Silver for gold -- and vice versa

Fri, Aug 16, 2013 - 4:33pm

The warden said:
"The exit is sold.
If you want a way out,
Silver and gold."

There's been a lot of talk, maybe too much talk... :-) about which precious metal is best to own, why, when, in what ratio (if any, for some). Not a trivial question to ask if one is just beginning to stack -- and not one to ignore if one had at one point tragically lost a sizeable stack in choppy waters on a midnight fishing expedition.

There are economic, monetary, industrial, geopolitical, social and in ALL cases personal considerations -- I cannot hope to cover them all: but I would like to try to start a conversation about them, and eventually dig up more details in future posts. We are all our own 'financial advisers', to a greater or lesser extent we are trying to act as such for our family and friends. It's important to have a solid, well-founded understanding of at least the pillars influencing the decision which metal to choose and in what ratio. And whether and when this decision should be revisited.

Being the Luddite that I am, I do NOT feel comfortable investing my savings in paper representations of legal claims on property I do not physically control – as I see a non-trivial risk in being subordinated if not outright dispossessed of said ‘ownership’ as and when the current monetary paradigm hits a convenient milestone on its lurching path towards its eventual demise (and subsequent transformation). While I do not (as yet) foresee the end of the world as we know it in ALL areas of life, I DO remember, and therefore anticipate the possibility of ‘bail-ins’ on a much more breathtaking scale than we have seen thus far -- at least recently. Perhaps direct registration of shares or physical certificates will help. The fact that I see this as a ‘perhaps’ is enough for me to stick to physical, tangible, directly held assets. But as Ernest Hemingway said, you go broke gradually, then all at once. I don’t think we’ll get a red-striped letter in the mail saying ‘WARNING’ beforehand (any more than we already have, of course) – the entire point of making an (admittedly pretty final) move like this is to have as many people still holding the bag as possible. While general warning signs abound (and will multiply), there will be no text message telling me it’s no longer safe. Year early, minute late and all that. Hence my focus on physical accumulation.

My very first investment in precious metals did not bode well for my future in being a PM bug -- a spouse who vehemently enough disagrees with a particular allocation decision is a powerful impetus for liquidation. It was, to others, a trivial sum -- 50 oz of silver -- but it was powerful enough that it forced me to start over, re-examine all my premises, information and informed predictions about the future. In doing so, I realized that my conclusions and planned course of action were correct. I ultimately convinced my spouse that my efforts to keep a portion of our nest egg in PMs was not founded in specious, get-rich-quick arguments, nor stemmed from a gambling addiction.

Going through the process of checking the premises helps think through a cogent, convincing argument for others as well. In my mind THAT is why TFMR is invaluable - the persistent reader can find ALL kinds of opinions to challenge one's premises. Main Street is called thus for a reason -- it represents a numeric majority of like-minded individuals, who will have a number of shared assumptions and experiences. But in the Forums you will find views to challenge ANY assumption, if you choose to look.

The element of metal allocation that I wanted to focus on (and ask YOU about) is the GSR -- the number of ounces of silver required to get an ounce of gold. My own perspective is that I am currently overweight in silver, and want to increase wealth preservation and decrease risk, and for the moment have no current intent to sink further savings -- unless there are extraordinary circumstances (e.g. silver drops to 14-15 and can ACTUALLY be bought anywhere near those prices). My thinking has been voiced earlier by DPH and others several times -- trade silver for gold as their relative valuation in fiat shifts (and thus, for the time being, their tradable ratio) and gold becomes less expensive in terms of silver. Simple enough, on the surface.

There are some who expect this ratio to drop to (or even below) 1 [you know who you are] -- and some who suggest a ratio around 15:1. There are those who think 15:1 is bollocks.

There are those who think they can identify turning points in the GSR -- Silver: The GSR Bottom Finder

There is a good bit of detailed (if dated) material in this old article from The Moneychanger. It's a REALLY long piece with lots of detail, but I have not had a chance to vet its sources, so DYODD. Despite the title, the 'meat' (swapping metals to increase net ounces held) of the article is at the end.

