Many people claim that the Silver to Gold Ratio is predictive and that at certain times silver and gold can become over/under priced relative to each other.
If that is the case, then extreme over/under price valuations can be used to time swaps between gold and silver ownership, and you should be able to sell one metal when it’s overpriced and invest the proceeds in the under-priced metal. This trade would improve your profit potential as opposed to buying and holding only one metal over the long term.
In practice, you should sell gold and buy silver when they trade at the low end of its historic S/G ratio. This is difficult to do in shorter time frames, or when silver and gold have been tracking in tandem, but that is not what is happening now.
Right now, silver compared to gold is the "Perfect Storm" trade. When the bubbles start to collapse, silver prices will rise much faster than gold . The Silver/Gold ratio will eventually revert back to its historic mean, and likely overshoot it.
Keep a close watch on the directions that the Fed is predicting for interest rates. When the central banks start to panic, you will see them come out in force trying to prop markets up with talk. When "talk" fails and the markets start to collapse in unison, they will start dropping interest rates and go full bore QE just Like 2009.
The biggest "Everything" bubble in history is now upon us, and you can clearly see the effects of 10 years of Quantitative Easing.
Thanks for this post. I am very interested in both gold and silver (I do hold silver bullion). I agree with everything you have said. One thing though I question, is what you say in regards to the Feds and QE. Part of the issue we have right now is that interest rates have been held so low for so long, that if we do have another slide like we did back in 2008, the Fed no longer has the tools for QE that it did back then. Do I understand that correctly? What could the ramifications of that then be?
JesseL
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@Bremily01, This links provides some good info to answer your question.