Swap Gold / Silver Ratio – Want 15 – 35% Return Without Cash
There are many investors who own both the upward trend in metals. But, with gold and silver bullion you can do much more than just buy and hold. You can trade in phases, or “swap”, one for the other. To do this successfully, you must first understand the gold / silver ratio.
The gold / silver ratio tells you how many ounces of silver it will take to buy one ounce of gold at a given time. If you examine the price of gold and silver 4,000 years ago, you will find:
- Historical ratio is 16: 1 (it takes 16 ounces of silver to buy 1 ounce of gold)
- For the last 100 years, the ratio has been 30: 1
- In the last 12 years, the ratio has been close to 60: 1
- In the last 5 years, the ratio has fluctuated from low 40 to about 100
- As of March 1, 2011, the gold / silver ratio was just below 40: 1
How can we take advantage of this instability?
- First – We schedule our purchases based on ratios. When the proportions are relatively high, we prefer silver for new purchases. When the ratio is relatively low, we are in favor of gold.
- The end – We work 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 to gold again. In other words, when silver is worth more than gold, we exchange silver for gold. Then, when silver becomes “cheaper” than gold, we convert gold back to silver. Every time we go through this cycle – from gold to silver and back to gold – we increase our ounces. That is the whole purpose. For example:
- Suppose you had one ounce of gold, and the gold / silver ratio increased to 80: 1. You will exchange your one ounce of gold for 80 ounces of silver.
- When the ratio is compressed to 40: 1, you will exchange your 80 ounces of silver for 2 ounces of gold, doubling the number of ounces you hold.
- Next – We bought silver or gold form which gives more profit potential. During high demand, investors often make premium bids on items of 20 to 40% or more of their underlying value. At that point, we can exchange high premium items for others with lower premiums – to capture most of the differences and convert those differences into extra ounces of metal.
Also, no additional financial expense is required to use this strategy. Taking advantage of this ratio strategy beats the alternative – waiting for the price to rise.
- Taxes – If you understand the profit from the transaction, you can pay tax on the profit. We do not offer tax advice. Consult your tax expert.
- Market risk – I do not independently determine the exchange of price points. Rather, I lean too heavily on others in the industry who have been practicing the technique for decades. The market may not cooperate. The challenge is to accurately identify the exchange points based on the relative evaluation between the metals. The ratio can go much higher or lower than our goal. Then we will have to wait longer to adjust the ratio. These are essential risks for those who trade ratios.
- Cost – Transaction costs such as shipping, bid-ask price spreads and commissions can reach up to 8%, although they should be lower. We need to keep our trade for a long time in order to recover the cost of the transaction. Transactions related to the physical metal business cost more than ETFs, futures or other paper instruments. To keep your costs down, We charge only half of our normal commission for a swap transaction. Many others will charge a full commission on both buying and selling. Be careful.
- More ounces at no cost – The Gold / Silver Ratio trading strategy takes an investment that is otherwise stagnant and increases the number of ounces you hold – without incurring any additional cash. You should expect to double your ounces using this strategy conservatively now and at the end of the bull market.
What you need to know
- When I first started buying metal about 20 years ago, my mentor would often remind me that he was not a prophet. In the same vein, if I make a mistake about the gold / silver ratio, it will cost you money. You will buy silver instead of gold and gold will surpass silver, or vice versa. I don’t think that will happen. Or, if it does, it will be temporary. I have successfully deployed this strategy many times. Sometimes the time-frame between swaps is relatively short – maybe just a few months. Other times it took two years or more.
- If the gold / silver ratio is 48 or less, I recommend exchanging silver for gold. Consider further switching as the ratio decreases further. We will then look for the opportunity to exchange that gold for silver again, capturing that gain in extra ounces of silver.
- Since there are commissions and other transaction costs, you may not understand the same ratio as the spot ratio.
- The swap strategy works for both small and large investors unless you are willing to exchange (150) ounces of silver or more. We will exchange the cheapest, most readily available, most liquid gold coins – whatever gives you the most gold for your silver.
- This is not a request, just a strategy. Do your best and make your own investment decision.
- I still ultimately support silver over gold because I’m sure the ratio will reach 16: 1 (or less) at the top of this bull market.
- The exact amount of one metal is impossible to replace with the exact amount of another. For example, one ounce of gold can buy 50.17 ounces of silver, but not exactly 50 ounces. I try my best to switch as close to the equal-up as possible. The rest we will settle in cash. You may owe a small amount, or you may owe a small amount. I try to keep these amounts below $ 100.
The opportunity to exchange gold / silver sometimes presents itself. If you are interested in learning more about how you can increase your metallic capacity by 15 to 35% or more without any cash expense, please contact us. The window of opportunity is very narrow.