The GSR is regularly discussed in The setup for the big trade and lots of other threads here. Casey Research seems to dismiss the GSR as an unreliable indicator for investment: Guest Post: The Gold-Silver Ratio – Another Look

And of course there is the MOPE in the media -- I was not going to get into this, but this report was too good to resist:
This August 15th Gold Council report was referenced by Business Insider, and headlined thus --CHART OF THE DAY: Gold Demand Is Evaporating. Very amusing.

"Total demand has fallen to its lowest level in 4 years, owing to a decline in demand for gold for investment related purposes (demand for jewelry and coins continues to grow).

Here's the chart showing total demand going back to the beginning of 2010, wherein you can see that the last two quarters are the weakest we've seen in recent years."

But onto more serious matters. Is it enough to look at a chart like this:

Or does it make sense to consider a chart more like these:

In both cases, do the more recent (20th century) values now represent the 'new normal' -- or are they extreme swings which will revert to the mean?

This one is for people braver/smarter than I (of which I'm told there are many):

Well, at least it does not seem like the demand for gold for investment purposes HERE is likely to evaporate soon...

So, dear Reader -- what, if any direction is YOUR preference? Buy more silver now, expecting the GSR to fall further? Or just the opposite – when S truly HTF, will GSR shoot to eve-of-WWII levels (and beyond -- according to some)? Buy both in some ratio? Swap one for the other NOW? Is the goal larger net value of assets in current fiat, or a higher number of ounces, and are the two the same thing? Does portability figure into anyone else's calculations? How does this calculus change as prices march onward (dare I say HEH?), or conversely if they should fall further?

About the Author


Motley Fool
Aug 17, 2013 - 4:26pm

As regards the topic...

Gold for me. :)

Aug 17, 2013 - 4:46pm

The sheeple...

are starting to awake from their slumber!...Will the prophecy come true?...

Bag Of Gold

Aug 17, 2013 - 4:55pm

Think Back...

what was it that persuaded you to take the road now less traveled? In other words, what was the catalyst for you turning to gold or silver ?

Personally, for me it was reading about the history of currency and it's rise and fall in many forms. The debasement of tangible items right before our eyes. The quality of goods diminishing in the face of constant rising prices.

Having savings in a form of Hard Currency may not end up a golden goose... but it is still SAVING. A forgotten concept by most Americans.

Aug 17, 2013 - 5:09pm

@ Kerbouchard, It Took Me A Long Time...

...To understand this:

The Guess Who American Woman The Midnight Special
Kerbouchard Occasnltrvlr
Aug 17, 2013 - 5:32pm

@ Occasnltrvlr

Hit the nail right on the head!

It's my theme song.

And to the female Turdites, I'm not referring to you. It would be a disservice to lump you in with with my original post. There's no way a true Turdite (female or otherwise) could be on this board and have such an attitude towards a spouse.

Aug 17, 2013 - 5:33pm

The 11k COT short increase

Maybe its been discussed on the vault thread but what's the reason for the 11k contract increase in commercial shorts in silver in this weeks COT?

Kerbouchard Gramp
Aug 17, 2013 - 5:44pm


Re: ...what was it that persuaded you to take the road now less traveled? In other words, what was the catalyst for you turning to gold or silver ?

These two early experiences were the catalyst for me:


Aug 17, 2013 - 6:03pm

A Perfect Circle ✯ Judith

A Perfect Circle - Judith

okscouter Maximillion
Aug 17, 2013 - 6:07pm

Re 11K addl short buy commercials

Without those shorts silver would have been at least $2 higher. TPTB don't want this to get away from them as an unruly route. If silver had ended the week $2 higher, where do you think we'd be going next week, and how would a move like that have affected gold. JMHO

Aug 17, 2013 - 6:37pm

Love the Post, JY!

Direct quote:

My very first investment in precious metals did not bode well for my future in being a PM bug -- a spouse who vehemently enough disagrees with a particular allocation decision is a powerful impetus for liquidation. It was, to others, a trivial sum -- 50 oz of silver -- but it was powerful enough that it forced me to start over, re-examine all my premises, information and informed predictions about the future. In doing so, I realized that my conclusions and planned course of action were correct. I ultimately convinced my spouse that my efforts to keep a portion of our nest egg in PMs was not founded in specious, get-rich-quick arguments, nor stemmed from a gambling addiction.

