Gold To Silver Ratio – Sentiment

The gold to silver ratio (GSR) acts like a sentiment indicator.  When the GSR is low both gold and silver are usually running upward and strong.  When the ratio is high, like now (Sept. 30, 2014), gold and especially silver are priced low and disinterest is nearly universal.

This is my anecdotal interpretation of silver and gold sentiment from a high of 10 to a low of 1: 

10.     Silver is fantastic!  I want to invest every last dollar into silver because I know it will quadruple by next year! 

9.       Gold is going great.  I wish I had bought lots more a couple years ago! 

8.       Silver is a great investment.  I spoke to my brother-in-law about buying more silver last night. 

7.       Gold looks good at this juncture.  We might see a short term correction but long term gold should go much higher. 

6.       Silver investing can be dangerous but it has built a nice base and should be a safe buy at this time. 

5.       Gold belongs in the portfolio of most investors. We suggest a 3% allocation. 

4.      Silver has disappointed most investors for some time but I think we have a credible bottom here. 

3.      Gold is making me angry. I lost my ass on the stuff and now I’m just praying to break even. 

2.      Silver is a total disappointment! I should have bought S&P Index ETFs, or bond funds, or Florida Condos, or anything but silver.  Silver was a huge mistake and the “gold bugs” are “out-to-lunch.” 

1.      I never want silver or gold mentioned in this house again! Investing in silver is for fools, and gold is useless.  Goldman Sachs was right.  I hate the gold bugs and precious metals crazies and hard money crackpots who rant and rave about putting my savings into such useless crap.

On this anecdotal scale, I think current sentiment is about 1.5.


A disaster or an opportunity?  Remember the admonitions:

  1. Buy when the blood is running in the streets.
  2. Buy when everyone is selling.
  3. Buy when nobody wants it.
  4. Buy low and sell high.

Consider these additional comments on current gold sentiment:

Hathaway continued:  “The Ned Davis research index of gold sentiment is the lowest it’s been in 30 years of data.  They have data going back to December 30, 1994.  Their chart of sentiment right now is basically at zero.”

“The other thing worth mentioning is that Mark Hulbert’s gold sentiment index is now at the second-lowest level ever.  Hulbert said, ‘There has only been one time in the last 30 years when the HGNSI got any lower than it is today.  That came in June 2013 when it fell to minus 56.  Today it’s at minus 46.9.’” 

 Examine the GSR for the past decade and compare the extremes in the ratio to the bottoms and tops in the price of silver.

Gold to Silver Ratio - 10 Years

Gold to Silver Ratio – 10 Years

The current GSR is approximately 70 – very high and the price of silver is at a 4.5 year low.  I have circled other times when the ratio was either quite high or quite low.  Those extreme readings usually marked highs or lows in the prices for silver and gold.

Other Ratios:  Silver prices seem low or have increased slowly compared to:  (no specific data provided)

  • The official national debt – over $17.7 Trillion. Since 1971 silver prices have increased by a factor of about 12, while the official national debt has increased by a factor of over 44.
  • The number of white house staff
  • Average single family housing prices
  • The price of a pack of premium cigarettes
  • The price of a gallon of gasoline
  • Average bonus on Wall Street
  • The price of health insurance
  • The price of a college education at a major university in the US
  • The price of hamburger
  • The price of a six-pack of beer
  • The price of a ticket to an NFL game

And the list goes on.  Inflation is alive and well all over the world.  Central banks are printing paper and digital money by the $Trillions, governments are borrowing by the $Trillions, and there appears to be no end in sight.

