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


Aug 16, 2013 - 7:53pm
Aug 16, 2013 - 7:56pm

you have got to be kidding

even if they aren't explosive, they could do some serious damage

Nick Elway
Aug 16, 2013 - 7:56pm

Will the bankers win again?

“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,” Norm Franz

If the banks and kings and statists win again, then I expect a high GSR (like it is now or even higher), because the statists control the gold.

If gentlemen (and middle-class humans and freedom) win I expect the GSR to approach 4.5 (our calculated ratio of silver-above ground to gold above ground) The masses of people control silver. (see ( thanks That_1 for your contribution there.))

Each metal has its advantages and disadvantages, the US mint sells roughly 50 ounces of silver for every ounce of gold, so my buying ratio is about normal, I'm putting about equal value in each metal for a variety of reasons.

The bankers and their FOFOA spokespeople don't control silver and lobby aggressively against silver as a store of value. They are just talking their book. This has been true at least since 1872..


1872 Ernest Seyd is sent to America on a mission from the Rothschild owned Bank of England. He is given $100,000 which he is to use to bribe as many Congressmen as necessary, for the purposes of getting silver demonetized, as it had been found in huge quantities in the American West, which would eat into Rothschild's profits.
1873 Ernest Seyd obviously spent his money wisely, as Congress pass the, "Coinage Act," which results in the minting of silver dollars being abruptly stopped. Furthermore, Representative Samuel Hooper, who introduced the bill in the house, even admitted that Ernest Seyd had actually drafted the legislation.

Ernest Seyd himself admitted who was behind the demonetizing of silver in America, when he makes the following statement,

"I went to America in the winter of 1872-1873, authorized to secure, if I could, the passage of a bill demonetizing silver. It was in the interests of those I represented, the governors of the Bank Of England, to have it done. By 1873, gold coins were the only form of coin money."

Juan O'Clock
Aug 16, 2013 - 8:02pm

Long time lurker, first time poster

First, I've been a lurker since the Watchtower days, and have not felt compelled to enter the comments fray until very recently. That said, I've been very appreciative of everything Turd has done for all of these years, but I find even more value in the comments section. Most of you seem very well versed in world affairs and preserving wealth through the disaster that most of us see coming. Even if I disagree with some of your comments, they always provide food for thought. I've yet to figure out Monedas, though...

Anyway, this topic that JY896 has posted on is one that interests me greatly. Having jumped on the PM bandwagon back in 2009, I focused primarily on Ag (as another comment said, mostly encouraged by Max Keiser's urging). For me, Ag is cheaper than Au for my budget, and so my ratio is about 1200:1 Ag/Au. I can only afford a few 1/10 oz of Au at a time.

Regardless, I view PM holdings as a function of historical value. Throughout much of human history, as I understand it, an average day's labor yielded about 1/10 to 1/2 oz of Ag. Of course, all of this changed in the last hundred years due to distortions caused by the dollar and the Federal Reserve system. Before that nonsense began, I simply consider what a day's labor is worth in terms of dollars today versus the current price of Ag. In that context (and there's 1000+ years of context), silver is WAY undervalued, and after TSHTF, I fully expect a return to such a system. Thus, if you have a meager stack of 100 oz, history says that you have stored the equivalent pay of anywhere between 50 and 1000 days of labor without the modern distortions.

As far as Au, that's always been the province of royalty, churches, etc. Commoners (like us) weren't usually paid in those terms, so I consider relating the two mostly irrelevant because there is nothing to relate the value of human work to ounces of Au.

In short, I'm into Ag because I can relate it to my work in the absence of artificial distortions. I'll take Au if and as I can, but Ag makes intuitive sense to me from a historical perspective.

Anyway, that's Juan O'Clock's 2 cents, and I look forward to finally interacting with you all. Belated thanks for all of the information that TF and his band of Turdites has conveyed to me thus far!


Aug 16, 2013 - 8:18pm


Good points - one of my underlying thoughts is that it will not be TEOTWAWKI - but a muddle through, like the 30's and the 70's. When my thoughts are more in that direction, I tend to view AU as less critical. When I fear a system collapse, I lean more towards AU. Right now, all of my AU is in numi form ($5 gold indians, a couple of double eagles). I don't even really count it - so now I consider myself 100% AG. I still have retirement assets, a trading account, other misc stuff, but in my head I'm 100% phys AG. A few hundred pounds of it scattered around. But I hear what you're saying about fiat and land. I pine for those as well.

