The Ag Bubble Pop and the Au/Ag Ratio

[IdahoCopper]

Sooner or later, silver is going to launch in price like a sub-orbital rocket on a parabola. Does it make sense to look to the gold/Silver ratio to try and gauge when silver is near or at its peak, after that launch?

Presently the ratio is around 53Ag:1Au. As the price of silver climbs faster than gold, that ratio will drop.

If one prefers to remain invested in PMs, it would seem to make good sense to trade silver for gold at the bottom of the dip in that ratio. Perhaps at 25:1, or even 20:1, with silver peaking north of $250.

Advice? Comments? Insight?

[henrysmedford]

"A picture is worth a thousand words"

[Lemon Thrower]

cover your bases and have a little bit of both.

there was long term (20 years) support at 38 that was violated a year or two. went to 32 or so and retraced. ultimately it will go to 16 or beyond since that is the historical (4000 years) mean.

sprott says as gold becomes scarce, silver will be increasingly seen as money and substituted and that is when the GSR will compress.

when it gets to 25 or below i will start trading silver for gold.

i expect gold to go beyond 7000, and GSR to reach 20:1, which implies Ag > 200.

[beauanderos]

sprott says as gold becomes scarce, silver will be increasingly seen as money and substituted and that is when the GSR will compress.

I'm surprised Sprott would say that, it runs counter to everything I've seen coming from both Embry and Sprott, which implicitly convey their beliefs that silver is MUCH scarcer than gold (at least above ground physical available for investment purposes)

[neilgin1]

sprott says as gold becomes scarce, silver will be increasingly seen as money and substituted and that is when the GSR will compress.

I'm surprised Sprott would say that, it runs counter to everything I've seen coming from both Embry and Sprott, which implicitly convey their beliefs that silver is MUCH scarcer than gold (at least above ground physical available for investment purposes)

thats what i thought they were implying as well, and i fully expect the ratio to go to 20:1, if not its historical 15:1...and you might think i'm huffing solvents, but i see silver at 500 an ounce....heaven only knows what shape the dollar itself will be in...so i think in terms of feeder cattle, which would be 2 silver Eagles for a 500 lb feeder....maybe 3 if its an Angus...up to 4, if the fella gets stubborn.

go ahead laugh...its okay, i dont mind......we will see, what we will see. When crude oil was trading 18 a barrel, i said 120 a barrel....should of heard the gang laugh....

ID, if i thought anyone around here had Au, at 20:1, i'd WOULD think of flipping some...lightly, but only if i could get 1/10ths...or 1/4'ers


AND, i really liked what Nat's doing in the Copper Cave...though i'd really like LB bars of copper, or halves instead of Aoz's...thats what i got all these buckets of 95% Lincolns around for.

[Treetop]

.and you might think i'm huffing solvents, but i see silver at 500 an ounce....heaven only knows what shape the dollar itself will be in...so i think in terms of feeder cattle, which would be 2 silver Eagles for a 500 lb feeder....maybe 3 if its an Angus...up to 4, if the fella gets stubborn.

go ahead laugh...

Im not laughing, I kinda expect silver to do the same. That cow will rise with inflation as well though. So I doubt youll ever buy one with 2-3 ounces of silver. I expect silver to beat inflation, but not by enough we will see cattle selling for 2 ounces. (there are a lot more expensive cattle then angus by the way, lots of hype with angus Im by ranchers, not really my field)

[scyther]

Mmm I'm gonna buy a lot of cows post-dollar collapse. I'll roast one up and eat it with pumpkin pie and beer. I mean, if they only cost a few ounces...

[neilgin1]

.and you might think i'm huffing solvents, but i see silver at 500 an ounce....heaven only knows what shape the dollar itself will be in...so i think in terms of feeder cattle, which would be 2 silver Eagles for a 500 lb feeder....maybe 3 if its an Angus...up to 4, if the fella gets stubborn.

go ahead laugh...

