This is going to sound too good to be true. I stumbled across this looking through some charts and the numbers ran through my head faster than Rain Man can count a pack of match sticks. Something lit up in my brain. It was a carb-loaded weekend, and my “deep thought” processes came back, albeit briefly.
Gold to silver ratios.
All of this has hit an intersection with me, and I’d like to share this thought with some of my friends. Why? I can’t un-see some of these charts.
When you talk about investing in metals, the first thing people say is, “it’s wealth preservation”. It is, but there’s some other things going on. What is most striking is the gold to silver ratio. Not holding on to your “stack” for eternity. But what you do with it.
As many of you know, economies grow and shrink – in a capitalist society, this happens over and over. When you look back over time, it almost seems like the economy is a living, breathing thing. You start to see patterns form.
If anyone has seen “the big short”, some dude started betting a LOT of money against the housing market, and he made an ass ton of money. The numbers started screaming out to him.
They screamed out to me a few years earlier as well. I was some idiot at Villanova taking MBA classes, and even I saw this years before it happened. I think everyone saw it, but didn’t know the extent of it.
OK – let’s back up here really quick and explain silver at a high level.
At the time of this writing, spot price for silver is $17.06. This means that one troy ounce of silver is worth $17.06. For you to buy this metal, it can come in different forms. Each form has a “premium” above spot that dealers charge to make a profit. Some silver has higher premiums than other based on effort to create the piece and other things like confidence in the piece. When you try to sell back to dealers, you will usually get close to spot price, but some pieces you will get some of your premium back.
- Junk Silver – this is your pre-1965 quarters, dimes, half dollars, etc. This is 90% silver, and $1.40 in face value is equal to 1 troy ounce of silver. This means at the current spot price, a 1964 Roosevelt dime is worth $1.20. A roll of these dimes ($5 face value) is worth about $62. This is also called fractional. This has some of the lowest premiums of all silver to buy.
- Bars – you can get these in all kinds of different sizes. The smaller bars have higher premiums, but the larger bars are harder to sell.
- American Silver Eagles – high premium, but you get a good chunk of that back. These have been made since 1986 and are 1 troy ounce.
- Rounds – these range from generic to more collectable things. The premium on these varies.
- Poured pieces – these can be artistic or just blocks. The pieces may have high premiums due to the artisanship. For example, I saw Star Wars pieces that are expensive. These are very high cost over “melt” and may never get that value back. Some of the poured blocks might be problematic because you don’t know what they are made of – and someone could be trying to rip you off. In the BIG blocks people might try and put lead blocks in them. These aren’t exactly trusted, and good luck trying to break down a 1000 oz bar for smaller uses.
- Numismatic – these are your “rare” coins and have a value above melt. For the sake of this conversation, I’m not including these. These might also include your silver pandas which have a high premium, but over time, appreciate in value.
What a lot of people don’t know is that silver has a lot of industrial uses, and it’s hard to recycle. Gold is highly recoverable from recycling computer parts. Furthermore, silver is an outstanding conductor and is used in a lot of electronics. The new cars running on batteries use a ton of silver.
What people also don’t know is that for every one ounce of gold that comes out of the ground, only 9 ounces of silver come out. Gold is more profitable to mine. Throughout most of history, gold to silver prices were set somewhere near 15:1. This means through most of history, you could take 15 ounces of silver and trade for 1 ounce of gold.
Things started going a little whack about 100 years ago. Our free market system here in the US has led to some interesting price swings of both silver and gold.
I’m not a financial advisor, and right now, I have like 10 oz of silver for $170. So I’m not some multi-billion dollar investor. However, I do have an MBA – and while it’s not from Harvard, one of the schools I did go to for it was a top 40 business school in the country. So. No…I don’t do this for a living. But I have taken enough fun classes to understand ratios, economics – and marry this together with charts, graphs, and the political climate to forecast some stormy weather ahead.
I was starting to really look into this when I then stumbled on to a litany of articles that discussed this. So – I didn’t invent this, but I found an investment strategy that is well known, but I’m forecasting that in the next year, the perfect storm is about to hit which can make this strategy very relevant.
It’s called the gold to silver ratio because you measure the spot price of gold and then divide by the spot price of silver. So, for instance, today gold is $1461 and silver is $17.06. If you divide this out, you get roughly 86. This means that you would need to take 86 ounces of silver to buy one ounce of gold.
Now, remember what I said about the economy being a living, breathing organism?
What you see is some peaks and valleys over the last 40 years. From 1980 to 1990, you noticed it go from under 20 to up to 100. Then from 1990-1996 down to 45ish. Then in 2002 back up to 80. Then in 2005 back down to 45. Then back to 80 in 2007. Then down to 30 in 2010. Then, over the last 10 years, it has gone back up to 85 and even 90 a few months ago.
