 2016 at 7:22 PM

    Some good points. I would note: Metals are not really ‘investments’. They are a store of value. (The old saw- an ounce of gold will buy one decent man’s suit, in any era basically holds true. IE, in the long run, the value of the gold never changes- simply it’s denomination in the current paper currency of the day.) Silver as you point out, is also an industrial commodity in ways that gold is not.

    In a crisis, I don’t think ANY stores or businesses will be accepting metals, except perhaps a very small locally owned mom and pop place. (How many of those are near you??) Silver as you mention is much more practical and preferable for barter/crisis use, and that will likely be more with individuals than stores. In which case a one ounce silver round might be equivalent to a 50 or even $100 dollar bill. Possibly a bit large for everyday use. (Ever been turned down trying to spend a $100 dollar bill? I have, many times.) So fractional silver pieces make sense for that use. (Half, quarter and 1/10 ounces very available.) Gold will be essentially useless for the exact reason you mention- it holds too much value in a unit.

    You correctly point out, and i would go even a bit further: Gold is a monetary metal, and certainly for governments and banks. They do not use silver- at all. Silver is the ‘useful’ and practical metal, I agree. So one’s personal purpose and long term goals will determine which one to hold, and in what form. There is no one plan for everyone.

    I do think having a few one oz or half ounce gold coins along with a money belt is cool, as they could be used to bribe your way out (or in) to various places should the need arise. What low paid border guard wouldn’t look the other way for what will likely be a $2-5k bribe at that point?

    As you point out, if you just want to stably store some wealth, gold is the way to go.

    Interestingly, oil and commodities in general and the precious metals are all signaling DEFLATION, not inflation. And the dollar keeps rising, also a confirmation. So nominal prices have a good chance of continuing to drop. (Look at the five year price charts- it’s still a bear market in precious metals. I think this is due to the demand for dollars worldwide. IE, dollars are more valuable to most parties than metals, up to this point.)

    I do strongly believe we should all have a good bit of our worth in metals, just because they cannot go to zero, as of course dollars and almost every other paper asset can, at least potentially.

     
  2. palani

    April 2, 2016 at 6:51 AM

    If I were to try to use gold or silver as money in the land of the walking dead the zombies would detect a living being and attack. A paper FRN is more about camouflage than it is about money.

     
    • moon

      April 2, 2016 at 12:04 PM

      Palani, your astute ability to cut to the real world chase is amazing to me. Oops, never underestimate the zombie factor.

       
  3. Howard R Music

    April 2, 2016 at 9:21 AM

    I’m probably dense, but I’ve never had anyone explain to me how to spend a gold coin if there is a total collapse of the dollar, and an ounce of gold is worth $20,000. You want to buy a sack of potatoes and ask the seller if he has $19,900 change? If you flash gold coins don’t you think the local thugs might want to have a talk with you?

     
  4. Ralph P. Torello

    April 2, 2016 at 10:01 AM

    The concept of a “dollar collapse” or a currency collapse is Washington DC’s last feeble minded gasp at asserting it’s authority. In Dallas much of what people buy & use on a daily basis has remained unchanged in price since I was a kid – and I am 40 years old. A Big-Mac, a gallon of milk, a botlle of soda – almost all food prices here (bought in bulk) have remained unchanged since I was 10 years old. Things like durable goods & textiles are experiencing MASSIVE AMOUNTS of deflation. In 1987, you could go to Valley View mall and buy nice shirts – probably for 4 TIMES the amount you would pay for the same nice shirt (now all mass-produced in Asia instead of America) that is available at Walmart.

