Sun, Feb 26, 2012 - 4:39pm
GSR ideas To kick off this new discussion, here are a few quotes I lifted from various places- some going back 5 years. Apologies for no source references. "Viewed from a volatility perspective, the odds favor a move upward in the gold/silver ratio, meaning gold's purchasing power is more likely to increase rather than wane. Traders heeding the odds would then buy gold futures against the short sale of silver contracts." "There's something else these probability tables tell us. A hike in the gold/silver ratio would indicate the metals' fear premium is strengthening—a likely consequence of continuing dismay over economic prospects. Downticks in the ratio would indicate more enthusiasm for silver and its industrial applications in an improving economy." "The historical ratio is 16:1 (it has taken 16 ounces of silver to buy 1 ounce of gold)
For the last 100 years, the ratio has been 30:1
In the last 12 years, the ratio has held closer to 60:1
In just the past 5 years, the ratio has fluctuated from 45 to 85
As of December 3, 2010, the gold:silver ratio was sitting slightly above 48:1
How do we take advantage of this fluctuation?
FIRST – we time our purchases based on the ratio. When the ratio is relatively high, we favor silver in new purchases. When the ratio is relatively low, we favor gold.
NEXT – we buy the form of silver or gold that offers the possibility of greater profits. During periods of high demand, investors will often bid up the premium on certain items 20 to 40% or more of their underlying metal value. At that point, we can swap those high premium items for others with lower premiums – capturing much of the difference, and converting that difference into extra ounces of metal.
LAST – we act when the ratio reaches tops and bottoms. When the ratio is high, we swap gold for silver. Then when the ratio drops, we swap silver back into gold. Said another way, we swap silver for gold when silver has appreciated faster than gold. Then, we swap gold back into silver when silver becomes “cheap” relative to gold. Every time we go through this cycle – gold to silver and back to gold – we increase our ounces. That’s the whole objective." "For anyone not familiar with statistics, the mean is a better indicator than average. It is the number at which 1/2 the data are (the word "data" is plural) above and 1/2 below. If you use average, a skewed number (outliers) or two will distort the picture. Any rate, from 2002 to 2011 the mean Gold:Silver was 62.8:1 and the standard deviation was 10.7. So, to use Saulmine's example of when to move from gold to silver or vice versa, when the ratio is 41.4:1 (or less) trade silver to gold and when the ratio is 84.2:1 or greater, trade to silver. Tell you the truth, the low limit sounds close to right but the upper sounds too high. Totally unscientific but the numbers of -2 SD's and +1 SD from the mean sounds a lot better to me." "Also, there is a wild card which plays hugely to Silver's favor. That is the moment in time when central banks begin to accumulate Silver as well as Gold. China is already doing this, though they don't talk much about it. Maybe their gold is at the 'bank' and the silver is in an 'industrial warehouse' - though both with tight security." "In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, a risk-free profit. An entity such as a bank or brokerage firm that engages in arbitrage is called an arbitrageur. The term is mainly applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities, and currencies. (Source Wikipedia.)"
Edited by: donnojackshit on Nov 8, 2014 - 5:27am