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 - 9:47pm

DPH "You the Man"

I didn't log in tonite and have been reading all of these great posts on what I consider a great topic, when I noticed your comment to the Wonderer,and I thought what a great group of people we have here. I was just going to log in to give you a Hat Tip, but thought that was just not enough. I don't know how you did the smiley faces, but thought that was not only cute but very caring. Turd must be very proud to have such a bunch of knowledgeable and caring group of people on this blog.

Aug 16, 2013 - 10:00pm

Mr Fix

To be honest, I'm not a fan. You and I do not see eye-to-eye most of the time. But I had to give you a hat tip and a comment for your post. On this one, we are in complete agreement. You are an honest, hard worker.... and a dedicated husband and family man. God Bless you.

I had much more typed up....... but I just deleted it. It will suffice to say.... that you have earned my respect.

Aug 16, 2013 - 10:01pm

China & India

So, from what is reported the Chinese are being encouraged to own PMs, by their Gov?

But the Indian Gov is trying to stop or slow the flow of gold into their country?


Aug 16, 2013 - 10:13pm


Thanks... I'm trying.

We're all in this together and I'm not just talking about metals or markets but the path called life and all it's twist and turns.

When someone on here is being sincere about something personal and hasn't asked but might need a shoulder (or a sharp elbow sometimes) I think most of us here will try to do the appropriate and balanced thing.

Wonderer's post struck a chord on me for reasons I won't get into and also not to exacerbate Mr. Fix's sincere post and situation that also struck a chord with me as it sounded all too familiar to me on some level x 100.

However, in an effort to end this post on a lighter note and in recognition that it's a TGIF on here I'll simply post these vid's...

I've Seen All Good People - Your Move by Yes
Lynyrd Skynyrd-Free Bird-BBC 1975
Spartacus Rex
Aug 16, 2013 - 10:13pm

@ ag1969

Re: "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." It may also finally dawn on you, that under the Law(12 USC 411), you can actually redeem fiat ponzi coupons into Lawful Money Silver/ Gold, ergo you can legitimately eliminate all federal income tax liabilities as well, due to the cleverly hidden (actually intentionally buried) Section in the IRC (Title 26) FWIW believe or not, there are a few dinosaurs still living who upon making it back alive Stateside (the "real world") took action to make sure that not only would Conscription get abolished, but that the voting age get reduced to include those who were being asked to die for their Country, and made the effort to get the Reagan Admin, to come up w/ the Grace Commission, but as well, to get the U.S. Treasury / Mint to once again start issuing Gold and Silver Coins, as provided for in the U.S. Constitution.

Aug 16, 2013 - 10:25pm

wonderer, re "pave paradise and put up a parking lot"

several years ago, following a severe midlife crisis, i found myself with an old house in tallahassee, near the university on a dead end street, tucked in behind sorority row. i've always been a "fixer-upper, and while putting my life back together, i renovated the old house. i had an old lincoln "buzzbox" welder, and one of the improvements i added was a large hot tub.

as time went on, the university expanded, and paid me a nice price for the place (i had bought it because i thought that might happen - i made a triple bagger on it).

for a while i had a house with a front porch wood-fired hot tub that shared a rear property boundary with not one, but three sororities. those were the days! it is now a parking lot.

Aug 16, 2013 - 10:27pm


Thank you. And I did know that. There was a guy on the old blog I used to go to who was really into the "Sovereign" and made some amazing posts. He devoted his life to understanding the law. And yes, I have read the law about redeeming fiat for constitutional money, and all about why banks hate it when you do that. It is also my understanding that without any proof, you can deduct $1000 off your AGI for the use of coin, because coin is issued by the treasury and not the Fed, and therefore is not taxable. Of course this extends to all constitutional money, but since our government does not follow the law anymore, I am afraid of being sent to the gulag without due process for trying it. Intersting times Spartacus.

Spartacus Rex
Aug 16, 2013 - 10:45pm

@ ag1969

Kudos, if indeed you are one of the .00001% who actually know the specific Section under Title 26 which provides for the tax write off for debasement of the currency. Furthermore, I trust that you realize that said redemption no longer can transpire at any branch of the Phederal Reserve System, thus must occur through the U.S. Treasury via the U.S. Mint. Also I take it that you are aware of the legal distinction between 'Lawful Money' and merely "Legal Tender" Bullion Coins which are what AGE's and ASE's are. Bobby Kahre didn't, wouldn't listen, and thus currently resides at the Gray Bar Hotel. So for those who think that a True Education( and Due Diligence) is expensive, try Ignorance! "We are all born ignorant, but One must work hard to remain stupid." Benjamin Franklin

Spartacus Rex
Aug 16, 2013 - 10:50pm

@ Gramp

The gov't of India will not succeed as smuggling suddenly becomes rampant. For thousands of years, the people of India and throughout the M.E. clearly recognize Gold as Money and a safe store of Value. That is simply an imbedded cultural belief that cannot be changed by mere fiat dictate, and/or MOPE, like here in the U.S. which is mostly populated by Sheople, & Everybody Owes Me Something, Constituent Class!

Aug 16, 2013 - 11:08pm

@ Gramps

So, from what is reported the Chinese are being encouraged to own PMs, by their Gov?

But the Indian Gov is trying to stop or slow the flow of gold into their country?



I read an article about this that said the Indian government is concerned that too much of it's currency (fiat) is being used to buy imported goods (Au and Ag) which is causing a severe trade deficit. I think the real concern is that their citizens will lose faith in the Rupee which will cause rapid devaluation and lead to a hyper inflationary environment.

On the other hand China is busy selling UST's and buying real assets as fast as they can. I suspect they know that TEOTGKE is upon us and they want their people to be ready for whatever may happen.

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