Im not laughing, I kinda expect silver to do the same. That cow will rise with inflation as well though. So I doubt youll ever buy one with 2-3 ounces of silver. I expect silver to beat inflation, but not by enough we will see cattle selling for 2 ounces. (there are a lot more expensive cattle then angus by the way, lots of hype with angus Im by ranchers, not really my field)

Tree, not meaning to be argumentative or derail the thread from the G/S ratio (which is ALWAYS a discussion i enjoy...the G/S ratio) but what does a 500 lb feeder go for this second?.......about 175-225 a hundred weight, right?....so silver at 500 the ounce, with paper money in DUBIOUS shape, whats that rancher going to trade for or with?....sure you could do a timber/cattle barter...or you could do a round bale/silage for cattle barter...but beyond that?....what?....especially when he's gotta go into town and get....?

you see, post dollar, we will ALL be in uncharted waters....in those days, you have to be able to walk away from a trade. City/suburbian folks, i dont know WHAT they are going to do.......there will be a LOT of hunger, anger, unrest, that i do know, and it will be sad.

[neilgin1]

Mmm I'm gonna buy a lot of cows post-dollar collapse. I'll roast one up and eat it with pumpkin pie and beer. I mean, if they only cost a few ounces...

okay....go ahead(lol).....laugh at me....but you watch.....you living rural?...if not.....watch out, lots of hungry angry people all crammed up, used to putting some stouffers in the microwave....OH, its going to be a bad scene......

but i dont want to derail this discussion.....i think we're going to a 20:1 gold/silver ratio...tell me why i'm wrong.......i ask that in due respect to everybody.

[Treetop]

I see what your saying neil, I just expect that if 1k of beef in todays dollars costs 30 ounces that if that 1k in beef now costs 10k, that it will still be closer to 30 ounces. Silver could easily beat inflation imo, but I dont think it will out perform other hard assets by as much as you seem to think. I guess we will see.

I expect the gold silver ratio to get to 15 to 1 or better. I made a few gold/silver trades in the past. I did well. I think its a great way to trade.

[beauanderos]

when the masses start to pour into silver in a BIG way, those that were early in will see VAST outperformance in silver's value compared to inflation. Once silver stabilizes at it's true price discovery (unmanipulated worth) levels... at that point in time you might expect to see it track inflation fairly well, but scarce supply vs sudden increases in demand in the short term will ignite enhanced returns vs a simple correlation to inflation. I expect silver to explode fairly soon, which is one reason I've cut way back on selling any. That, and finding it hard to source any 90% to replenish existing inventory... just doesn't make sense to sell at these levels if it's virtually irreplaceable.

[Lemon Thrower]

sprott says as gold becomes scarce, silver will be increasingly seen as money and substituted and that is when the GSR will compress.

I'm surprised Sprott would say that, it runs counter to everything I've seen coming from both Embry and Sprott, which implicitly convey their beliefs that silver is MUCH scarcer than gold (at least above ground physical available for investment purposes)

allow me to clarify.

sprott is saying that the mechanism for the GSR to compress (i.e. for silver to increase in value to a greater extent than gold) will be the increasing unavailability of gold for investment. You are starting to see that now with supply interruptions. if you are a hedge fund and want to put a few million in phyiscal and you can't, then you'll think about putting it in physical silver. i'm not talking about individual, i'm talking about institutions.

listen to sprott and think of silver as a substitute for gold. when folks can't get gold, they will bid up silver, and that is when the GSR will compress.

sprott also points out the historic ratio is around 16:1, but he expects it to overshoot the mean and go as low as 10:1. I think there is some basis for that view, but i'll be taking most of my chips off the table long before that.

[johnbrickner]

..and you might think i'm huffing solvents,

This is funny. Thought I was going to bust a vessel when I read it. Heck, I'm still smiling.

but i see silver at 500 an ounce....

Be rest assured, I'm not laughing at this. Keep talking neil, many of us are listening intently and find value in your words.

(they need to invent a "bow of respect" smiley face)

[JerrySpringer]

We've seen rhodium go to what, $10,000 / t. oz. ? Platinum is fairly high and palladium has done well lately. Likewise gold is at all-time nominal price high. Silver could go to who knows where. I suppose ultimately it will depend upon its rarity and how much people want it or value it as a precious metal outside of industrial use. After all we see with market shenanigans and manias based upon stocks and real estate and tulips,etc. nothing is unbelievable. I do consider any price drops on Ag as an opportunity to acquire real money. Our grandchildren will thank us one day perhaps if history is any lesson.