Over the course of the last 100 years, the gold to silver ratio is supposedly 50. What this tells us when it’s way high is that gold is either over priced or silver is under priced. When it dips to 30, it tells us gold is under priced or silver is over priced.
The really low dip in 1979 was due to a massive surge in silver prices. The same thing happened in 2010.
This is corrected for inflation, but you can see the spike in 1979 and the spike in 2010 or so are rare events.
The problems with most metal investors is they buy silver or the like hoping that the price “shoots the moon”. So for example, if I bought those 10 ounces of silver at spot today for $170, most metal investors say, “hey – I think silver could go back up to 50 again!” and they bet the farm on this. And, quite possibly, silver prices go down and if they bought at $17, and silver is $6 per ounce, they lost a lot of money if they have to sell.
The idea then is to never sell below what you paid for it. Maybe you bought at the peak in 2010 for $50 per ounce. Unless times were hard, do not sell at a loss. For this reason, you need to think of metal investment as wealth preservation.
Let me explain this with 2 dimes.
In 1964, you could buy a loaf of bread for $.20. Today, you could buy a loaf of bread for that same $.20. In 1965, they changed dimes out to be relatively worthless metal. But if you had 2 dimes of silver in 1964, those two dimes today are worth $2.40 at melt value, and you could buy your loaf of bread.
The cost of bread didn’t go up. The value of silver didn’t go up. The value of the dollar went DOWN. This was due to us just being able to print money at will. With a $22 trillion debt, and us not having currency backed by metals, we just print money. What then happens is everyone has more money and the costs of goods go up based on that paper money. This is the same reason why the $15 minimum wage is laughable. Anyone who has taken an economics 101 class learns about price floors and ceilings. And – if you simply just give more money out – the costs of goods….increases.
So if you had 2 dimes of silver in 1964, you have preserved your wealth over the last 55 years. Likewise, anyone who has taken a finance 101 class knows that cash loses value over time, and you get the fun charts and graphs out for future value of money. For example, if I have $2.40 in my drawer in today’s currency, I can buy a loaf of bread. However, in 40 years from now, that loaf of bread might cost $24 due to inflation. But guess what. Those 2 silver dimes you have from 1964 will still buy a loaf of bread. So, your CASH loses value over time, slowly. Your silver preserves your wealth of TODAY for generations to come.
What do you think is going to happen to your 401k in the next few years when the economy tanks? Stocks will go down. Everywhere. This significantly affects index funds. Now, this number isn’t current – as it’s 2,000 higher than listed.
OK – so don’t buy into silver with the idea of making a fortune overnight.
The last time silver prices surged were – 2010. Look at the correction above when the stock market hit the shitter in 2009. Everyone feels we are in the direct eye of the next correction coming soon. Look at the down sinking from 1970 to 1980, which seems to also correlate to the other time silver prices were over 50.
- We just got news that the economy started to slow down last quarter.
- A political party is trying to remove a sitting president 12 months out from an election based off of sketchy evidence on a possible crime that isn’t there. This president is for reducing regulations that have helped the economy move forward.
- Some leftist political candidates are talking about seizing wealth through a “wealth tax”. If this person becomes the nominee, I see a MAD RUSH for these people to liquidate stocks to put into untraceable metals. This will make demand rise
- There is a major correction to the dow on the horizon.
- When stocks begin to dip, wealthy people preserve their wealth through a tough economy with metals. Just like the two dimes above.
- More and more industrial uses for silver have surfaced with electronics and batteries for cars. As more electric cars are made, the demand for silver will go up.
- China and Hong Kong are in an escalating conflict. China holds a lot of US debt. If called, and the US tries to print more money, it would further lead to soaring inflation. China is trying to position itself as THE next global super power. They make a ton of electronics which demand silver.
Now, let’s get back to this ratio thing. Most silver investors might be worried that if they buy a lot at $17, and the price dips to $13, that they will lose a lot of money. Not so fast. We’re going to do some math right now and use the historical charts to show you how rich people preserve their wealth, and grow it, through tough times. And…if you think these markets are not manipulated by very powerful people, you are also living under a rock.
In order to increase the gold to silver ratio, you will either have gold prices go up or silver prices to go down. If you are a silver investor, you want this number very high WHILE having silver prices low.
To decrease the gold to silver ratio, you want to have the gold prices go down OR silver prices to go up.
What you see with a high gold to silver ratio means it’s a good time to buy silver. Let’s use some round numbers to discuss.
THIS IS NOT ABOUT SILVER PRICE. YET. IT’S ABOUT INCREASING METAL – at this point.
- Let’s just say that back in 1970, you bought 1000 ounces of silver for $10. At that time, the gold to silver ratio was 40. You had $10,000 to invest, and you invested it in silver. You said to yourself…”self..I want the silver ratio to go high. Maybe in a few years I will see prices go up and down”.
