Author: David Flynn, Chief Investment Strategist and Director.
A friend of mine recently asked me if I thought it was a good idea to buy physical Gold bullion. He spoke of conflict between Israel and Iran, and Palestine as well as the Ukraine and Russia, India and Pakistan. He’s concerned we could see WW3 and thinks it might be a good idea to hold physical Gold, just in case things get crazy. I stated that I see no reason to hold physical Gold when you can own shares in an ETF or Investment Trust (we know of two such instruments) that holds physical Gold and where unitholders have the right to redeem shares for real bullion on a monthly basis. I mean why go to the trouble of buying, shipping, storing and insuring the stuff, which adds considerably to the cost, when you can own shares in an ETF that is a real claim on real Gold, not a paper tracker. My friend then said to me, “But what if it’s like a nuclear winter or something and you need it to barter in the streets.” I replied that if you think we’re going to be bartering in the streets then gold, at $3400 an ounce isn’t really going to do you much good, it’s too valuable, you want Silver, which is currently valued at $37 an ounce.
Now I don’t think we will be bartering in the streets any time soon, but we at Baggot Investment Partners have always believed precious metals are an important portfolio component in our multi-asset portfolios, because they add important diversification and tend to behave well in times of inflation and deflation.
The Gold/Silver ratio simply divides one ounce of Gold by one ounce of Silver. It tells us how many ounces of Silver it takes to buy one ounce of Gold. The ratio can fluctuate wildly over time but from a longer term perspective it can help investors to spot points in time when Gold is cheap or expensive vs Silver. A popular rule of thumb amongst precious metals investors is the “80/50” rule, which suggests switching from gold to silver when its value exceeds 80 ounces of Silver to one ounce of Gold and vice versa when the ratio drops below 50 ounces of Silver to one ounce of Gold. It has actually been quite a successful strategy (calculated by starting with 1 ounce of Gold in 1971 worth $35 and applying the 80-50 rule going forward.
Source: https://www.silverbullion.com.sg/
Since the early 1970s when the US unilaterally terminated convertibility of the US dollar to Gold, the ratio has averaged 60 ounces of Silver to one ounce of Gold, but it has been as low as 15 in 1979 and as high as 114 very briefly in 2020 (Covid). Currently the ratio stands at 91, signaling that Silver is exceptionally cheap relative to the price of Gold.
If Gold stayed at its current price of $3400 an ounce and the Gold/Silver ratio reverted back to its long term average of 60, the price of Silver would go to $56.67. A 52.5% rise in price from its current price of $37.15. Of course the Gold/Silver ratio could revert back to 60 the nasty way as well, with Silver remaining at its current price and Gold dropping to $2229. Regardless, the ratio currently tells us that Silver is very cheap relative to Gold and what is most interesting is that Silver has outperformed Gold by nearly 7% since Trump’s liberation day (April 2).
For more information and how to avail of this investing opportunity, email Peter Brown: pbrown@baggot.ie
Kind Regards,
David Flynn
Chief Investment Strategist and Director
Baggot Asset Management Limited t/a Baggot Investment Partners is regulated by the Central Bank of Ireland
CRO Number: 565467
Central Bank Ref: C143849
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