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 - 8:52pm


Sorry to hear about your loss.

My condolences and my best to you moving forward.

Aug 16, 2013 - 8:55pm

If gold/silver doubled tomorrow...

I'd have to seriously think of unloading at least a 1/3 of it and then waiting for it to swing backwards and maybe buy back more after the fact.

It all depends on how that price doubles and why. I think it could more then double eventually, no question except for the most important question long does it take?

I think some folks (myself probably included ) will try to wait on hitting a grand slam while turning their nose up a little bit at a solid triple or whatever in gold and silver at some point.

In total hindsight, I wish I sold every single ounce of metal I had in mid-April 2011 (even though the thought never crossed my mind) and then bought it back say...1-3 months ago in these price ranges.

At the time I would've been biting my nails off at doing such a thing and then I would've suffered an ulcer waiting until recently to buy it back. True..we're only talking two years and not 70 but I'm pretty sure it would've seemed like 100.

I hope folks really take May 20111 into account and look hard at those charts and think about the emotional and psychological levels and events that happened. Everyone (and that definitely means me) were waiting and almost sure that $2000 and $50 were about to happen. How could it not, right?

The same thing is going to happen again at some point and then maybe again at $2500 and $75 etc. at some point...but when and for how long? I don't know.

Will I sell near $2000 and $ way! But if it suddenly doubles on Monday I'd think about it because with that type of volatility you know they'll smash it hard again...unless some monetary/BIS (or China) situation is the cause of it...then I'd hold on and just watch it spike up and see how it all shakes out.

It depends on how it doubles would be my short answer. I think talking about selling and actually doing it are two vastly different things and it's crossed my mind more then once that when the obvious time calls to sell gold (at some wild peak) that it won't be as easy as I think it'll be to dump it for the price you think you're going to be able to get for it.

Think 'double's and triple's' and try not to get stuck squeezing out a home run when everyone else (or many) will be trying to do the same thing. Your LCS dealer is a smart cookie and isn't going to buy 'high' if he doesn't have to when an abundance of sellers start showing up to cash in on their doubles and triples and you just entered the game in the 9th demanding your home run. Aint' gonna' happen.

I guess it would depend how we got to those price levels were talking about.

Aug 16, 2013 - 9:00pm

GSR perspective

My current personal GSR is 77. My initial stack was Au before I started getting into Ag. I am currently biased towards additional Ag, though the April take down in Au, did motivate me to add to my Au stack. I view the fact that JPM has so much Ag as confirmation of this particular metal. And listening to Chris Duane on Ag is always a treat. :)

Re Ag, besides bullion coins, Ag rounds and junk silver coins, I have 100 oz bars. From my perspective, 100 oz bars aren't for bartering, but either to play the GSR or to use as collateral (for fiat loans). Given the premiums for 100 oz bars are much lower, that suits the GSR switch/collateral purpose. And I am convinced the GSR will revert to some level closer to mean.

Strategy wise, I will continue converting fiat into phyzz. I do have a fiat trading account, and hope to generate profits that can be funneled for said conversion strategy. I don't really have a limit for phyzz (as I have all the other preparations in place). I considered farmland, but if things get really really bad, the family will be on a plane. The phyzz will go further outside USA. The stack will be used to take care of our retirement needs, and hopefully, with the rightful re-valuation of Au/Ag, the children's inheritance will also be in phyzz.

Righting Moment
Aug 16, 2013 - 9:08pm
Spartacus Rex
Aug 16, 2013 - 9:13pm

@ SE

Kudos! Glad to see that you get it. However, in the alternative by putting the $ denomination on Gold, and leaving the Market to determine the G/S exchange, and thus issuing sufficient quantities of Silver and Copper coins simply stamped w/ weight and purity would have been the ideal workable solution without any drawbacks.

Aug 16, 2013 - 9:21pm

All I can think of is an old

All I can think of is an old song from back in the day ...

the lyrics most women need to think on...

"you don't know what you've got 'till it's gone, pave paradise and put up a parking lot" (my guess is most women prefer parking lots in front of malls, instead of the wonderful simplicity of a log cabin, a simple kitchen, an devoted and hard working man... I feel so sorry for these women.)

Another song from an early 60s movie, long forgotten- "what's it all about, Alfie?"

And, let's not forget - "Zorba", (and the incomparable Dr. Zhivago - which is where we seem to be heading, rapidly, in a hand-bucket).

My husband was the shy guy in Zorba, and I was the "above his class" country club boarding school princess run-away from the mindless upper-crust set.

We forged a strong and solid love, based on conservative values - We were so lucky. He was an architect, and I was his "girl friday". We worked together for over 40 years, 24/7, with only a few major arguments.

