|
|
Because
silver is a much smaller and more volatile market than gold, we’ve
watched it roar back from $8.70 in October 2008 to today's approximate $38.00
per oz. It continues its seemingly unstoppable bull run and many experts
predict $50 per oz before the year is out. It’s painfully evident that
the general public has yet to catch onto why they should position themselves
in physical gold and silver, but for those who have, let’s talk exit strategy
for silver.
I’ve recently learned the
mere mention of exiting silver strikes fear in the hearts of many diehard
silver bugs around the world, but let’s take a look how we can use
silver’s imminent breakout to our advantage. I've asked a variety people
what their thoughts are on the matter and when asked if and when they would
exit silver, many flatly said, “never”. I’d like to direct
these people to the following for their consideration:
In a recent correspondence with
James Turk, Founder/Chairman of GoldMoney he said, “Most people are
probably aware that I am more bullish on silver than gold from a long-term
point of view, but they are also aware of my proviso. Silver is more volatile
than gold. For example, look what the gold/silver ratio did in 2008, climbing
from 46 to 84 in a few months after the Lehman collapse. More recently, the
ratio declined from 60 to 39 in about 6 months. This volatility means that
silver is not for everyone. But if you are willing to accept the volatility,
then I recommend having 1/3rd of your bullion portfolio in silver and the
remaining 2/3rds in gold. As the ratio falls, the percent of silver in your
portfolio in dollar terms increases. I expect the gold/silver ratio to fall
within the next 2-4 years to at least 20-to-1, and I would not be surprised
if it reverts to its historical average of around 16-to-1.”
If you agree with industry legend,
Turk’s predictions; then instead of selling silver and jumping on a
doomed sinking ship (fiat currency), it makes sense to use arbitrage to
increase the amount of ounces of gold bullion you own throughout the bull
market. Swapping silver for gold along the way to make gains. The questions
are when and how much to swap.
Gene Arensberg
who writes the highly acclaimed and popular, Got
Gold Report, recently
told me “I think that we are transitioning into a new era for silver
and we cannot rely on the recent past for guidance. The recent past was
dominated by massive government dishoarding of silver metal for decades.
People got used to having cheap silver but it was an artificial
illusion.” Gene pointed out a recent entry titled “GGR
Excerpt - The Silver Plan” that discusses his personal plan to exit the silver market:
“Since we currently have no need for the silver we have accumulated in
years past, we have personally adopted a single plan for our physical silver
holdings. We intend to wait patiently, for years if necessary (haven’t
we already?), for the time when less than 30 ounces of silver will
“buy” an ounce of gold. At that time we plan to convert
one-quarter of our silver into gold one-ounce coins. At 25:1 we will convert
another quarter. And at 20:1 or better, yet one more quarter will go for the
gold. And if silver manages to get all the way to a 15:1 ratio to gold again
(see the star on the graph), like it did in January, 1980, the last of our
silver will be converted to real money.”
Antal Fekete, a Monetary Scientist and Mathematician who
lectures on Austrian economics said this on the subject: “There is a plausible
argument for silver catching up with gold and the bimetallic ratio going to
16. I would look at this as a pendulum-like action between 100 and 16.”
According to Antal, there are a lot of advantages
in buying silver and he's aware that people are playing the gold-silver
arbitrage game, but cautioned to keep some physical silver. In dire economic
times, you wouldn’t want to show your gold (people may kill you for
it). People should keep small denomination physical silver for small
transactions.
I enjoyed this tongue-in-cheek
remark from a silver bug when he said he’d exit silver when rap stars
on television are flashing chunky silver chains and 10 oz silver bars in
their videos, or when his next door neighbour
starts buying it. However, the general sentiment among the silver bug
community is to hold onto their physical silver as a hedge against inflation
and protection for possible hyperinflation. Some silver bugs intend to hold
their physical metal and then pass it onto their children as an inheritance
that will not go into probate, or to perhaps make a real estate purchase with
it when the timing is right. The bugs will certainly not part with their
silver for “worthless fiat” currency as they believe that they
are holding “real money”. Since Nixon floated gold on the open
market in 1971, the Au Ag ratio hit a low of 17:1 in 1980 due in part to the Hunt
brothers’ efforts to
corner the silver market. Today, in 2011, the current ratio is lingering
around 38:1. After reading Gene Arensberg's plan
and viewing his chart here, there were opportunities to swap some
silver for gold, but I believe the best opportunities are still to come.
Recently, Eric Sprott of Sprott
Asset Management was quoted that record low gold/silver ratios are to come
and are headed to 20:1 or lower – Some experts
feel it could even overshoot to 10:1 because gold may face strong resistance
at $2000, while silver will simultaneously barrel on its trajectory.
It makes sense to have the largest
portion of your physical metal holdings in physical gold as it offers easier
storage, has less volatility and has been the money of kings for over 5000
years. If you`re in a position of holding a lot of silver and little to no
gold, a practical way to attain this goal while at the same time capitalizing
on silver`s impending breakout, is to watch the gold to silver ratio decrease
and swap a portion of your silver holdings for gold at particular milestones.
For the record, I'm not a speculative investor and will remain long on both
gold and silver as a safe haven and insurance policy against depreciating
currencies. I'm not a financial advisor in this jurisdiction or any other.
Kirsty Hogg
Gold Wars
“Explore the Worlds” Premium Range Gold and Silver. Buy 9999 Fine Privately Minted
Swiss Gold and Silver here
|
|
