Replacement of the gold / silver ratio – search for 15 – 35% of profits without cash costs
The upward trend in metals has many investors owning both. But with gold and silver bars you can do more than just buy and keep. You can also periodically trade, or “exchange,” one for the other. To do this successfully, you first need to understand the ratio of gold and silver.
The ratio of gold to silver tells you how many ounces of silver it will take to purchase one ounce of gold at a given time. If you study the prices of gold and silver 4,000 years ago, you will find:
- The historical ratio is 16: 1 (1 ounce of gold required 16 ounces of silver)
- For the last 100 years, this ratio has been 30: 1
- Over the last 12 years, this ratio is approaching 60: 1
- In the last 5 years alone, the ratio has ranged from 40 to almost 100
- As of March 1, 2011, the ratio of gold to silver was just below 40: 1
How do we take advantage of this fluctuation?
- First – we distribute our purchases on a ratio basis. If the ratio is relatively high, we prefer silver in new purchases. If the ratio is relatively low, we prefer gold.
- The last – act when the ratio reaches the top and bottom. When the ratio is high, we exchange gold for silver. Then, when the ratio decreases, we change the silver back to gold. In other words, we exchange silver for gold when silver is more expensive than gold. We then exchange gold back for silver when silver becomes “cheap” compared to gold. Every time we go through this cycle – gold to silver and back to gold – we increase our ounces. That’s the whole point. For example:
- Suppose you have one ounce of gold, and the ratio of gold to silver has risen to 80: 1. You would exchange your one ounce of gold for 80 ounces of silver.
- If the ratio dropped to 40: 1, you would exchange your 80 ounces of silver for 2 ounces of gold, doubling the number of ounces you hold.
- Next – we buy a form of silver or gold, which allows for greater profits. During periods of high demand, investors often increase the premium on certain items by 20-40% or more of their base value. At this point, we can swap high premium items for others with lower premiums – fixing most of the difference and turning that difference into extra ounces of metal.
In addition, the use of this technique does not require additional monetary costs. Using this ratio strategy outperforms the alternative – sit still and wait for the price to rise.
- taxes – If you make a profit from the deal, you can borrow income tax. We do not provide tax advice. Please consult your tax professional.
- Market risk – I do not determine the exchange of prices myself. Rather, I rely heavily on others in the industry who have also practiced the technique for decades. The market may not cooperate. The challenge is to correctly identify exchange points based on relative estimates between metals. The ratio can be much higher or lower than our goal. Then we would have to wait longer until the ratio is adjusted. This is a significant risk for those who trade odds.
- Costs – Transaction costs, such as shipping, bid-ask spread and commission, can reach up to 8%, although they should be lower. We will need to keep trading long enough to recoup transaction costs. Transaction costs associated with trading in physical metals are higher than when trading ETFs, futures or other paper instruments. To keep your costs low, we only charge half of our regular commission for a swap transaction. Many others will charge a full commission on both buying and selling. Be careful.
- More Ounces Free – The strategy of trading with the ratio of gold and silver involves investments that are otherwise stagnant and create growth by increasing the number of ounces you hold – at no extra cost. Between now and the end of the bull market you should conservatively expect to double your ounces using this strategy.
What you need to know
- When I first started buying metals almost 20 years ago, my teacher often reminded me that he was not a prophet. In the same vein, if I am wrong about the ratio of gold and silver, it will cost you money. You will buy silver instead of gold, and gold will outperform silver, or vice versa. I don’t think that will happen. Or, if so, it will be temporary. I have used this strategy many times successfully. Sometimes the time between exchanges is relatively short – maybe just a few months. Other times it took two years or more.
- I recommend changing silver to gold if the ratio of gold to silver drops to 48 or less. Consider more substitution if the ratio is further reduced. We will then look for an opportunity to exchange this gold back for silver by capturing this gain in extra ounces of silver.
- Because there are commissions and other transaction costs, you don’t realize exactly the same ratio as the spot ratio.
- The exchange strategy works for both small and large investors until you are ready to exchange (150) ounces of silver or more. We will exchange the lowest prices, the most affordable, the most liquid gold coins – all that offers you the most gold for your silver.
- This is not a petition, but only a strategy. Please conduct your own inspection and make your own investment decision.
- I still prefer silver over gold because I am still confident that the ratio will reach 16: 1 (or lower) at the top of this bull market.
- It is impossible to change the exact amount of one metal to the exact amount of another. For example, for one ounce of gold you can buy 50.17 ounces of silver, but never even for 50 ounces. I do my best to change places as close to equal as possible. The rest we will calculate in cash. You may need to have a small amount, or you may need to have a small amount. I try to keep those amounts below $ 100.
The possibility of exchanging gold and silver is periodic. If you want to learn more about how to increase your metal stocks by 15-35% or more at no cash cost, contact us. The window of opportunity is very narrow.