Silver to Gold ratio: Your thoughts?

[argentummolonlabe]

Hey all,
What do you think about the silver to gold ratio? As of now it is 64:1. This tells me that gold must go down and/or silver go up. Historically, 16:1 has been the norm. Today, mines are getting about 9:1. Could above ground availibilty be closer to 1:1? Your thoughts

 

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It's all 'bout supply and demand. More people want gold therefore the price is higher.

 

[TreasurePirate69]

The 16:1 gold to silver ratio was set at a time when prices for gold and silver were the most manipulated they have ever been in history. Many PM bulls cry manipulation today and point to ratios and prices from long ago. But they cleverly ignore the fact that the ratios and prices they are pointing to were specifically set by the government to make coinage prices simple. In other words, at no other time in history were the prices of silver and gold set irrespective of actual supply and demand like they were back when the 16:1 gold to silver ratio was in force. This was pure price manipulation at its best. So it is no surprise that this ratio immediately stopped holding true once we went off of the gold and silver standards.

One other thing to consider is that these ratios have little use in determining expected prices unless you can be sure that the price of at least one of the two metals is "correct". In other words, if you apply the 16:1 ratio to gold and silver today ($1200 and $20 respectively), should you conclude that silver should be 1/16th the price of gold or should gold be 16x the price of silver? So perhaps gold should be $320. Or.... is it the case that neither price is "correct" today? How does this ratio help to determine a "correct" price for the other metal if you don't even know if your reference price is correct?

As you can probably tell, I put zero faith in the use of such ratios. I'm not saying they can't be useful at times. But you have to be very wary of putting your faith in such ratios just because they seem convenient or fit your world view.

 

[argentummolonlabe]

Well said treasure pirate. So, do you think the metals are still being manipulated? Does the natural occurance of the metals play a factor in price? Personally, I see gold has not being worth much anything at all. Not too many uses for that metal. Silver has thousands of uses. However, as you said, perhaps I am trying to fit it in my world view.
Thanks!

 

[argentummolonlabe]

Yep, supply and demand. Do you think there is manipulation though?

 

[TreasurePirate69]

I think there has always been manipulation and will always be manipulation. However, the question is to which direction at any given point (up or down) and to what extent it actually impacts market prices. After all, there will always be someone trying to take advantage of the markets. I think the drop we are seeing right now has nothing at all to do with manipulation by cartels and everything to do with investors and the general public simply not being scared anymore. If anything, I believe the price was "manipulated" to $1900 (gold) and near $50 (silver) by "fear". Although most people would shrug this off as not being manipulation per-se I would argue differently (but not too hard). The one thing I have always said is that if you only view manipulation as being possible in one direction then you are missing the bigger picture and are probably trying to justify a belief system that isn't holding true.

Gold and silver are both useful at reasonable prices. When the price gets to be too high the industrial complex finds alternatives for these metals. So although it may seem that silver is much more useful today than gold, this hasn't always been the case. Gold has just recently been abandoned as an economical alternative for many industrial uses due to the rising prices. The same could easily happen to silver if the price were to skyrocket to $100+. So just like price ratios, I take the "list of uses" with a grain of salt too. Many people over the years have tried to prove that silver is a much better investment because of the long list of uses. They also try to imply that this will lead to eventual high prices for the metal. But I don't buy into this line of reasoning.

 

[Wilmingtonsilver]

I saw this on the History Channel the other night. Watch it and see if you think there is manipulation or not.

 

[TreasurePirate69]

I saw this on the History Channel the other night. Watch it and see if you think there is manipulation or not.

I've watched that video before. Just a lot of scare tactics and speculation. No real evidence given. If you can point to a specific place in the video that you think provides any credible proof other than wild eyed/haired, tin foil hat wearing kooks speculating, then I'd be happy to entertain the possibility. I'm not saying that people aren't trying to manipulate gold or silver. They certainly can try and may even succeed on a micro level. I even believe that gold could be manipulated UP right now. But there has been no evidence given that shows that some "cartel" is currently suppressing the prices of gold and silver to a large extent. Again, if you can provide some I'd be happy to hear it.

 

[TreasurePirate69]

Just to be clear, I think it is perfectly reasonable to believe that individuals or groups are able to push the price of silver up or down by 10 cents, 50 cents, or even a dollar or two every now and then. But there are many silver bulls out there who think the price of silver should currently be $150 and that the reason it is only $20 is because of price manipulation. I find it hard to buy into that theory. I just don't think that kind of manipulation could be possible. If a group was able to manipulate the price of silver down by $130, why wouldn't they then go ahead and let the price go to $150 now and then just to take the profits? There are lots of reasons why that theory just doesn't hold much water in my opinion.

Of course, that's all it is: my opinion. And there is a high probability that I am the one that with the preposterous theories...

 

[jim4silver]

One use for the gold silver ratio is for determining what is a better buy at any given time. For example, when the ratio is lower, it favors buying gold and when it is higher it favors silver. I don't put any stock into the whole 16 to 1 theory often discussed because the governments of the past fixed that ratio and it was not a natural ratio brought about by natural market forces (not that we have any of those forces nowadays anyway).

I know of some posters on another blog who claimed to have greatly increased the size of their stash by swapping gold for silver when the ratio is high, and swapping back from silver to gold when the ratio is low, thus increasing the size of their stash each time.

What is interesting though, and this is a FACT and not opinion, is that the ratio of silver to gold being pulled out of the earth each year for a long time is roughly 10 ounces of silver to 1 ounce of gold, whether or not that means anything long term will have to be determined. In 2008 it was less than 9 to 1, so it varies each year a little.

Jim

 

[TreasurePirate69]

I don't think the correlation between the price ratios and production ratios is necessarily linear. As Jim said, the yearly production ratio of gold to silver was about 1:9 yet the gold to silver price ratio is currently around 66:1.

If you look at the amount of copper mined each year vs. the amount of nickel mined the ratio is approximately 9:1. Yet the price of nickel is only about twice that of copper right now. Likewise, the amount of copper mined vs. the amount of silver is approximately 684:1. Yet the price of silver vs. copper is about 92:1. So you can't apply a linear formula because it just doesn't seem to map out that way.