Gold / Silver Price Ratio Just Below 30-Year Low

Includes: CEF, GLD, SLV, TIP
by: Kirk Lindstrom

With the price of silver soaring faster than gold, the gold-silver price ratio has plunged below its 1983 low of 31.57. The gold-to-silver price ratio, defined as the price of an ounce of gold divided by the price of an ounce of silver, closed Wednesday (April 27, 2011) at 31.93. This means an ounce of gold is now less than 32 times more expensive than an ounce of silver.

Just four weeks ago, on March 31, 2011, the gold-to-silver price ratio was 37.98 when an ounce of gold was nearly 38 times more expensive than an ounce of silver.

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3-Yr Chart of Gold Silver Ratio
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My next chart shows that back in 1991, gold was over 100 times more expensive than silver. Since then, the gold-to-silver price ratio never went below 40 until earlier this month, March 2011.

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Chart of Gold Silver Ratio 1981 to Now
Gold Silver Ratio Chart 1981 to 2011Click to enlarge

This chart also shows that the gold-silver price ratio at 31.93 is now below a 30 year low of 31.97.

One of the safest and easiest ways to trade gold and silver is through an ETF. The fund managers buy and store the metal for you so you don't have to worry about storage costs or security. The major disadvantage is that if the whole financial system melts down, you may lose access to your investment. For that reason, many who want to hedge for an "Armageddon" type event will buy gold and silver bars and coins.

Comparison of SLV to GLD as of 4/28/11:

GLD: $148.92 - (My favorite GLD Charts and Intraday GLD Chart)
According to Seeking Alpha, the SPDR Gold Trust ETF has:
Expense Ratio of 0.40%
Average Bid Ask Ratio: 0.01%
Tracking Error: 1.00%
Concentration Risk of 100.00% (All assets in gold)
Yahoo! says GLD has Net Assets of $56.02B (As of Mar 31, 2011)

SLV: $46.70 - (My favorite SLV Charts and Intraday SLV Chart)
According to Seeking Alpha, the iShares Silver Trust ETF has:
Expense Ratio of 0.50%
Average Bid Ask Ratio: 0.03%
Tracking Error of 2.71%
Concentration Risk of 100.00% (All assets in silver)
Yahoo! says SLV has Net Assets of $13.56B (As of Mar 31, 2011)

Some of the differences between the two expense ratios are probably related to the difference in storage costs. It takes far less space to store $1B worth of gold compared to $1B in silver.

Current Holdings: Personally, I own a very small amount of gold and sliver hidden in the house for bribes if we see Armageddon. I also own some silver and gold coins mostly as a collector but they would serve as currency in a disaster. For inflation protection, I own individual TIPS "treasury inflation protected securities" and Series I-Bonds. I recently sold my managed TIPS mutual funds (FINPX, VIPSX) after the recent surge in TIPS had the spread for the 5-year near record negative lows and used some of the funds to buy a new, individual TIPS with a positive return relative to inflation.

Considering for Purchase:

No. 1: If the base rate for 5-year TIPS returns to a positive level, I may buy the TIPS ETF TIP rather than repurchase the managed funds I recently sold.

No. 2: To avoid a possible "Collectibles Tax" explained in my Seeking Alpha article "Gold/Silver Price Ratio at 27-Year Low," I may take a position in the "Central Fund of Canada Limited" (NYSEMKT:CEF), which is about 60/40 gold/silver bullion but I have no specific targets at this date. So far, the tech stocks I would sell to raise "speculation cash" have done better than gold or silver, but I plan to take profits in them soon and may use the cash to purchase CEF if we see a significant market correction.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.