Thursday, March 9, 2017

With the gold to silver ratio over 70:1, exchanging gold for silver is an inexpensive way to start accumulating your stack

Contrary to much of the mainstream rhetoric given by brokers and mutual fund managers on how to grow your investments, one of the best and most inexpensive ways to accumulate wealth is by using the divergence between two precious metals to expand your assets.


Thanks to the U.S. government changing gold and silver from money to a commodity in 1971, the historic ratio of 10:1 or 15:1 has become broken due to the financialization of precious metals.  And it is through this mechanism that individuals can use the skewed ratio to their own advantage.

On March 9 the gold to silver ratio is now above 70:1, with the price of gold being approximately $1202 and the price of silver being around $17.18.  This means of course that it doesn't matter if gold is undervalued in relation to the dollar or other fiat currencies, but rather that silver is extremely undervalued in relation to gold.

24 hour gold silver ratio chart

So how does using the gold to silver ratio to your advantage work?  When the ratio is above 50:1 as it is now and has been several times over the past two decades, it is time to exchange a portion (large or small... it is all dependent upon your appetite) of your gold for silver.  And likewise when the ratio then starts to fall down from a high to one that is below 50:1, the opposite is in effect where you exchange your silver stack for gold.

Example:  5 ounces of gold minus a premium cost (average) of $2.29 for each silver ounce allows for an exchange of approximately 309 ounces.

Now let's look at the historic chart for the gold to silver ratio since 1971 and see how many nexus points allow for a profitable exchange of one metal for the other.


Over the course of the past 35 years, there have been at least eight different cycles in which it would be profitable to exchange gold for silver or vice-versa when the ratio's reversed from one level to its opposite.  (These are approximate estimates based on the above chart)

1973 - 1977   - Silver for gold when ratio went from 43:1 to 23:1
1977 - 1979   - Gold for silver when ratio went from 23:1 to 18:1
1979 - 1982   - Silver for gold when ratio went from 18:1 to 56:1
1982 - 1984   - Gold for silver when ratio went from 56:1 to 37:1
1984 - 1991   - Gold for silver when ratio went from 18:1 to 98:1
1991 - 1998   - Silver for gold when ratio went from 98:1 to 42:1
1998 - 2004   - Gold for silver when ratio went from 42:1 to 79:1
2004 - 2008   - Silver for gold when ratio went from 79:1 to 50:1
2008 - 2008   - Gold for silver when ratio went from 50:1 to 80:1
2008 - 2011   - Silver for gold when ratio went from 80:1 to 38:1
2011 - 2016/17   - Gold for gold silver when ratio when from 38:1 to today's 70:1

One would need to look back at the historic prices of both gold and silver to determined exactly the premium costs for each exchange, as well as the amounts of metal one would accumulate through each cycle.  But over the course of the past 35 years that original 5 ounces of gold would very likely have grown to 20-30 ounces or more, and your silver stack would be close to 2000 at the time of your most recent exchange here in 2017.

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