A silver word problem, or "is silver second best?".
 

Maybe one of you that's not mathematically challenged can help me with this little word problem:

I stopped by Kitco's historical charts and found the following numbers:

From 18 Nov. 2008 to 17 Nov. 2009:

Gold:

High - 1140.60

Low - 734.90

... a 55% increase

In that same time period:

Silver:

High - 18.42

Low - 8.92

... a 106.5% increase

So I was thinking (that's always dangerous), and the following scenario came up:

Two friends bought $1,000. worth of p.m.'s on that fateful November 18, 2008 day. One, Mr. Goldstein, bought gold with his $1,000. The other, Mr. Silverstein, bought silver with his $1,000. A year later we check back and discover that in that time period silver has gone up 106.5%, and gold only 55%. How much further ahead, in FRN's, is Mr. Silverstein?

Re: A silver word problem, or "is silver second best?".
 

To me Silver is no better or worse than Gold. They both have their place in my heart. Yes Silver is growing faster than gold in recent years. There is one thing that silver do not have compare to gold. That is $$ in a very small package. 100k in Silver will be a big pain to carry even for the strongest man on earth. In the other hand 100k in gold can be carried by a 9 year old easily.

Re: A silver word problem, or "is silver second best?".
 

I get $515

Re: A silver word problem, or "is silver second best?".
 

:ok:

Now, how 'bout that?

Re: A silver word problem, or "is silver second best?".
 

Another way to look at the same situation is that the silver price got murdered by around 50% to get to that low.

Re: A silver word problem, or "is silver second best?".
 

In March 2008 I sold 320 oz silver at about $28 and bought 8 oz gold at about $1030. In October I sold the gold at about $830 and bought 570 oz silver at about $11.50. Now silver is back up to $18.60 for an overall gain of $1642. I did a lot better than either of those gentlemen, and I did it while everybody else was whining about falling prices.

People who trade swings for profit in USD usually do poorly. You are a gold bug because you think you are smarter than other people. So get smart. A good place to start is gold-eagle, and my swap plan is here.

Re: A silver word problem, or "is silver second best?".
 

I found your second link to be a mixed bag. It's a pretty good basic explanation of the concept.

But...

1. It's biased. The author makes money on commissions as well as by investing. How much of each? Don't know. But I know that bad investment advice can make just as much money as good advice, as long as it generates lots of commission-paying trades. One way to do that is to emphasize the positive points while neglecting the negative ones.

2. It's outdated. Written in 2003, it doesn't consider everything that has happened since then. In particular, the discussion of silver demand shows photography accounting for about 25% of the demand. How much of that has gone away forever? I don't know, but I've noticed it's a common omission in recent articles about silver.

This article even has a slightly snide footnote emphasizing that "digital photography will NOT replace silver in photography in any time material to our investment...". Since digital largely HAS replaced silver in photography, should I take this footnote as a suggestion that the strategy's time has passed? :s1:

I don't think this point invalidates the strategy, but it's getting a little worrisome that discussions of silver demand don't seem to mention what's happened in photography.

3. There are a number of logical flaws in the article. If you look for them, you'll see them.

4. The list of the strategy's drawbacks curiously omits a really big risk. If gold and silver BOTH enter an extended period of low prices (as they have done in the past), this strategy will prove very expensive.

If you START with the assumption that there's no significant downside risk for PMs in general, then of course trading based on the ratio is better than just trading silver or gold alone. It's basically a version of dollar cost averaging (DCA). Like DCA, it tends to take advantage of volatility. And it shares the same risk -- it can't protect you from an extended down market.