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I see now that as of today closing that the gold and silver ratio is over 64 to 1. The question I have is does a person see it still going high or are we going to head lower. Also what would cause it to move either way. I know that some of us remember 33 to 1 and even a lower ratio. What can we do now to benefit from this in-balance. I know I ask a number of question but open to a good discussion.

I dont follow the ratio much as when it is skewed this direction (above historical 16) the written (talking heads) assumption is silver will move up to even the ratio out. Is it just as possible gold may go down to even the ratio out? or both? or are we looking at the new average ratio?

When you look at the chart, the 12 month moving average has lower highs and lower lows since Dec. '91. But definitely, trendy (moves lasting from about 1 1/2 to 3 years). Currently in an up trend since October 2011. So if this trend up move continues it could last up to 9 - 10 months (or turn around any day now) more before reversing the trend.

Once it takes its turn you could be at a low risk to short gold and go long silver. Remember as a moving average it lags so the reverse has to happen before it shows up as the trend. The 5 year moving average recently took a turn down (08/13) for what it's worth.

Additionally, the moves tend to total from 19 to 27 ratios, with most being from 19 to 23. We are currently at 20. So again, it appears we do not have either much time or total move left in this current trend. This is what the chart tells me, aside from volatility: Time wise, turn down anytime most likely before the end of October 2014; ratio wise, turn down anytime likely before 67 most likely before 71.

Every chart, like every map . . . tells a story if you know how to read it.

charts have some value... when markets aren't manipulated

dakota1955 wrote:I see now that as of today closing that the gold and silver ratio is over 64 to 1. The question I have is does a person see it still going high or are we going to head lower. Also what would cause it to move either way. I know that some of us remember 33 to 1 and even a lower ratio. What can we do now to benefit from this in-balance. I know I ask a number of question but open to a good discussion.

I will say what I believe is conventional wisdom, with the caveat that markets can be very unconventional when the supply dictating the price is not made of metal.

As the price of metals rises the GSR moves in silver's favor. As the price of metals drops it moves in gold's favor. There are a few reasons for this. When the price is on the rise people are buying, and since gold is the metal of kings it's more expensive, and silver, the peoples' money is the greater beneficiary when new participants enter a rising market. Also the gold market is so much larger than silver. Not only is gold 60+ times more valuable, but the available supply is also 7-10 times larger. We could ballpark that somewhere in the area of 500 times more money to move the gold market than silver. So gold moves slower on the way up, and on the way down due to sheer weight. In contrast the global silver market is somewhere around $30 billion (which is peanuts in the grand scheme of our central bank stimulated global market), and will move much more quickly with much less money thrown at it. The lower the price goes the easier it is to move, so it can easily be a vicious or a virtuous cycle depending on the flow.

Ultimately, in the current state, if you believe the price of metals will rise then you want silver, and if you believe the price will drop you want gold for protection (or numis). However if you think the price is going to drop, why have metals in the first place? I have many reasons to do so regardless, but it's a good question to ask yourself, to know why you are investing in metals aka divesting out of dollars.

The historical GSR of 15:1 was based on mining numbers; how much silver is coming out of the ground vs. gold. Today not only is that smaller, closer to 7:1 from a mining aspect, but with the available silver supply so much less than that of the gold supply it defies conventional wisdom for the ratio to be so highly favored toward gold. I would think the GSR should be somewhere between 10:1 and parity based on physical supply and demand (silver being up to 10 times more rare on the open market, yet the dollar flow into gold and silver being equal would imply a 1:10 GSR with silver being more valuable which of course would change as the price moves in silver's favor and thus brings much more hoarded silver to market to even things out on the supply side - hoarding which outlines that silver is the more undervalued metal - physical supply doesn't lie), but I don't expect that to happen for as long as the current price setting mechanism is in place. It will take an outright physical shortage or else an end to fiat currency (for which metals are competition and thus without fiat currency there is less motivation to suppress them - but still some since metals are off the grid - unless we get a metal backed dollar) so I wouldn't expect the GSR to right itself until such time as metals become money again which will happen only when the people demand sound money again and call the exchanges' hand, at which point we may not be measuring prices in dollars so I would not get hung up on the price of metal, but rather the buying power.

IMO what you can do to benefit is to buy the most undervalued metal, silver, or the other undervalued metal, gold (both of which should eventually rise to absorb all the debt and debt based currency which will seek tangible assets only if and when faith is lost in IOU assets - for which the exponentially growing debt burden should demand at some point whenever QE saturation is no longer effective enough to maintain the economy and the social programs) but if you strictly mean to play metal vs. metal I would personally be swapping gold into silver, but only if I had an abundance of gold since diversity is important.

In a nutshell I would look at above ground refined and available supply numbers, and move to acquire the metal that would benefit if the GSR moved to match the physical market. Sure people will say there's more silver in the ground (arguably this may not be true going forward over the very long haul due to silver being deposited in the Earth's crust only epithermally [near the surface, easy to mine silver gone already] where as gold is deposted both epithermally and mesothermally [deeper veins in the crust]), but the exchanges would run out in a matter of months if all the mines were shut down - unless they'd be willing to pay the physical price instead of the paper price they set.

beauanderos wrote:charts have some value... when markets aren't manipulated

Ray:

I think this is what JFF meant (or my interpretation of what he meant) when he said price is truth ("truth in price"). Many believe the silver market has been manipulated for over 11 year. My above describes charted trends for the last 11 years. If so, then the chart reflects the truth of the manipulations. My description (if accurate) is then of the trends of the manipulations. I think the chart would give one an opportunity (albeit with risk) to make money on the trends of the manipulations. If that's what one wants to do with the information.

Upon further consideration I have edited to add:

Regarding risk, another possibility to decrease the ratio would be to have gold and silver move in the same directions, but to have silver move less so on the way down, or more so on the way up. The two do not have to move in opposing directions to close the ratio.

game changed in the 70's....