[OtusLotus]

Not to sound like a newbie, but the 16:1 ratio is always bandied about, as the historical norm.

But in My historical norm (born in 1970), gold has NEVER been anywhere close to the 16:1 ratio (according to the chart at the beginning of the thread).

Could it be that just like 60 is the new 40, and we have to readjust our beliefs?

Don't get me wrong, I would love for the ratio to get to 16:1 again. It would mean either one or three things.. A)the world is robust, and everything is growing, or B) the price of gold gets destroyed, or C) the price of silver skyrockets.

I hope its either A or C. but in this world of market, policy, and money manipulation.. who really knows!

That is the reason I just stack, and don't worry about it!

[scyther]

I could be wrong, but wasn't 16:1 the ratio before the Americas were discovered and the supply of silver increased dramatically? Silver was much rarer relative to gold before the discovery of the new world. If that's the case, I see no reason to expect it to ever go back to that.

[Lemon Thrower]

this is a very involved and controversial topic, and i encourage you to research it further. Franklin Sanders, "the Money changer," has an excellent essay on trading the GSR on his website. its a good introduction.

1. Silver is estimated to be 17.5 times more abundant than gold in the Earth's crust.

2. Gold and silver have been used as money by humans for 4-5,000 years. For all of that time, except after the U.S. demonetization of silver in the 1870s, silver traded for gold at a ratio of less than 17.5. At times, when there were large gold discoveries, it went as low as 12 silver to 1 gold. Even with the new world silver discoveries, it never exceeded 17.5X until the U.S. demonetized silver.

3. What has happened since the civil war was a rise of government paper money. At the start of the U.S., in 1792, silver was exchangeable for gold at 15:1. that was slightly lower than the European ratio, and ultimately european silver flooded into the u.s. and u.s. gold left. I believe the ratio was deliberately mis-set to destabilize the bullion money standard and to allow for government paper money standard. they had to demonetize silver first because it was widely held, then in 1933 they demonetized gold.

4. they eventually re coined silver, but the face value exceeded the then silver value. It was only when the silver value was about to exceed the face value that they took the silver out of the coins. The u.s. was actually one of the last countries to do this, and the result was huge stockpiles of silver. Those only got worked through in the last decade. So for the last several generations, there has been a perception that silver is worth 1/100th or 1/50th the value of gold, and that silver is not even money especially in the last generation. but this is contrary to almost all of recorded human history prior to 1871.

5. Since the U.S. civil war, gold has been moving away from money, and this really peaked in 1971 when Nixon defaulted on the exchangeability of U.S. bonds for gold. However, the last 5 years has seen foreign central bank and private investor buying of gold which says to me gold is moving back to money.

6. Silver is too bulky for most central banks to buy and hold, but you see the U.S. and several other countries minting bullion medals and coins. In the u.s., production of these products is roughly 100% of domestic silver mine production. Also, Russia and China do not allow silver to be exported. So all of those things point to silver being viewed as money again. As gold becomes less available and more expensive, demand for silver as a gold substitute will increase, and this will cause the GSR to move back to its historic mean.

[johnbrickner]

Not to sound like a newbie, but the 16:1 ratio is always bandied about, as the historical norm.

But in My historical norm (born in 1970), gold has NEVER been anywhere close to the 16:1 ratio (according to the chart at the beginning of the thread).

Otus:

You are not sounding like a noob. You are perhaps seeing things thru different eyes ("If only you could see what I've seen through your eyes," Bladerunner:1982) and their is nothing wrong with that. But, my historical norm is only a decade or so longer than yours and I've never seen the 16:1 ratio either. Allow me to show what I've seen thru my eyes.

Could it be that just like 60 is the new 40, and we have to readjust our beliefs?

It could be. But how many times have you heard the same for stock valuations (ie P/E ratios)? This is also more recently said as "This time it's different" regarding debt/GDP ratio and printing our way out of debt. Additionally, regression to the mean (RTM) happens all the time. That's not to say that the mean can't ratcheted up or down a few notches repeatedly over time to account for solid changes, but when the numbers are way out of wack they inevitably regress back towards the normal line.