My spouse looked at me after I purchased a 100 oz bar from the local pawn shop a few years ago for $1250 with anger and disappointment.

"How could you? That's a LOT of money!"

Her tune changed when a few months later I sold the same bar on eBay for $4100.

I wonder and suppose there are quite a few other spouses that need simple and coherent explanations of what we're really up to, and do they really understand what we try to explain?

1wileyz Mr. Fix
Aug 17, 2013 - 6:47pm

Aren't Spouses Wonderful?

Great post Mr. Fix, Right on!

Aug 17, 2013 - 7:07pm
Green Lantern
Aug 17, 2013 - 9:26pm

Well, it's Saturday night.  

Well, it's Saturday night. Things are a bit slow. So I'm just putting this out as an item of general interest. Although, I'm on-board with AM's hypothesis that news flow is relevant to market action.

On the same day in the MSM, there is the news story that they are reopening the investigation of Princess Diana's death due to a new lead. And, there is a story about new demands to reopen the sealed confidential files in the JFK Case. What are the chances that would happen on the same day?

Aug 17, 2013 - 9:50pm

Reopening Old Death Cases...

...WDS? Just thinking of possibilities.

lnardozi Gramp
Aug 17, 2013 - 10:32pm

re: Think Back

"An Enemy of the State" by F. Paul Wilson. Written a few years after the gold window closed. Definitely on my top ten list of good books of all time. Also see "The Space Merchants" and "The Merchant's War" by Poul Anderson. Three good books on how things actually work disguised as novels. If you can get a friend to read one, you got a better than 50/50 chance of converting them to our point of view.

DeaconBenjamin thisismynewname
Aug 17, 2013 - 10:32pm

Boating accidents

I'm in deep trouble.

Diving equipment will be purchased for the Sheriff’s Office’s dive team.

The grant, $16,700, is from Homeland Security. The money was used to buy eight sets of SCUBA equipment including wetsuits, masks, fins, hoods, gloves and tanks. The equipment is now being used by the dive team

Also purchased with the grant were three full-face communications divers’ masks and one surface diver’s portable transceiver, which enables divers underwater to talk with one another as well as a person in a boat or on the surface.

DeaconBenjamin Gramp
Aug 17, 2013 - 10:34pm

what was it that persuaded you to take the road now less travel

I've been collecting silver since I was 8 or 9. Have gone decades without being able to add much of anything, but I have no idea what got me started.

Aug 17, 2013 - 10:58pm

Thread Subject

I'm currently about 85-90 percent by value in silver. Waiting for a big move to transfer into gold. Silver is lightning in a bottle and the spike will disappear as soon as it came so you had better be ready to act when it does.

Based on the percentage move from 2008 lows to 2011 high which was about 550%, if silver has a repeat performance it could land around $100 easy on the next spike. I will have transferred over 90% by value into gold by then, if not some cash, waiting for a pull back to transfer back into silver. Make no mistake about it... Silver will get totally slaughtered on a pull back after $100 (all the way back under $40 if it is a similar percentage to the correction that just ended), the trick is to be in gold before that happens.

Of course this is all assuming the financial system is still intact. I will be using no dollars whatsoever if it looks shaky at all by then.

Bongo Jim
Aug 17, 2013 - 11:21pm

Father Joe

Father Joe's Villages is a non profit ( I think) religious organization (I think) that helps people in need in the San Diego area. Usually they run t.v. commercials with Father Joe, an older a little over weight priest (?), asking for donations of cars, boats and RVs to help those in need. But tonight I was in the next room when the commercial came on, and this time the item asked for was GOLD!!! Donate your GOLD to Father Joe's Villages. No cars, boats or RVs, it was the only item asked for donation in the commercial. I find that interesting at this stage of the game.

Aug 17, 2013 - 11:44pm


Good luck with that!


Aug 17, 2013 - 11:54pm

@ ker

Do I sense sarcasm? At least I have a plan dude. I don't plan on getting left out to dry for another two years like this last time.

Kerbouchard s1lverbullet
Aug 18, 2013 - 12:55am

@ s1lverbullet

No sarcasm intended. I like your idea. It's just the timing aspect.

Aug 18, 2013 - 1:02am

The timing is impossible to know beforehand.