- Now, I was a novice investor at the ratio of 40:1. Let’s see where this goes. If the ratio goes down enough, I want to sell and buy gold.
- In 1979 or so, silver “shot the moon”, but instead of taking the cash, you noticed the ratio was 10:1. You took your 1000 ounces of silver and converted that to 100 ounces of gold. And you held.
- In 1990, gold hit 100:1. This means you were then able to take your 100 ounces of gold and converted that to 10,000 oz of silver. Let’s say when we get down to 40:1, we move it back the other way again.
- In 1996, the ratio hit 45:1. You took that 10,000 oz of silver, and then bought 222 oz of gold. This is fun.
- In 2002, the ratio went back up to 80:1. Let’s take that 222 oz and convert this to 17,760 oz of silver. More fun.
- In 2005, back to 45:1. Now we move this silver to get 395 ounces of gold.
- In 2009, back to 80:1. Let’s take those 395 ounces and convert to 31,573 ounces of silver.
- In 2010, down to 30:1. Let’s take those 31,573 and convert to 1,052 ounces of gold.
- 10 years later…the ratio has gotten back up to 85:1. If I have gold, I’m selling to buy ALL the silver I can. I’m taking those 1,052 ounces of gold and converting this to 89,457 ounces of silver.
Now – if that guy sells all of his silver, today, you’re looking at
89,457 * 17 = $1,520,782
This was on a $10,000 investment. This is an investment that paid 152 times the investment over 50 years.
If he had just held on to that 1000 ounces of silver for 50 years, he would have paid $10,000 for it in 1970 prices and sold today for $17,000. That’s a $7,000 profit, but in 50 years, with inflation – he LOST a ton of money. That $10,000 in 1970 cash would probably be equal to close to $100,000 today.
So – holding on to metals for 50 years won’t do well for you. But what if you use the ratio to use that initial investment?
What if…..when you went to flip, you invested maybe another $10,000 at each flip whether it’s gold or silver?
What it all tells me is to buy a LOT during the peaks and maybe buy more slowly when the ratio is between 55:1 and 65:1. When it’s 65:1 or higher, buy SILVER. When it’s 55 and below, buy GOLD.
So – here’s the storm.
The stock market is due for a MAJOR correction in the next 1-3 years. If I’m a financial guy and heavily invested, I’d WANT the democrats to win. The dems are going after a wealth tax, they want to repeal all regulations Trump lifted, typically speaking – democratic economies are stable with slow growth. This will reduce corporate profits and 401ks. I saw this in 2009. Dems tend to have more socialist/progressive policies with higher taxes – and they discuss the $15 minimum wage. The higher taxes also are rolled into the prices of products which also increases the costs of goods and inflation. All of these tell me that the stock market could POP majorly if a dem is elected. I think it is due for a major correction no matter who is elected, but I see 5,000-10,000 sell off if a dem is elected. This HELPS billionaires.
So, if I have corporate interests in the billions, I’m driving up the stock market artificially now and will move my wealth to metals and sell off when the stock market starts to sink.
But look at the ratios. LOOK.
Why the hell would I take billions and put it into gold with the ratio at 85:1?
Some things have to happen:
- They will invest in silver, heavily. This will drive the price of silver up to perhaps $26-$35, perhaps even $50-$75 if you’re talking significant investments. You have to realize that billionaires could buy up most of the silver bullion supply, today, based on how much is actually available.
- By driving silver prices up, this could make gold fall. This could, over 1-2 years, bring the ratio back down to 30-40.
- All of those billionaires who just bought silver at 85:1 are about to double their money when they buy gold.
Follow the money. If I’m an investor, right now, I want artificially low silver prices and I want spot to go low so I can buy up just as the stock market begins to tank.
Major news media outlets today unfortunately are not news outlets, and they tend to be more entertainment driven due to revenues and advertisers. Most mainstream media is now owned by very few organizations, and they all have the same narratives that want to put into place a situation where the stock market will tumble again. Billionaires will get richer.
This is clearing the path for silver to be gobbled up the second the stock market hits a free fall.
So – silver COULD shoot the moon.
But – more importantly. I want you to look at the guy above who initially invested $10,000 in 1970 in 1,000 ounces of silver at 40:1, then followed him for 50 years – he is now worth $1.5 million.
What is interesting is that it seems like there were 10 years between swings from 1970-1980. Then from 1980 to 1990. Then 6. Then 6. Then 3. Then 4. Then 1. So the periodization increased in frequency. Then stopped.
It stopped at the global financial crisis. All of the billionaires had fleeced the system. Time for a reset.
Now, the stock markets have inched forward over 10 years.
The billionaires are ready to make another move.
So get this….
- If nothing bad happens in the next few years, I’m VERY VERY HAPPY to see a high ratio and reasonable silver prices. Don’t care about the price of silver. It’s about the WEIGHT.