Of course it will change, prices will adjust, and assets will be revalued.  In the meantime, ask yourself:

  • If a government is essentially bankrupt, can’t pay its bills without going deeper into debt, and expects to increase its debts from $Trillions into $Quadrillions, how much is that country’s currency really worth? How much are that country’s 30 year bonds truly worth?
  • Silver and gold have been money and a store of value for over 3,000 years. Will they still have value in 20 years?
  • Central banks around the world are creating dollars, euros, yen, and yuan in what appears to be an endless process. Do you expect those currency units to retain their value?  Hint:  look at the inflation of prices in food and energy since 1971, since 1991, since 2001, and since 2008.
  • Will our financial system survive another 10 years without massive destruction in the value of PAPER assets?
  • Do you trust our politicians and central bankers to resolve our problems and improve our financial world? Hint:  If excessive debt is at the core of our economic problems, will more debt fix our problems?

The GSR is approximately 70.  That is an extremely high ratio and probably marks a major bottom in gold and silver prices.  However, can the price of silver drop another buck?  Of course!  Do High-Frequency-Traders want to generate profits?  Of course, and if they can smash silver down another buck, they will.  But watch out for the snap-back rally.  It will be impressive.  Prices will reflect true value – eventually.

In the meantime, buy when blood is running in the streets, when sentiment is low, when prices have been smashed, and when nobody else wants to buy.

Silver and gold look good now!


Additional Reading:

Andy Hoffman:              Historic Capitulation

Darryl Robert Schoon:  The Price of Gold and the Art of War

Michael J. Kosares        Why China Thinks Gold is the Buy of the Century

 Gary Christenson

The Deviant Investor

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8 thoughts on “Gold To Silver Ratio – Sentiment

  1. Mr.Christenson, Due to your insightful and logical views on fiat currency verses holding precious metals has been the impetus for me to purchase more silver bullion. I am by no means any sort financial prodigy but the more information I peruse, the more I see that you are right. There are those people such as Harry Dent and his ilk that have opinions which make me shutter in disbelief. In my humble opinion, the day is coming when our insolvent government will add that “final straw” to the proverbial camel’s back. I may not live to see the devaluation of the US dollar but rest assured that day is coming. Just as in post-war Germany, where the purchase of a loaf of bread required a cart or wheelbarrow load of Deutsche marks, so goes the prospect for the US dollar. Unlike currency, which is printed daily, there is a finite supply of precious metal. Sure there are deposits of precious metals still in the ground but the production cost of mining, refining, minting marketable forms of silver leads me to believe a sharp rise in demand and a substantial “price correction” must occur. Since November 2014, I have acquired 150 troy ounces of silver at an average price of $18.18 per ounce. I am on track to reach my interim goal of 500 troy ounces by the end of 2015. Given the volatility of prices and rising premiums on purchases of silver bullion an investor might be intimidated in the procuring of the safety of hard assets precious metals offer. Nero fiddled as Rome burned, while our President plays golf as the Debt Clock spins inexorably towards the 19 trillion mark. As for me, I continue to buy, stack and bury silver with a quiet satisfaction that comes from knowing at the worst; I am making preparations to survive the possible financial holocaust we all face. Thanks and Merry Christmas, Dave

  2. SAND has great financials. So does SSRI. I have my money on both. USLV too after this pullback. But to Hell with gold, silver and palladium have a brighter future. Rhodium is even better

  3. 1) “Silver prices seem low or have increased slowly compared to” – the list is an excellent proof that silver is a lousy hedge against inflation. Just about everything has increased in price faster than it.

    2) While silver tends to outperform gold in a gold bull market, it tends to do so only during the final mania stage. If you invest in silver, you are bound to be disappointed most of the time even in a bull market and you will probably miss the point at which you should sell for a profit anyway.

    3) Silver is extremely volatile. Even if you are right about the general direction of the market, you can still lose your shirt by buying and selling at the wrong time.

    4) The silver market is extremely thin and easily manipulated. It is the speculator’s heaven, but if you suck at speculating, stay out of it or you will be sorry.

    5) Silver is, to a large degree, an industrial metal. If the global economy goes south, the price of silver can suffer, even in a precious metals bull market.

    6) If I bought precious metals every time the fanatical gold bugs said “now is the time to buy”, I’d be bankrupt long time ago. They never tell you when is the time to sell anyway.

