There are all sorts of ‘ratios’ in life, and even in economics. The late Richard Russell, (1924-2015), founder of “The Dow Theory Letter,” wrote many times, that a good stock to buy is when its PE ratio (price-earnings) is in the 10 range. In other words, a stock to be a good buy, should earn dividends yearly, of 10% of its selling price. A 10% return on your investment. The current Dow-Jones 30 stock PE ratio is about 25.2, or the average of the 30 Dow stocks will give you a very poor return on your investment, assuming you hold a stock and do not trade, buy and sell.
In one of Richard Russell’s letters, he said that there were only three good places to buy gold and silver in America, and Colorado Gold was one of them!
If you look up a history of Dow PE ratios, you will find that they went through the roof at about the 2008 area, when everything crashed. I don’t own a single share of stock, but if you do, I am not certain that the average Dow PE ratio is predicting an imminent crash. I doubt it, but no one can predict the future.
The gold-silver ratio, is of concern to me, and should be to all investors in metals. Metals prices have gone up nicely since the North Korea thing has erupted, but their PE ratio hasn’t changed. It is still 75 to 1, which, to me, is outrageous. The 75 to 1 ratio, means that gold is 75 times more expensive than silver. With the gold price at $1294, and silver at $17.25, gold is actually 75 times more expensive than silver. What does or could this mean? It means that gold is over-priced, or silver is under-priced. Which is it, or can we find out?
Look at history for a clue. The ratio has been about 16 to 1 throughout history. Gold has been 16 times more expensive than silver, literally, for hundreds of years. Silver price jumped from about $6 per ounce, to a brief $49 per ounce, as a result of Bunker Hunt’s attempt to corner the world’s silver supply in 1980, both with futures contracts and physical purchases. The ratio went to 16 to 1 then, briefly. I remember Bunker Hunt well, as I was helping count some of his silver then. He was a big heavy man, and if one saw him on the street, one may have thought him to be a shabbily dressed, poor man. He failed to corner the world’s silver, due to the COMEX placing “Silver Rule #7” in place, limiting silver contract purchases on margin, which bankrupted Hunt, and the price went back down.
Will silver again go to the $49 price it briefly achieved when Bunker Hunt was doing his ‘thing?’ At the 75 to 1 ratio, as metals now are, that would mean a gold price of $3675 per ounce, or at 16 to 1, $276 per ounce of gold. No one knows, and the TV ads promising $200 silver to the gullible, are sheer frauds. No one knows future prices, nor can anyone know the future price of anything. What we can do is try to purchase what is logical. Look at the 75 to 1 ratio, and realize that a one ounce Gold Eagle at $1340 (remember, no one can buy metals at the ‘spot’ price), would equal 75 one ounce Silver Eagles. A ten ounce Gold Eagle purchase, can easily be held in one hand, and for that matter, a 30 ounce Gold Eagle order can be held in one hand. A ten ounce Gold Eagle purchase, translated into silver would be close to 776 ounces of silver! Holding 776 ounces in one hand is impossible. Silver requires a huge amount of storage, and if one moves or ships, the space and cost is far larger than with gold.
Is the future of silver better than gold, due to the high ratio? Possibly, and I suggest owning both. If the ratio goes down, of course silver will go up faster and further than gold, indicating a pretty good possibility. I doubt that the ratio will go higher, but then who could have predicted a 75 to 1 ratio 50 years ago? Remember, gold and silver have been real money for thousands of years, and their value is in no way caused by any government law or rule. Governments, throughout history, have always spent more than they have, and when their ability to tax is limited by threats of violent overthrow by frustrated citizens, they resort to un-backed paper money, Monopoly style. I have in my hand as I write this, a $20 trillion dollar Zimbabwe note. Has the buck gone that way yet? Of course not, but it has already lost over 95% of its value in the last hundred years, and it lost 50% during WW II, because that war was paid for with un-backed paper dollars.
Protect yourself with real, historic money! – Don Stott – 1-888-786-8822