02 October 2014

Gold Silver Ratio and Some Thoughts On Markets

Fear Us!
As you may recall, silver is more volatile than gold.

That means if the two metals are moving in the same general directional trend, as they are often wont to do, then silver will be moving faster and further in that direction than gold.   Silver has a higher beta.

So when one considers the gold/silver ratio, one is perceiving the 'spread' between the two.  In general, at the extremes, the spread between gold and silver will widen and narrow markedly as compared to itself over time.

We are at such an extreme now. Sometimes these merely signal short term tops and bottoms. And sometimes they signal trend changes.

In addition to the volatility differences, there are a few others.

Silver has a greater industrial usage than gold. So it corresponds more to the general trend in base metals.    Further, gold is perceived as more of a 'safe haven' than silver.  Gold is more purely 'money' than silver.  Silver is also more often a byproduct of base metal extraction.

All other things being equal, gold will be a more reliable store of value in times of crisis, but silver, once the crisis is past, will begin to overtake gold and recover more quickly.   Holding silver with leverage, given its already volatile nature, can be a real sleigh ride.  I don't use it for investment purposes, merely for a quick flip, lightly and only on occasion.

So there are a number of variables to consider in this ratio. In the past I used to engage in fairly elaborate multivariate regression analysis of these things.  I am doing less of this technical price analysis now that the markets have become as they are.  Analysis without including Asian supply and demand fundamentals has become somewhat effete.

As I have remarked colloquially the other day, there is some 'weird shit' going on in the silver market.  I will probably have more to say about this in the days to come.  I am sifting through rumours and data.  I may pass a few along, just because they are so delightful, in the manner of a novel. 

And I cannot say enough what a poor measure of the demand and value of metals is to be found on the Comex. If you really consider now what it is doing and how it is doing it in the quest for 'price discovery,' it is about as relevant to the value of the precious metals as a private game of Liar's Poker is to the value of the US dollar.  

But while people believe, it does have power.  It is an unfortunate country whose prices are set in a poorly regulated casino. 

I firmly believe that the US markets have given way to a shockingly pervasive control fraud once again, which can be called The Big Skim.  And there will be consequences over time.

These schemes always seem to fail.  In their late stages their is more use of fear than fraud, until they become almost all stick and no carrot, and then they fail.   And their failure has few fathers, but an abundance of orphans.