Gold vs Silver - How to Play the Next Run - LONGTERM

TVC:GOLD   CFDs on Gold (US$ / OZ)
A lot of requests for gold and silver charts along with some analysis. I want to be clear that investing in gold' and silver' is a LONG TERM play (could be several years but you never know) so do not expect to see profits like you do in other markets. With that said though, when they run they really run!

I started off in the physical metals market as a kid and didn't even know it. Going to the bank, getting rolls of dimes and quarters, and sorting through them pulling out the PRE-64 90% silver' coins. I would simply throw them in my collection. 1979 taught me a lesson I will never forget. When the metals run they freaking run! Those few years of collecting turned into 1000's of dollars in a flash. My first big score in investing happened at the meager age of 10, and I've been hooked ever since! Of course back then we collected everything from baseball cards to stamps.

Both silver' and gold' have pulled back from the 9 year run they had starting in 2003 and what an epic run it was. Since the bottom in Dec of 2015 both have consolidated and though gold' has started to track to the upside, silver' is just plainly running flat. This is why I like silver' here over gold'! Silver' lags gold' during down periods but when there is volatility in the world, silver' outperforms gold' tremendously, simply because more people can afford an ounce of silver' over an ounce of gold', but when the metals correct, silver' gets hit harder than gold' as evident from the chart. Silver' ran 1112% vs Gold' 657% from 2003 to 2011 and corrected -71% vs -46% for gold'. So if your just getting into the metals market, and are looking to invest long term in metals, quite simply Silver' is where I would be putting my money, and specifically 90%!

What I am simply doing is stacking silver' at these levels. As gold' is slowly trending to the upside (a sign that large investors are diversifying out of equities into metals) Silver' is trading sideways. In addition the Gold/Silver ratio is nearing an all time high at 80 ounces of silver' for every ounce of gold'. This is critical to understand as this is how you can add to your long term stack without investing any more. Over the years the ratio fluctuates between 40-80 (over time not overnight). When the ratio is high you want to stack silver', when the ratio is low you move to gold'. Nov of 2008 the ratio hit a high of 80. Had you gone to a 100% silver' stack you outperformed gold' 2.5x's over the next 3 years. As silver' outperforms, the ratio reduced where it bottomed in 2011 at just under 35. Had you then switched to gold', you outperformed both silverbugs and goldbugs.

This is why I like silver' here. We are once again trading at the 80 G/S ratio. So if I sell one ounce of Gold' I get 80 ounces of silver' (in theory). Now when the metals make that next run, I will be looking to start selling silver' for gold' around 40 and lower. So now for every 80 ounces of silver' I sell I'm getting 2 ounces of gold'. I simply doubled my gold' stack without investing another dime in the market, and when the pullback happens, I retain more of the gains. Its that simple, but it is not going to happen overnight.

Bottom Line: silver' is channel surfing above its low. I'm accumulating here for the long term. Mainly 90% and quality bars like Engelhard. I like 90% here because the premiums are low, supply is limited, rarely counterfeited, and its already denominated. When the markets run, so do the premiums on 90%, much more than generic rounds and bars. Believe me $4 over melt is not uncommon when demand supersedes supply. Dealers can not get enough. Silver' eagles are minted every year, so the premiums maintain, and actually go down on back years with few exceptions. Now many just love to stack gold' and I understand, and there is no issue with that. But if you want to look at an alternate idea to increase this gold' stack for the long term, trade the ratio!

Comment: That should read 50 and lower not 40.
Thank you ! Silverbug ^_^
How do you stack your silver ? % -wise ? like 10% in bars, 60% in junk, 30% in eagles etc. Thank you for an answer !
+2 Reply
buy now
+2 Reply
@mureses, absolutely!
+1 Reply
@mureses, absolutely!
Knowledge bombs as always! Your analysis and ideas sharing is much appreciated. Cheers.
+1 Reply
goldbug1 RonaldTDump
@RonaldTDump, thank you
very nice write up wrote down alot of tips for silver just through the comments. do you have any tips on buying physical gold. buy local bars? buy online? is there local dealers that will sell bars usually? thank you
+1 Reply
goldbug1 takecare14
@takecare14, Local dealers are the best because you can build a relationship with them. there is usually a guy at the flea market as well, or find a coinshow in your area or coinclub and go to it. You'll meet the local dealers there, keep away from traveling dealers most are shysters.

There is a lot of counterfeit out there, so if you can not spot it then make sure you are dealing with a reputable dealer. this is why I recommend 90% as it is rarely counterfeited and you can drop it on the table or use a magnet quickly to determine.

Coin dealers are an odd bunch, business is still done the old fashion way. Your word is your word, deals are done over the phone. Its all about reputation in the coin world period! "Hey you have franklins?", "yep how many", "I need $500 face" "ok I'm 50 cents over melt so its $17 face" "perfect i'll pick them up monday", the famous words. "your locked in"!
+2 Reply
@goldbug1 do you buy it online and get delivered (which website/brand), or do you just personally know some retailers?

Thanks for the great hindsight!
+1 Reply
goldbug1 blacksun
@blacksun, I do buy online, but keep in mind when you do they track it. I would go to a coin show, or look online for a local dealer and start networking. Its slow but once you work up those relationships it pays. Especially when you go to sell because shipping to apmex is a pain in the but and costly where most dealers will buy back if you buy from them, and they have outlets to sell. Flea markets are a good place as well you just have to know what your buying as there are a lot of fake and counterfeit coins out there, but if you stick to 90% dimes quarters and halves your much more safe as those are not worth counterfeiting and after a while you'll be able to drop a coin on the counter and sound test it for authenticity.
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