Today is Thursday 17th October 2019 and In this video podcast we are going to break some myths about the gold to silver ratio, highlight how relevant it is and what conclusions can we draw from this much heralded calculation. We utilise examples from the past using both the gold price today and the silver price today.
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Ever since this channel began and before much has been made of the gold to silver ratio, especially supporting silver pumpers who have used this calculation to suggest that silver is on the verge of a price breakout. They have frequently called this because the GSR has been rising over the years and there have been one or two occasions when percentage wise silver has caught up.
But we thought today we should examine this calculation a little more closely.
As we produce this video the price of gold in US dollar terms stands at $1487 and silver at $17.31 suggesting a ratio of just shy of 86:1
The main messages we draw from that article are:
1. Because different factors affect the price of gold and silver, they won’t necessarily move in tandem, nor is there a known catalyst that will substantially shrink the ratio.
2. Unless investment demand for silver dramatically increases from its current levels, or we experience high levels of inflation, or see a huge increase in the demand for silver for industrial purposes, we would expect for there to be a healthy spread in the price of the two metals, which at the time of this article is approximately 66 to 1.
An interesting article making the case for traders to use the ratio, but as in all things financial let’s be honest here, trading gold for silver is a gamble and vice versa. We would contend once again, that whilst the GSR is a useful tool it is certainly not something you should necessarily depend upon and most certainly, in our view, unless an extreme circumstance occurs ignore all of those people who claim that the ratio has to adjust to 1980 levels or worse to the ratio in which it comes out of the ground – they are usually bullion dealers or silver miners with a vested interest.
With gold close to $1500 it would make sense to assume silver based on recent trends will rest at or around 80:1 – 90:1 or in a more extreme situation could fall back to 65:1 – thereby suggesting a price of between $16.60 at worst and $23 at best affected only then depending on where the price of gold moves.
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