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A Look at a Few Gold Ratios / A Few Words on Risk



November 30, 2009 – Comments (3)

I have talked about gold ratios and their importance several times in the past (The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure), Thoughts on the Dow/Gold Ratio, etc.). It is important to look at the performance of asset classes not only in nominal terms (all US assets are bought and paid for in Federal Reserve Notes (aka the US Dollar) and so everything has an exchange rate whether you are consciously aware of it or not. e.g. 1150 FRNs (or $) / Maytag Neptune Front Load Washing Machine (item)) but in terms of other currencies (765 EUR / Maytag Neptune Front Load Washing Machine (item)), most especially gold (1oz Gold / Maytag Neptune Front Load Washing Machine (item)).

If you don't think gold is a currency, then stop wasting your time reading this post.

Gold is a very important unit of monetary measure (I will not go into a big diatribe here. I have covered this many times already as have many other bloggers and writers). Most specifically gold:

1) Is the longest lived currency in history
2) Is a non-inflating currency (new mining supply adds very little to the above ground supply, on the order of 0.5%-1.5% per year)
3) Gold is a safe haven asset. It doesn't pay dividends, it does not multiply. It holds value. It protects wealth. As such when risk is high / confidence in the financials markets is low gold historically outperforms

And guess what gold is doing right now :

3 Comments – Post Your Own

#1) On November 30, 2009 at 2:03 PM, binve (< 20) wrote:

Yep, you bet. It is outperforming.

What does this say for the risk of most asset classes right now? Gold stars to everyone who said that risk is high.

And this shows up on many other measures besides gold. Look a comparison of the Dow ("safe" blue chips) vs. the Russell 2000 ("risky" small caps), and tell me in a straight face that risk is low and it is safe to be bullish.

Have fun.

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#2) On November 30, 2009 at 2:33 PM, outoffocus (22.84) wrote:

I moved into silver a little bit by buying some SLW, hoping for SLW to jump into the $20s.    Personally I feel like a butt not jumping into SLW when I started my CAPS pick but I guess thats the way the cookie crumbles.  I don't have big dreams of silver jumping to $60 per ounce or anything. I'm just hoping for a little inflation protection in light of all this dollar devaluation going on. I already have a gold miner in my IRA and I don't (can't) buy gold right now on the account that its a bit expensive (expensive as in its out of my price range and buying now would violate my buy low sell high principle).

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#3) On November 30, 2009 at 3:09 PM, binve (< 20) wrote:

outoffocus, Hey :) Yeah, I am *very* bullish on Silver for the long term, and I would *never* advocate shorting it. But Silver in my mind is a hold right now, whereas gold is an accumulate. The GSR (gold/silver ratio) is saying that gold is outperforming silver and the trend is going up. That does not mean that silver will fall. On the contrary, I think Silver has a lot of upside from here. But with inflation coming and a huge loss of confidence in the financial system, gold will be the clear outperformer.


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