Using silver to buy gold - can someone explain!?

[BackyardBullion]

Hi all,

I have heard and read people planning to swap their silver to gold when the ratio drops to around 40:1.

Could someone explain the thinking behind this - I know it means you are getting more gold for you buck as it means the price of silver has gone up but inevitably the price of gold will have gone up too. 

I guess I am stuck in the buy low, sell high = profit thinking for silver and gold and not thinking about super long term!

Thanks!

[HawkHybrid]

the ratio is currently ~70:1. should the gsr reach 40:1 and you've

already bought your silver you can then swap 40 oz silver for an

oz of gold meaning you will end up with 1 oz gold and additionally

have (70-40) oz of silver. the key to the trade is silver usually goes

up more than gold in a pm's bull market. people who trade silver

for gold at the height of the pm rise are usually less willing to hold

currency to the same value. it's about trading on the difference in

rises/falls and not the absolute(£) value at the point of trade.

 

HH

[KDave]

Logically speaking when the STG is low than gold is on offer in terms of silver, you swap less silver to get a ounce of gold, but history says that moving into gold at the low points in terms of STG ratio does not end well in terms of currency.  

If silver is peaking in terms of STG ratio then historically speaking both gold and silver are peaking in currency terms. I would not sell silver to buy gold when both are expensive in currency, but each to their own. As far as my layman study of history goes the Silver to Gold ratio is a good indication of when to buy both gold and silver with currency (when the STG is high) and when to sell both gold and silver for currency (When the STG ratio is low). My interpretation of the price charts could be incorrect though, take a look for yourself. 

[BackyardBullion]

OK 

I think that its going to be down to why people are stacking in the first place. I am primarily stacking as a £ investment. Buy £xx at £10/oz then sell £xx at £20/oz = 100% profit margin.

I am also combining such that I would not sell all my silver - buy £xx at £10/oz then sell 75% of stack at £20/oz, make a profit and keep 25% of stack as "free silver" for the future. 

I guess what the swap gold to silver people are doing is showing a weariness for converting metal to £/$ as the currency will not hold value like gold/silver.

 

[Pete]

5 hours ago, BackyardBullion said:

OK 

I think that its going to be down to why people are stacking in the first place. I am primarily stacking as a £ investment. Buy £xx at £10/oz then sell £xx at £20/oz = 100% profit margin.

Sounds like a great plan but heed the following ....
I too started stacking in early 2010 when silver was about £15 per ounce, peaking at almost £30 as the chart shows.
Coins like Kooks and Britannias' on eBay were selling faster than they could be listed even at these highs as silver was "heading to the moon".
Pre-dating this forum there was an Australian forum called Silverstackers and nearly everyone was super-excited about the future price rises.
There was silver fever and like some others I caught the virus.
As an investment my stack is currently worth only half its cost ( bought at either zero VAT or 7% VAT ) whereas my equity funds and shares etc have in some instances have doubled in value but averaged >30% in the same period.

Now is silver such a sound investment ?

 

[BackyardBullion]

Thanks for the advice. I also invest in stocks and shares and rental properties so silver and gold comprise a small portion of my portflio. Its also a fun hobby and Im confident I can sell my silver in the future for more than I paid for it. Better rates than my bank!

[jayboat]

I had put this into a thread recently as my plan. 

The reason i plan to swap out at 40:1 is because it is more easy to cash out 40 times less coins in terms of postage, listings, answering questions when i am a 60ish year old man (31 now). I will be swapping out a silver stack that is very diverse and heavy and a pain to store for a simple single coin gold stack that will be much more easy to store and finally sell.

If the ratio ever goes to 40:1, i would sell my semi coins for max premium to help bring that down to maybe 37-38:1 in terms of STG stack ratio and not cash after completing. If the ratio then rebounded back upto 65:1, i would swap back into silver and just stack brittiannia's. I dont really care about the £ price until i retire meaning if the STG was 40:1, i would still be holding until retirement so it does not bother me. I can understand from other part of view's It would also make perfect sense to sell silver when the ratio is 40:1 and hold cash for a few years and then buy back silver when its at 60+:1 but that's to me is kinda trying to pick the top and then the bottom. There's also the added stress factor because its not a few hundred pound that you would be playing with, any big mistakes and your snookered. I don't want to be the guy to tell his wife a big chunk of the retirement fund has been lost.

Who knows?.....we may never see a 40:1 ratio in our lifetimes and i'll be stuck as an old man stuffing envelopes for my retirement, hahaha