    The most famous currency collapse (Weimar Republic) happened immediately after the fighting in Belgium/Holland (WW1) – largely because they saw their youth and their population fighting and dying for their own population. What is the value of money when French are mowing down Germans and Germans fighting French? In Dallas – we are SO FAR FROM that situation that (people fighting for Dallas, OKC, New Orleans – or even Matamoros, Juarez, etc (fighting for “their country”) … that DEFLATION is what is occuring in many sectors. Automobile prices, though, are an outlier to my argument. Deflation throws a monkey wrench into the conspirators & powers that be’ plans (“the illuminati”) because our own personal purchasing power increases…

    When currencies collapse, the powers that be – government, military, larger landholders, and executives become empowered, and there ability to weild influence increases many, many fold. Here in the Texas, OK, Northern Mexico, etc area… People have zero trust whatsoever for “the powers that be” – and that phenomenon is reflected in the prices of many of our goods.

     
  5. Ralph P. Torello

    April 2, 2016 at 10:32 AM

    One request to Al Adask… Then I’ll leave you alone… It is: Maybe you could write a little about this stuff. Google translate works very well for “Romance Languages” of which Spanish & Spanish WebSites are one … Chinese not so much …

    我自己最喜欢的阅读的文章和网站就是中文的。It says that favorite stuff to practice reading are Chinese websites … which ostensibly come from Asia/China – but I am very skeptical, and I usually accept that the only thing Google & the Internet are allowing me to view are government computer generated news stories created by “American Security Proffessionals” – no different than Yahoo! News or CNN, never really sure…

    RATES TABLE
    1 Mexican Peso Rates table
    Top 10 Apr 02, 2016 15:21 UTC
    Mexican Peso 1.00 MXN inv. 1.00 MXN
    US Dollar 0.057675 17.338545
    Euro 0.050614 19.757337
    British Pound 0.040531 24.672403
    Indian Rupee 3.819810 0.261793
    Australian Dollar 0.075078 13.319470
    Canadian Dollar 0.075026 13.328627
    Singapore Dollar 0.077896 12.837661
    Swiss Franc 0.055257 18.097179
    Malaysian Ringgit 0.224444 4.455458
    Japanese Yen 6.443880 0.155186Alphabetical order

     
  6. Ralph P. Torello

    April 2, 2016 at 1:23 PM

    Don’t forget .. prior to 1935, Germany as a nation really hadn’t ever existed. Mostly, it was just called PRUSSIA – and during the “rise of Russia” in the 19th century – most leaders there worked as lieges to the Tsar. It wasn’t until Hitler & the Nazi’s that Germany ever really functioned as a gubernatorial & political unit (however horrible they were)… (not a fan of the hollacaust or anything)..

    https://en.m.wikipedia.org/wiki/Prussia

    Lately the Dallas government has been saying MKT+M. to me over & over.. (Missouri, Kansas, Texas)

    https://en.m.wikipedia.org/wiki/Missouri%E2%80%93Kansas%E2%80%93Texas_Railroad

    The “extra M” of course referring to Northern Mexico … Tamaulipas, Nuevo Leon, Chihuahua, Juarez, etc… Do you love brain control??? Don’t we all love brain control!

     
    • palani

      April 3, 2016 at 6:35 AM

      @ Ralph P. Torello “not a fan of the hollacaust ”

      What is fascinating about the holocaust is not whether it did or did not occur but when it occurred. According to etymology online the word-symbol holocaust first became a noun referring to events occurring in WWI (phase deuce) in 1957. Before that the word saw use as a verb rather than a noun. This means that between 1945 and 1957 there was no event called by that name. This then begs the question of why. Why was it necessary in 1957 to coin a name? My guess is for better marketing. Political hay. Conditioning of the masses.