My AG thesis is that it has been (and still is) more undervalued because it was demonitized in the 60's, and governments around the world had a supply overhang that has only recently disappeared. I didn't see this prolonged slowdown that would see less industrial usage for such a long time (no end in site) - but even so - it's done well over the past 13 years and (I hope) will continue to out perform once we get out of this swoon. We'll see - but I see diversification in my future once the AG is well into the triple digits.

I did opt to take the loan route for paying for the wee one's extended education. I could have swapped AG for tuition, but chose to go the more risky route. At times like these I'm glad I'm divorced and don't have to worry about being hounded by an ex.

So now if I'm lucky, and we get a nice long steady streak in price appreciation, I can use the trading account to fund the tuition and the Tige RZ4 before I'm too old to wake board.

Spartacus Rex
Aug 16, 2013 - 8:21pm


Re: "look what we are 70 years later." Right, and if One were to examine the charts of prices between 1930 and today, that "here we are" has a definite difference in connotation. Prior to the Coinage Act of 1965, FRN's could not simply be printed out of thin air ad infinitum as they could still be redeemed at face value in Silver Coin, ergo Domestic Fiat leveraged Debt was kept in Check. After August 15 1971, Nixon's closing of the Gold Window and the subsequent Monetary Act of 1980, the owners of the Phederal Reserve, holding an illegitimate monopoly of the World's de facto "Reserve Currency" have been able to rape the rest of the World with the same impunity as with American Citizens since the late '60s. Even though the Sheople here cannot apparently read the proverbial writing on the wall, the Eastern Powers have indeed reached the point where enough is enough, and have begun implementing a well thought strategy to combat this blatant fraud. When it is finally in place and the overwhelming majority of FRNs currently in existence come flooding back the U.S. Shores, each FRN supposedly representing a claim on America's actual Money Stock ($) are you confident as to what the fully discovered price ratio between FRNs to Gold or Silver will be? Or put this way DPH, if Gold / Silver prices denominated in FRNs were to double this coming Monday, how much of your current stack would you happily convert back into fiat FRNs when the Defecation has yet to Hit The Oscillation?

wondererMr. Fix
Aug 16, 2013 - 8:29pm

Mr. Fix, I think you have

Mr. Fix, I think you have earned a total male melt-down. Make it a bit dramatic, and leave her is a pool of guilty ashamed tears of remorse.

I am a new widow who really misses her husband of 45 years, but am happy he is no longer suffering from Parkinson's Plus. (I miss all the really good years so much - I dream of him every night, and hate to wake up in the morning and face that empty side of the bed). I was his sole care-giver for the past ten years of his illness, right unto the end, when he died at home, with me beside him.

Your post makes me so sad.

Many women just don't get it, until they no longer have you in their lives. I would love to have a word with your wife, but doubt she would listen to me - so many shiny things out there have absolutely no long term value.

Blessings to you, for you did your best, and you did well. I pray that someday she will figure it out, and be thankful for your wise stewardship.

Spartacus Rex
Aug 16, 2013 - 8:32pm

@ Nick Elway

Unfortunately, the presentment of 1872, etc. wholly ignores one critical fact of history. Due to the prior discovery of the Comstock Lode, the volume of Silver coming to the Market was sending the price of Silver crashing, and counterfeiters were making knock off Silver "Dollars" for as little as .18!!! Thereby exposing the Flaw of Congress making a bi-metal Money ($) and attempting to FIX it's Exchange Rate!

Aug 16, 2013 - 8:48pm


...I would be happy to put you in touch with my wife!! Do I have to get in line? LOL

I am sorry to hear about your Husband. Thank you for the really nice post!

SESpartacus Rex
Aug 16, 2013 - 8:50pm

@ Spartacus

Unfortunately, the presentment of 1872, etc. wholly ignores one critical fact of history. Due to the prior discovery of the Comstock Lode, the volume of Silver coming to the Market was sending the price of Silver crashing, and counterfeiters were making knock off Silver "Dollars" for as little as .18!!! Thereby exposing the Flaw of Congress making a bi-metal Money ($) and attempting to FIX it's Exchange Rate!


I think the other mistake other than the fixed exchange rate was putting a $ value on the face of the coin... It should only be a measure of weights, and purity.

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