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Wednesday, July 18th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Using the Gold to Silver Ratio to Determine Precious Metals’ Outlook

The gold/silver ratio never regained stability, possibly due to the massive silver discoveries in the American west, and the advent of technological uses for silver including photography, which started silver’s shift away from a monetary metal and towards an industrial metal. This instability caused silver to be widely demonetized starting about 100 years ago, because silver could no longer work together with gold to form a stable monetary base. For example, prior to 1900 the US dollar was defined as 3/4 ounce of silver, and after 1900 the US dollar was defined as 1/20 ounce of gold. (And of course, in 1933 the US dollar was totally redefined by the Parker Brothers, with the Monopoly board game actually being patented in 1935. Annual silver demand has exceeded annual planetary production for many of the past 50 years. Until the last 2-3 years, monetary silver investment has been less than zero, due to silver coin melting and other recycling making up the industrial deficit. Yet, the shortfall is unsustainable at current silver prices, because silver in electronics often cannot be recycled economically, so it is simply thrown away. Also, every time the US military explodes a smart bomb, 100’s of ounces of silver are vaporized. Vast stockpiles of silver accumulated over many centuries have now been “consumed” in the last few decades, and it is unclear how much is left. For example, after World War II ended the US Government had stockpiled billions of ounces of silver. As of 2002, this stockpile is completely gone, as are all other official world government stockpiles. In many expert opinions, at least 80% of all silver mined in history is now gone, unrecoverable by any means, while at least 80% of all gold probably remains. So, the current ratio of existing silver to existing gold is probably more like 5:1, and not 10:1. On top of this, most of the remaining silver exists in things like jewelry, silverware, or coins. Therefore, in regards to world bullion stockpiles the 5:1 ratio is flipped, with gold bullion actually being around 5 times more plentiful than silver bullion. So, we now have a price ratio of 39:1, but an availability ratio at current prices of 1:5. In this light, remember that silver (not gold) is the metal that is indispensable for modern society.

The essence of trading the gold-silver ratio is to switch holdings when the ratio swings to historically determined “extremes.”

  • When the ratio contracted to an opposite historical “extreme” of, say, 50, the trader would switch the trade.
  • In the case of devaluation, deflation, currency replacement – the strategy makes sense. Precious metals have a proven record of maintaining their value in the face of any contingency that might threaten the worth of fiat currency which may be the case today.
  1. Economic recovery – Negatively
  2. Fiat currency fears – Positively
  3. Inflation fears – Positively
  4. Industrial production – Negatively
  5. Political Fears – positively

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The original article is published at

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