       
  7. donald r burke

    April 2, 2016 at 9:19 PM

    Thanks for your wisdom al. been reading and listing to your insite for about 4 years,what a time we live in. your ausome

     
  8. DOG-MOVE

    April 4, 2016 at 2:00 PM

    Alfred, great study— the important thing may not be the 80:1,50:1, or the 15:1 ratio. The important thing may be, where is your capital deployed at the current time? The USDX is at a point in which weakness will be the order going forward. The peak in ’97 and ‘98 was roughly 100 on the USDX—the peak in 2001 and ‘02 was around 120. This latest move up in the USDX since 2011 started at around 75, and ran up to the 100 ceiling. It could not move above the peak set in 97, and 98–in 2015. This is evidence of extreme weakness or what I refer to as “chart perfection”.
    An observation from the graph in the study indicates that extreme low readings in the ratio coincided with the ending of war cycles—WWI 1917, and the Vietnam War. The peaks in the graph coincided with the commencement of war cycles—WWII 1940’s and the Gulf War(s) Middle-East war cycle, still on going. It appears if one is long silver when the ratio is at or above the 82 level the ratio always reverts to the 50 level. Is there an escalation coming in the current ongoing war cycle? There is also the competitive currency war at work now, as well.
    As the USDX rolls over here and probes the downside direction, gold and silver will both be strong. It’s entirely possible that any anti-dollar trade will pay off handsomely, some better than others—oil, corn, Yen, Real, coffee, CRB index. Don’t underestimate and/or overlook the strength in anti-dollar currencies, moving in sympathy to the silver and gold bulwark. The USDX looks poised for a steep downtrend similar to the downtrend which commenced in 2002 and ran through 2011, marking phase 1 of the “War on Terror”. Could the next leg down in the USDX be caused by the onset of phase 2 of the “War on Terror”? Excess dollar creation? [ongoing Middle East war cycle].
    “let everyone return to his own people, let everyone flee to his own country” Jeremiah 50:16— “We tried to cure Babylon; she has got no better [QE and ZIRP]. Leave her alone and let us each go to his own country”. Jeremiah 51:9 – is money set to leave the Babylonian Dollar? Flight to safety?
    I largely suspect the vast majority of investors capital has minimal exposure to anti-dollar positions and does not understand we are in an ongoing war cycle. As they join the gold and silver bugs in the preservation of purchasing power of assets, they will provide the needed fuel [fear capital] for the move up in anti-dollar assets.
    Wall Street maxim: “one must look wrong to be right in the markets”. The vast majority of investors are always wrong, also “early stage bull markets are invisible to the herd”. The coming weakness in USDX and the coming strength in gold and silver are not on the radar screen for most at this stage of the cycle. It’s good to be early, and good to “look wrong” at this time. It may be safe to deploy leverage at this point with minimal risk….
    The Word of God refers to a gold/silver ratio of sorts. In Wisdom 7:9, comparing gold and silver to wisdom it states: “for compared to her, all gold is a pinch of sand, and beside her, silver ranks as mud”. What’s the ratio of sand to mud?
    According to Zondervan’s NASB Exhaustive Concordance the term Wisdom occurs 216 times, Gold occurs 432 times and Silver occurs 320 times in the scriptures, another ratio to consider.
    The Lord lets you see and He lets us with eyes, also, to see, and try to understand, as we are “living in the the fierce warfare of ignorance” [Wisdom 14:22] of these days.
    All years referred to in this post are in the Year of our Lord.
    Thanks Al, for your treasured insight, here at peace and upon the soil.

     
    • Adask

      April 4, 2016 at 2:12 PM

      Thanks for your compliments.

      Thanks for taking time to write a lengthy comment.

      Thanks for reading my article in the first place.

      Blessings on you and yours.

       
  9. timmy

    April 4, 2016 at 4:26 PM

    “reality” – a working definition: That which IS, not what I wish, want, think is. There is not even a hint of hyperinflation. Even with the massive creation of dollars since 2008/9. Precious metals are still in a long term bear price pattern, despite recent mild rises. (Again, look at the five year charts…) Wake up. Principles are great, and we should have them. But tactics and practical decisions should be (must be) based on concrete, tangible reality.

    In military terms, it’s called ‘fighting the last war.”
    Overall, we are in a world wide deflationary period. Look at the price of copper- best key indicator of economic activity and trends.

