Tuesday, March 01, 2011

GGR Excerpt - The Silver Plan

HOUSTON – With gold thrusting higher, very close to its all time highs; with silver probing new bull market highs in the $34s and the gold/silver ratio at 30-year lows near 41 ounces of silver to “buy” an ounce of gold, we present below a short excerpt of Sunday’s full Got Gold Report.  The full report was delivered to Vultures (Got Gold Report subscribers) Sunday afternoon via email and posted on the password-protected GGR subscriber pages then.  

This particular excerpt sets out our own plan for what to do with our holdings of physical silver.  It is therefore our “game plan” for the silver “endgame.”  Each investor must make up their own minds about such things and our plan is uniquely suited to our own situation, expectations, temperament, etc., so it is unlikely to be appropriate for everyone.  

In short, this excerpt of the full report gives Vultures an idea of what our plans are – as merely an idea, a starting point to consider in their own careful deliberations for their situation.  

With that intro, below is an excerpt of the full 27-page Got Gold Report from Sunday, February 27, 2011.  To subscribe to the Got Gold Report, please click on the GGR Subscribe link above and to the right, and thank you for doing so.  Subscribers help to make GGR possible.  

The Silver Plan      

It has been a long time coming, this major silver “catch up” move to gold’s big rally (or the dollar’s demise, whichever one prefers).  We cannot know for sure, indeed no one can, but we are of the firm opinion that silver has begun its rapid march to reclaim its historic relationship to gold.  If it unfolds even close to the way we expect it will, before this secular bull market for silver expires in the future, we expect that silver will have returned to something between 15 and 20 ounces of silver to one ounce of gold.

20110301GSR_LT              Gold/Silver ratio. Chart courtesy of GoldPrice.org, retrieved Feb 22.  

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.  For comparison at $1,400 gold a 15:1 ratio is “only” $93 an ounce for silver.  If silver were to equal gold’s advance above its 1980 high of $850 (68% higher so far) then that would equate to $84 silver at roughly $1,430 gold, so the target isn’t really all that far fetched, is it?  

Gold/Silver Ratio since 1990, monthly.  If any of the images are too small, click on them for a larger version. The GSR is probing new low ground in this silver bull market. If it were a stock, we would say it is bearish and “breaking down.”   

Had we said that in 1991, at the darkest period for silver ever; a period when government dishoarding of hundreds of millions of ounces had so depressed the price and so demoralized silver holders that it took 100 ounces to buy an ounce of gold then, well, people would have thought us crazy back then.   We actually didn’t start saying that until 1999, a year after Warren Buffet’s purchase of 130 million ounces – when it took about 55 or 60 ounces of silver to buy an ounce of gold.    

That’s our plan for now anyway.  Let’s see how it unfolds. We are about 12 or 13 “GSR Points” away now from the first of those conversions.         

As for our short-term silver trading ammo, we plan to watch the market carefully just ahead and reassess our targets in the next significant pullback.  Good Vultures are patient Vultures when it comes to taking new positions.  We are indeed patient in such things. We’ll go out on a “very long limb” and predict there will indeed be other opportunities to redeploy our short term trading resources from the long side in the weeks or months ahead. 

End of excerpt. 

That is all for now, but there is more to come.  




The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter

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