- If something bad does happen, the silver can be converted to gold at some point when the ratio dips. Remember, the ratio dips from either price of silver going up OR price of gold coming down. Your $17 per ounce investment could end up with you pocketing a lot of cash if silver prices hit $45 per ounce OR they could have you buying more gold if the price of gold dips a lot.
- It’s about the weight of metals being accumulated over 20-40 years, not the daily spot price.
Please contact me for where you want to send my Nobel prize 🙂 I’m sure the guy who invested $10,000 in 1970 would thank me today. Actually, I’d advise him not to sell his silver at $17, but give it a few years because I do see silver hitting $25-$30 and never going below that for years to come.
One other thing – I was reading about things called EFTs, where you can buy your gold/silver and they hold it. Sort of like an IRA in gold/silver. Not sure how it works. Oh…and don’t drop a million somewhere and blame me if things go to shit. I’m not a financial advisor, but the internet might like this pretty article a few years from now 🙂
I wanted to make note that premiums do exist, and this ultimately will affect the “net ratios”. For example, if silver is 100:1, and you want to convert 100 ounces of silver to gold – that gold might be at spot at $1,500, but there may be a $50 premium. So it’s not a “true” 100:1 ratio when you figure in premiums. Additionally, you may have to ship your bullion, which has additional costs. For the sake of this article, I wanted to show how extremes of the market can help you increase your pile of silver.
In our example above, he went from 1,000 ounces to close to 90,000 ounces. If the silver price started at $10 in 1970 and ended at $9 in 2020 – there’s people that would say…”your investment in silver was an abject failure. Silver LOST money over 50 years”. If you just hold your stack, yes. Likewise, if you do conversions at market extremes, you are increasing your volume of silver.
If the guy in the example sold his 90,000 ounces at $9, that is still $810,000 on a $10,000 investment.
What I would do each time I flip would be to eat the premiums and shipping out of pocket. Each time you do this, it might be a couple of thousand, but again- when you are dealing with an 81:1 return on investment (after your costs), you’re looking at a win.
On top of this all, there’s also tax implications that you might want to talk to your tax professional about. Some of these deal with selling over 1,000 bars in silver at a time or $10,000 in cash. There are some ways around this – apparently, the 1oz silver eagles are exempt from this. You can also deal with several dealers and keep your transactions below the threshold. Additionally, there’s a capital gains tax which is self reported – but unless you are registering every buy and sell you do with each piece, this is untraceable. I would think this is more for the bullion dealers.
Lastly, I watched “backyard bullion” on YouTube and he talks about the problems of moving and storing large quantities of silver. I am not necessarily expecting you to have 90,000 troy ounces in your house. He also did some math so you can understand this:
1 Troy ounce = 31.1 grams.
90,000 troy ounces = 2,799,000g of silver
divide by 1,000 to get kilograms, you get 2,799. 1 KG = 2.2 pounds.
This means you now have 6,157.8 pounds of silver, or roughly 3 tons. If there’s a “Shit hits the fan” situation, good luck running around with that on your back.
If you take those same 90,000 troy ounces and convert to gold at 90:1, you’re looking at 1,000 troy ounces of gold, or 31,100g or 31.1kg or 68 pounds of gold. In a tough situation, you could put a few of these bricks in a bag and sling it over your back.
His point was that large volumes like this aren’t practical for home storage and moving.
I agree with all of this. However – the whole point of this was to show the math and how very rich people have been able to maintain and grow wealth. They use services and EFTs to keep their gold/silver virtual, so they don’t need a vault the size of Caesar’s palace to store their silver.
So – I can’t predict the future, but all of the signs are pointing towards the gold to silver ratio to take a steep dive. At this point, I’d invest heavily in silver to anticipate the flip. If silver prices drop – I’m buying!!! I’d silver prices go up (and gold prices go up to match and keep the ratio), I’m buying!! Where I’d slow down buying would be the 65:1 ratio. I’d start looking to sell some at 50:1. I’d convert everything but the numismatics and collectable pieces when it hits 45:1.
Could the ratio get all the way down to 20:1? 10:1? Maybe. But at 45:1 and lower, I’m buying all the gold I can until the ratio then goes back up to 80:1. Maybe it does drop to 10:1? Don’t know, I’m not trying to be greedy – but find ratios and rules to live by. If you do have 1,000 ounces of silver when it hits 40:1, you’re looking at 25 ounces of gold. When that goes back up to 80:1 in 1-10 years, you flip back for 2,000 ounces. You doubled your metal with no out of pocket costs! What I would then hope for is a flip every 4-5 years, but as you can see, it can sometimes be a 10 year cycle like we are in now. The idea is over 40 years to have this cycle happen multiple times.
None of this is dependent on the price of silver, but the gold to silver ratios. Good luck!