     
  10. dog-move

    April 6, 2016 at 2:44 PM

    I always contend insofar as graphs and/or charts are concerned, as the old saying goes: “a picture/graph is worth a thousand words”. In this picture/graph, at the top, north of 82 you have WWII and Gulf War. When the ratio began down [war cycle] it ran for over 30 years. If you measure the peak to trough timeframe on the graph from WWII to the ending of the cycle in the mid to late 70’s that’s 30+ years. The peak at the Gulf War on the graph is A.D. 1990, this is 26 years thus far. In both instances the bottom was tested I always contend insofar as graphs and/or charts are concerned, as the old saying goes: “a picture is [double bottom] before the ratio turned back up. The spike south of Lehman at 30 was the silver/gold peak in A.D. 2011. The monetary mess currently in place is far worse than the situation which brought about WWII. We at least should test the 30 level once more if this recurring pattern theory is roughly correct. I suspect we will reach the lows of the previous war cycles on the graph of, Jan-1915, and Jul-1967. It’s how the cycle thing seems to work from my experience in the past. The current magnitude of the monetary/debt situation may be cause for the current war cycle to go on longer than anyone expects. War cycles are good in a debt based economy. War cycles create the 11th dollar [money supply] so debt can be serviced not defaulted on. If this observation is remotely close, the 82 level here is undervalued territory in the ongoing cycle. Buy silver and gold at this point. They are as undervalued as at any time in the last 26 years when the ratio hovered at the 82 level, on a relative basis. Silver and gold may be at fair value when this ratio is at the low end of its cycle, in the 15 to 30 to 50 range. One can derive a lot from looking at graphs and/or charts in the high state of objective observation. As with any thing it takes time and much study, with a lot of trial and error.
    The important thing is to use the graph to determine the trend in silver and gold. Every time the graph was at the 82 level since the Gulf War it indicated a cycle low in both metals. The Gulf War area was the ultimate bottom in both which was tested in Jul-2002 on the graph. Since the Gulf War area on the graph, If one went long in silver and gold at the 82 level it would have been an idea entry point. I suspect now is no different we are at cycle lows in both metals at this time. Over lay this graph over silver or gold and it will be obvious that the cycle low concept is correct, timing is important. This is the silver/gold ratio chart—a gold/silver ratio chart would effectively be this one turned upside down.
    The leading indicator for silver and gold currently, is XJY. This currency is leading silver and gold, and it is moving up powerfully! ALL ABOARD! Remember strong XJY is bad for the global equity markets, as evidence in today’s market activity 4/5.
    Manipulation will always be with us. But the manipulators have no control over the cycles and the Laws of nature. The ratio chart is a good cycle chart, tells a lot and has great signs within it, if you can read it.
    Matthew 24:24: “for false Christs and false prophets will arise and provide great signs and portents [future signs], enough to deceive the elect, if that were possible”. The elect should see the great signs and the portents even if the signs are in the esoteric form. Hidden in plain sight.
    There is a troubling sign that inflation is on the horizon, 3 month LIBOR has been rising and is staying stubbornly firm. London “The Empire within the City” may be quietly setting interest rate direction in an upward bias.

     
  11. dog-move

    April 6, 2016 at 3:18 PM

    Copper has bottomed here as has oil.

     
  12. timmy

    April 6, 2016 at 6:07 PM

    Interesting points; but people have been calling a ‘bottom’ in oil for years. as they get wiped out…

     
  13. dog-move

    April 7, 2016 at 3:52 PM

    Yes, its like catching a falling knife, one can get cut to pieces.
    Its about the USDX. The USDX appears to be into a hard rollover, commodities are priced in dollars. USDX down, commodities up. This action plays out over and over.
    USDX began up in A.D 2011, the run is over. Market players who have been pushing commodities lower during that period with leveraged devices, like shorts and leveraged put options are fixing to get destroyed trying to cover their shorts as the USDX gains momentum to the downside.
    Their shorting devices will cut them to pieces as commodities rise. The powerful rise in XJY thus far is an example of the panic underway to cover the shorts in that vehicle. The commodities will follow in the trax of XJY in the wave of USDX panic selling. Sit back and watch the fear in action, just be on the right side of the market as this unfolds.