    My advice – stay away from silver. Trade gold, if you want to trade precious metals. Just never forget that there are times to buy and times to sell.

    We are now at a very critical point, which makes trading decisions easy. Gold is sitting on major support. It will either rally from here or break through support and go much lower. If you don’t have a position, buying here is advisable – just be ready to sell immediately if support breaks. If you have a position taken around these levels (as I do), hold but be ready to sell if support breaks. If you have a position taken at much higher levels, I feel sorry for you. However, selling here right now is a bad idea. Wait to see if support breaks and, if it does, try to hedge partially your position by buying put options.

    • Thanks for your comments. I’ll reply in order.

      1) Or, it is excellent proof that silver has been beaten down and is now an excellent hedge against inflation going forward.

      2) Perhaps. Perhaps not. Timing is important. What is wrong with investing in both, weighted more toward silver when the G/S ratio is high?

      3) Correct. Same is true about the S&P, coffee, and junk bonds.

      4) Good point. But some of us have and will be pleased with our silver investments.

      5) Yes, but in my opinion, this is an overrated story. If the economy goes south, so does mining for base metals and since most of silver is mined as a byproduct of base metals, hence supply decreases. So silver price suffering might be minor or non-existent.

      6) Possibly true, but also true for the S&P, Junk bonds, cocoa, and real estate.

      7) My advice: buy silver when the GS ratio is high. Buy gold when the ratio is high. Sell some of both when the ratio drops to half what its recent (1 – 3 years) high.

      8) I agree. Selling gold or silver here is a very bad idea. It was a good idea in mid-2011. I suspect it will be a good idea in 2017 – 2019 or thereabouts.

      The Deviant Investor

  4. Mr. Christenson,

    The U.S. government is not essentially bankrupt or broke as you seem to imply. As long as they can print dollars (which they can) and dollars are worth something (which they are, it is used as money), they can’t really go broke. The U.S. is a currency issuer. They have no solvency constraints. If I could print dollars (money) also I would be a currency issuer and I would never go broke. Individuals and corporations are just currency users. Cyprus, since joining the EU for example, is no longer a currency issuer but just a currency user. Also do not forget the U.S. government has physical assets worth well over $100 trillion.

    You also say that the government expects to increase its debts from $Trillions into $Quadrillions. Really? Never heard that. I keep hearing something like $210 trillion in future unfunded liabilities. Please explain where does this $Quadrillions number come from?

    You ask, “Silver and gold have been money and a store of value for over 3,000 years. Will they still have value in 20 years?” The answer is: may be , may be not. No one can say.

    You ask, “Will our financial system survive another 10 years without massive destruction in the value of PAPER assets? And the answer is: may be, may be not. Once again no one can say.

    • A matter of semantics: Yes, if any govt. can print currency to pay its bills, then it can continue. Of course that will not last forever. Further, if the individual or govt. must borrow more currency to pay current debts, or even just the interest on current debts, and the individual’s or government’s net assets are smaller than their liabilities, then the individual or govt. is either bankrupt, insolvent, or will be soon.

      But what happens when the currency is no longer accepted in payment for debts? It could happen. What happens when debts can no longer be “rolled over” as nearly happened in 1979 – 1980?

      The national debt has increased from roughly $400 Billion in 1971 to nearly $18 Trillion now. There is no plan except to continue increasing debt. I think we all know that will not last forever. But if official debt increased by over a factor of 40 in 40+ years, it is not hard to multiply $18 Trillion by a factor of 40, add a bit for acceleration of indebtedness and produce a national debt of a quadrillion dollars. Of course we won’t like that world and we probably will not get there, but compound interest is what it is.

      As for unfunded liabilities, that just makes the situation far worse and much sooner. Again, I don’t see a plan to manage the debt or expenses. That is a problem.

      So which do I trust more? Gold, silver or increasingly less valuable currency? Easy – gold and silver.
      The Deviant Investor

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