Most of those were because I ran the computer, and couldn't get it across to him that he had to work with how the computer wanted him to work, not how he wanted the computer to work to accomodate "his way" of doing things. (The struggles I had trying to explain why a computer keyboard was different than an IBM selectric! - should have taped those discussions, so funny!)

That, and he loved his work so much that I never got a vacation from the business. But, that wasn't really a big deal - after all, when you are self-employed, vacations aren't a good idea, for several very important reasons. Most of you self-employed sole owners know why.

treefrogMr. Fix
Aug 16, 2013 - 9:26pm

mr fix,

i used to have a wife like that, but i had to shoot her. we were out in the desert, and she broke a leg. miles from the nearest vet.

it's good to see you back.

Aug 16, 2013 - 9:31pm

This has changed for me so many times

So many good thoughts here. It all depends on your plan. Plan your work, work your plan.

One must understand the premise of why they have chosen to stack. For me, it is because it makes sense to me. The best advice I have heard was from G Edward Griffin. "The only way to stop inflation in its tracks, is to spend your fiat money as soon as you get it. The minute you spend a dollar, you have stopped the ongoing loss of purchasing power on the dollar you held."

It makes absolutely no sense to me to hold onto something that the longer I hold, the less it will buy me. I think everyone somehow senses this on some level, which just may be an underlying factor in why our savings has been decreasing for decades.

But, it is important to save for the future if I might have an inkling that .gov ain't gonna be there for me, so, what do I do?

Once this dawned on me it became a miracle to me that I could trade ( at the time) 17 fiat ponzi coupons for an ounce of silver. So that is what I did, I bought an ounce here, three ounces there, and sometimes 50 ounces if the stars aligned properly. In essence, any extra money that would have normally funneled to a meager savings account earning negative real interest, I would instead buy silver. I bought it all the way up, I bought it all the way down, and I only bought on red days.

So now, it makes no sense to me to trade my real money that I have worked so hard to collect, and trade it back in for fiat. I do not plan on trading in my phyzz until and unless there is some sort of new money backed in gold or silver. My plan....for me, is to trade 10% of my silver for gold at 40 to 1. 20% at 30 to 1 and 20% at 20 to 1. If it goes to 10 to 1, I will unload another 25%. 25 % remaining for whatever comes. It will be my best silver, the numi stuff, and it is to see what happens because I know that nobody knows. If it does go 1 to 1 at some point like some people speculate, well, I will cross that bridge happily when I come to it. If not, they will pry it from my cold dead hands....

I think saying you are unloading it and actually unloading it are two different things, and I have talked with three different coin dealers who have assured me they will be willing to make these exchanges as the events progress. How will you sell your silver if you need to? How will you sell your gold if you need to.

The only wrinkle to my plan is if...if....silver hits $1000/ounce, I will throw in a hundred ounces to pay off my mortgage, never to be a slave to those dirty bankers again.

That is my plan. Simple.

Aug 16, 2013 - 9:38pm

As for the GSR there are

As for the GSR there are arguments to be made that the proper balance should be about 15:1. The historical record in the chart posted above, however, shows a very broad spectrum of ratios over a very long time vi nu frame so I don't know if it is wise to invest on the assumption that the historical ratio "should be" 15:1. Only on a few brief occasions has the actual ratio dipped that low.

Spartacus Rex
Aug 16, 2013 - 9:45pm


Here is the way I view it DPH. The vast majority of Americans (90% +) currently do not even have 5% percent of their assets in Physical PMs. Yet in Eastern Countries such as the M.E., India, Asia, the demand and appetite is booming, even in the face of controls being put in place by their respective Govt's. So, since the Asian markets are first to open, followed by European Mkts., my guess is that when the plausible deniability, mope, etc., evaporates it will first appear on the overnight Markets, heaven forbid on a Sunday Night in the U.S. and Reality finally knocks the Cognitive Dissonance out of Americans once and for all. Given that the hypothetical Monday Morning doubling scenario could easily repeat the following week, and so on, until the full extent of the deriatives time bomb has ultimately been realized by Americans, ergo The Defecation Hits The Oscillation, I would suggest that a 30% liquidation would be rash, as there is no guarantee of any presumed "correction". And just as hindsight is not always 20/20, given the underlying fundamentals involved, no one can or could accurately predict the full extent of the Banksters' take down target or efforts, and instead only perhaps realize the increasing and unbelievable bargain values being presented. Ergo the difference between the Whiners and those Who were thanking their lucky stars. FWIW, don't simply refer to my post at the beginning of this week pointing out Gold hitting 1363 this week and how that number sends a concrete signal to the speculators that the trend is swung to strongly positive, check my post history for those two specific occasions, in late June and later in early July where Big Red appeared in the Threads, indicating that subsequent prices were not going to subsequently get any better. Then again I am just an old dinosaur WTHDIK, Right?

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