Don't get me wrong, I would love for the ratio to get to 16:1 again. It would mean either one or three things.. A)the world is robust, and everything is growing, or B) the price of gold gets destroyed, or C) the price of silver skyrockets.

I'm with you on this one. I too would love to see the ratio repeat. It would mean I've seen things thru other people's eyes that have proven correct and in this case I think you may have excluded:

D) the world is frail, and everything is in a slow (or maybe not so slow) state of decline.

Thank you for posting Otus, and thank you RC for being here. Without both, I'd not have this opportunity to express my self as I do. (smiley bow of respect inserted here).

[beauanderos]

First of all... LT, thanks much for the excellent concise history. Not sure what your sources are, but they sound entirely plausible to me.

I have to take issue with the idea that the GSR will decline because institutions who invest in precious metals will find the increasing scarcity of available gold bullion to buy will drive them to silver as a substitue, thus lowering the GSR from it's current 53:1 to something closer to the historical 16:1 norm. I find this idea ludicrous. I actually laugh when I read stuff like this. It's exactly the opposite that is occuring and will continue that drops the GSR. At present valuations, there is something like 8.5 trillion dollars worth of gold, compared to 31 billion dollars worth of silver. Granted, alot of those holdings are locked inside the vaults of "strong hands," both individuals and Central Banks, and not available for institutional funds grabs.

Some funds will allocate money into silver, but not as a substitue, rather as a means of diversification and their belief that silver has the potential to far outperform gold as an investment. I am not disputing at all, that the GSR will likely decline towards the HN as we move forward... but the means that achieve that will NOT be because we run out of gold, it will be because we run out of silver.

[NHsorter]

Don't want to be a party pooper, but also consider the possibility that gold prices could drop to achieve a lower GS ratio. In other words, just because the GSR closes up, does not necessarily mean that silver will explode. Although I hope it does.

[beauanderos]

what I do consider astonishing is the reliance of otherwise credible pundits on the "all-time high" of silver back in the day as meaning we will undoubtedly break that... merely because it has been set as a bar long ago, and thus it is certainly predictable that silver will one day again attain those heights... merely because it did so before. The previous high of silver has NO bearing on what it will do in the future, and predictions based upon inflation adjusted targets, whether they be the rediculous CPI, or the more accurate Shadow Stats of John Williams, are nothing but sophistic reasoning. That high was driven by a particular set of circumstances in a particular financial milieu which bears little resemblance to today. Not to say that another set of Hunt Brothers and Saudi backers can't appear... but ... c'mon

[HoardCopperByTheTon]

I loved the Hunt Brothers. Those were the days!

[Sheikh_yer_Bu'Tay]

While Au & Ag have done very well over the last ten years, neither has performed as promised by the Gold & Silver Bugs. (I am not trying to be a party-pooper, I just wish it would hurry up!) Ten years ago, Ted Butler had me convinced silver would go to $500 an ounce. Now I just wish it would hurry up and hit $50!!!

[shinnosuke]

NHsorter and Sheikh are a couple of my favorite party poopers, but I will see their poop and raise them a turd.

If silver goes to $100/toz what would our world look like? If it then truly goes to, say, $500 an ounce, we all know that price effectively means the USD is worthless and will be recognized as such by the entire world. (Even now, c'mon, $1 only buys 1/1650th of an ounce of gold...they are Federal Reserve Hiney Wipes, pure and simple.) Well, at those price levels (irrespective of the G/S ratio), I am not going to declare that the whole world devolves into a Mad Maxian dystopia, but things will be very ragged. Wanna bet that the Gold/Lead ratio won't be of key importance then?

So as the elite tighten their grip on every facet of our lives, I wonder how much longer we can do unregulated trades on realcent. How long until the wicked "hoarders" are outed for their crimes of stinginess? How long before having a best friend to watch your 6 will be worth more than all the precious metals on earth.

[beauanderos]

how much longer we can do unregulated trades on realcent?

This is the exact reason to establish your trustworthiness NOW among like-minded parties. If we ever have to go off grid with purchases and sales, at least to the extent of any surviving unsurveiled internet access and remnants of a postal service exist by then... at least you'll have your network already in place Worst case scenario... you won't be able to publicly sell (or declare ownership without threat of confiscation) precious metals... but you'll always be able to barter them black market.