     
  14. AuBrix

    April 7, 2016 at 8:47 PM

    It should be some interesting times ahead now that Red China has come into the LMBA.

     
  15. dog-move

    April 8, 2016 at 9:54 AM

    It is fascinating how the Baltic Dry Index is at 450 April 1st, up from 290 February 1st. I’m not quite sure what is causing the move up, but its on my watchlist. Are shipbuilders getting ready for an upcoming boom in the WAR/COMMODITY cycle? There appears to be absent a boom in the western consumer economy at present.

     
  16. GEORGE

    April 11, 2016 at 1:38 AM

    Norm Franz > Quotes > Quotable Quote

    “Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.”

     
  17. dog-move

    April 11, 2016 at 1:12 PM

    Just one more comment on this chart/graph concept. Since what i believe to be an event or radical change of mindset right at the doorstep for the markets.
    Greg Hunter had an interveiw with a chart-man Bo Polney, I think that he’s spot on and I couldn’t have articulated it better. Whether you think charting is a viable practice or not, its well worth watching. He appears to express the imminent danger right ahead very well.

     
  18. moon

    April 30, 2016 at 12:38 PM

    Al, Maybe I’m a “silver bug”, however, I try not to be annoying about it. Coming from a “gold bug”, this post is very well thought out and written. Seems to me it lays out some important facts and leaves each of us to label ourselves. Very well done!

     
  19. Adask

    April 30, 2016 at 6:40 PM

    Whatever kind of “bugs” you and I may be, we are definitely not “paper currency bugs”. In fact, I suspect that the “paper currency bugs” see us as their arch-enemies.

    Perhaps we’re headed for a “bug war” between the gold and silver “bugs” on one side and the “paper bugs” on the other other.

    “Precious Metal Bugs” of the world, unite! You have nothing to lose but your worthless, paper currencies!

    Thanks for your compliments.

    Thanks for reading my article.

     
    • moon

      May 3, 2016 at 11:24 AM

      Even if some folks feel they don’t have funds enough to buy gold or silver, there’s still hope. It’s amazing to me what people send to the land fill…or wherever the garbage truck takes it.

      Plenty of metal, not necessarily considered precious, is available for the taking. When scrap metal prices go high, we see many people searching highway right of ways and ditches for aluminum cans (and other goodies) thrown out by travelers. Dumpster diving can be quite profitable as well. From a morality view, I’d rather salvage value from a dumpster than work for a bank. Yep, a dumpster diver or highway scavenger will be talked about. Get over it…most folks are broke!

      Right now, a recycler may pay 50 cents per pound for aluminum cans. If you’ve ever collected 100 pounds of cans, you know first hand how much effort that is for $50. However, there’s a story of a woman in her sixties who built a recreation park, with swimming pool, for the children in her community with funds from selling aluminum cans, for less than 50 cents per pound. Hmmmmm…

      Consider this: now that metals prices are lower, fewer people are saving it, so there’s more available. What if, in the not too distant future when cans sell for $1.00 – $1.50 or more per pound, you have a ton or two or three sitting ready for sale? Hmmmmm…

      Also, consider this: what if your garage is filled with banana boxes packed with #2, #1, and /or bare bright copper when recyclers are eager to pay $3, $4, $5 per pound or more for it? Hmmmmm…

      One last consideration: Since minted coins still contain copper and zinc, would a few thousand rolls of quarters, dimes, nickels, and/or pennies be worth having when copper is worth $5 per pound to recyclers?

      Go for metal, flush the paper!

       

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