Tapping into the Potential of the Gold/Silver Ratio

Post Time:2015-06-03 Resource:www.hj9999.com Views:

​One example of how you can double your physical holdings over the long-term

Not long ago, our friends over at Provident Metals examined what the gold/silver ratio is and why it matters. In this insightful article, they explain that the gold-to-silver ratio is the amount of silver it takes to purchase one ounce of gold, and that investors can use this figure as a signal for the right time to buy or sell a particular metal.

But now we want to move past the basics, and dive into actionable trading strategies—specifically how investors can use the gold/silver ratio to expand their physical metal holdings.

Learning new concepts and ideas can be challenging, but the application of that knowledge is where the rubber really meets the road. Below, we aim to help you answer questions like: “What are some examples of a favorable gold-to-silver ratio?”, “How do I capitalize on a great buying opportunity?”, “Which strategy will work best with my investment approach and style?” and more.

Obviously we have a lot of ground to cover here, so let’s get started.

Parable of the Three Investors
As many educators know, telling stories is one of the most fruitful teaching strategies. From toddlers to retirees, stories help people of all ages comprehend abstract theories and principles in a way that’s easier to visualize.

Our story about how to utilize the gold/silver ratio takes place throughout the span of the last 15 years and begins with three investors:

Investor A: a so-called “gold bug” who is only interested in buying/selling gold
Investor B: a silver seeker who only invests in the white metal
Investor C: an indiscriminate buyer who favors both gold and silver.
Investor A bought 20 oz. of gold in the year 2000 at $279.11/ounce (the average price for that year), for a total of nearly $5,600. By the time 2014 rolls around, he or she has done pretty well for themselves. Their initial investment now totals somewhere around $24,000.

Similarly, in 2000, Investor B purchased 20 oz. of silver for $99 (at the $4.95/ounce average). The value of their silver investment would have risen to as high as $1,000 ($51.54/ounce) in April 2011, and fallen back down to around $350 in 2014. Still, they made money so that’s good.

But now let’s consider Investor C, who decided to use market forces to determine which metals to buy and when. Investor C has followed the gold-to-silver ratio closely and thus their actions in the last 15 years may look something like this:

2000 to 2003: Owned 20 oz. of gold since 50:1 ratio favored gold over silver.
2003: Switched to silver when the ratio moved to 80:1, which equals 1,600 oz. of silver (80 x 20).
2006: The gold/silver ratio fell back down to 50:1, signaling the switch back to gold. However, instead of 20 oz. of gold like before, they now had 32 ounces of gold (1600 divided by 50).
2009: Ratio jumps back up to 80, swap gold for silver, end up with 2,560 oz. of silver (a 60% increase from last time).
2011: Finally, years later, the ratio returns to 50:1, so it’s time to swap for gold, putting the total at 51.2 ounces of gold—more than doubling their original amount in 2000.
(Note that exchange fees and dealer premiums are not included in the example.)
As you can see, simply by playing market factors, specifically the gold-to-silver ratio, Investor C was able to grow their physical holdings and the increase value of their investment portfolio simply by swapping gold for silver and vice versa at the right time.

Knowledge is Power
Ultimately, this was just one investor’s approach to leveraging the gold/silver ratio for their financial benefit—it certainly isn’t the only way. There is no “magic” formula for winning in the trading market; however, by acquiring a greater understanding of how the market works, you can be better equipped to see where there is potential or danger in the days, months, even years ahead.

Source:Elemental Vault

Customer Service

Hong Kong:(852)30501724      Vietnam:(84)0444583209
New Zealand:(64)48303353      China:(86)4006091288