That's why I will be doing it gradually. The idea is to trap silvers energy in gold as it ascends. Since silver is very volatile I plan to do it one ounce of gold at a time along the way. Silver will dwarf gold in total return but gold will hold its value better.

Kerbouchard s1lverbullet
Aug 18, 2013 - 1:07am


...I like your thinking.



boomer sooner
Aug 18, 2013 - 1:21am

@ s1lverbullet

How will you transition? My local shops sometimes have less than 1 oz total of AG, usually something numi. Recently they might have 1-2 oz oz AG, but if the rocket happens, I don't think any of either will be locally available. Now we are talking about mail order and trade in at more than arms length. This part would make me nervous. I have thought of this, but????

Aug 18, 2013 - 1:41am

@ Boomer

I sell silver bullion on craigslist all the time. Price doesn't matter if you just buy back more silver with the premium someone pays you. Instead of buying the silver back Ill instead sell 40 ounces and then buy an ounce of gold back. Since I can sell silver for spot + 2 all day and buy a gold eagle for spot + 80 at several different places there is no money lost when trading. Don't listen to the BS about there being no silver available. Right now the place I get silver from has tons of supply. It's gold in LARGE QUANTITIES that people are having trouble sourcing right now as TF has stated many times. You should still be able to find an ounce at a time. If you get nervous holding lots of cash I suggest you workout a system with a business partner that allows you to dump it as soon as possible when you sell silver to get into gold.

Edit: forgot to mention that is a hypothetical scenario. No where do I know of currently that you can trade 40 ounces of AG for AU. The math isn't there... Yet :)

wonderer DeaconBenjamin
Aug 18, 2013 - 1:43am


my grandfather was a metallurgist - went all over the globe searching for ore, and he used to give me silver dollars when I was a young-un. He was born in the late 1870s, died in the late 1950s - and had a wonderful adventurous life. I particularly remember him giving me some oddly shaped metal pieces he collected in Africa - must have been iron, that they considered useful in trading

When the time came for me to invest our little nestegg, I remembered his life of climbing around in foreign countries during the industrial age, searching for ores to fuel the steel industry, and decided he was teaching me, over decades of time, about the value of money, labor, energy, industry, and patience. Everything we now enjoy lives on his shoulders, and those of men like him.

Now, we have exported it all overseas, and have no way here, in the US, to sustain ourselves as we used to do.

We forget so easily, in our "modern world", how fragile the thread we cling to for sustenance. Fiat currency is just one example, but try telling this to your adult children. They will wonder if you are ready for institutionalization.

boomer sooner
Aug 18, 2013 - 2:14am


Haven't done the Craigslist sales. Had not thought about 'retailing' my own stuff to the public when the time comes. Thanks BTW. Getting to know your local guys helps. Today I gave about 75' of 6' chainlike fence I removed from part of my yard to one of my LCS guys. He moved into a new place and wanted higher than 4' fence on the front facing a gravel road. And yes I 'gave' him the fence, posts, top rail, brackets and clips. Just trying to build some good faith.

Aug 18, 2013 - 2:25am

Thank you all...

...for your thoughtful, detailed comments & contributions. Sorry to have been such an absentee threadminder, but have been coaching my son's team through a difficult soccer tournament this weekend. Would love to jump in, but typing on a phone is really cramping my style. GL-- have yet to read the articles, but I have ZERO faith in coincidence anymore. The only question is the EXACT why. Definitely things that make you go hmmm... Wonderer-- I'm very sorry to hear of your loss, but grateful that you shared your story with us, and happy that you found and joined this community. I hope it is able to aid you in ways great and small. Warts and all, it is truly a unique and valuable resource -- hence the fierce determination of so many to protect and grow it further. I am very happy to see the past many pages filled with comments that are useful not just to US, but to those whom we might seek to awaken and teach as well. Thank you all.

Aug 18, 2013 - 2:31am


To somewhat answer Turds questions at the end of his post --

* More gold than silver by value.

* More silver than gold by weight.

For me, that seems right, and there is plenty of room in the middle.

If you believe the FOFOA "freegold" concept then the right amount of silver is probably none. A big piece of the puzzle is that the central banks do not hold any silver any more. I don't know if FOFOA will turn out to be right or not though.


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