Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Let's Make Silver Shine Even Brighter Than Gold

Commodities / Gold and Silver 2015 May 04, 2015 - 03:29 PM GMT

By: Money_Morning


Tom Gentile writes: In the world of precious metals, silver is considered the "Poor Man's Gold."

Anyone who believes this nonsense will stay away from investing in silver for all the wrong reasons.

With the S&P 500 pushing resistance once again at 2,100, perhaps it's time to visit the land of the contrarian trader, for as the saying goes, as the stock market falls, the precious metals markets rise.

And I am interested in the "Poor Man's Gold" not only because it's priced far less than gold. I'm in it for the type of returns no man, poor or otherwise, can resist…

Novice Traders Mistake Price for Value

Silver and gold are both in the precious metals group, both are used for industrial and cosmetic products, and both have suffered from a drop in price over the last year. For virtually time immemorial, gold has been more expensive than silver. Anyone can tell you this, and most people when asked the question "How can you compare the two?" would answer with "by looking at the difference in price."

Okay, that makes sense. Looking at the chart below, here are recent cash prices of both gold and silver near the end of April:

Spot gold closed near $1,200 an ounce

Spot silver closed near $16.35 an ounce

The difference in value between the two is clear: $1,183.65 per ounce. Now we can track the difference this way every day, but the problem is that it's always going to look like a high number. The bigger problem is that it's how the novice trader looks at the difference between both metals.

Most novice traders would simply look at a chart of silver and/or gold and make a determination based on price only whether or not it might be time to buy. Based on the chart, both commodities are not only technically cheap, but seem to be hitting support levels for the year.

But which one might have the least downside risk? Is there a way outside of conventional thinking to come to an answer to this question?

Indeed, there is, and I want to get to a trade opportunity based on my way of viewing the data…

Here's How We'll Find Silver's "Golden" Payout

Let's take a different approach. Since we already know gold is much more valuable than silver, let's look at how many ounces of silver it takes to equal an ounce of gold.

The calculation goes like this: $1,200 (price of 1 ounce of gold) / $16.35 (price of 1 ounce of silver) = $73.39. That's the number of ounces of silver needed to equal 1 ounce of gold. We call this the Gold/Silver Ratio.

What's so special about this calculation?

Well, by looking at history, we can see the fluctuations of how many ounces of silver it takes to equal an ounce of gold, thereby giving us an idea of how cheap or expensive the two are when comparing them to each other.

The chart you see now reflects this ratio for the last 10 years.

Back in 2008, the ratio spiked to 80, showing that you needed 80 ounces of silver for each ounce of gold. In 2011 however, that ratio dropped to near 30.

With the markets rising, and both metals falling, silver has taken a beating, falling at much greater percentages than gold, thereby increasing the ratio to near 10-year highs. What does this tell me?

Well, if I am bullish on metals for the long term, I want to give silver more interest. If the ratio between gold and silver were to narrow, it could only be caused by gold dropping in percentage terms more than silver, or if silver were to rise faster in percentage terms than gold.

If I am bullish silver, then I should suspect either of these to happen, giving me a better reward to risk trading opportunity than by being long gold at this time.

With this in mind, here's what we are going to do…

SLV: A Silver Lining to Profit

When looking for an alternative to buying the physical asset, traders turn to gold and silver exchange-traded funds (ETFs). They represent the physical asset, but in share format.

The problem with ETFs is that the management fees and contango (a market phenomenon that eats away at value over time) can decay their value slowly. If there were only a way of being able to take a long-term position on silver, getting it below cost at these historical lows…

There is: iShares Silver Trust (ETF) (NYSE: SLV).

Selling Puts… Safely

Now, I am not a fan of naked puts – those are options where you don't own the underlying stock already, and they can lead to big losses. I have seen too many people get wild-eyed selling puts on stocks, only to see the stock drop hard, and their money follow. Selling a put obligates the seller to purchase the underlying asset at the agreed upon price. For that, the seller receives a premium – essentially, a fee. Put sellers essentially provide a form of insurance to put buyers against declines in their stock.

Most of the time I avoid these like the plague, but there are exceptions… and ETFs on commodities are my exception.

Let's take a look at a case study involving a long-term SLV put sale, and the risks and rewards around it.

First things firstdo not take this type of strategy UNLESS you want to own the underlying stock at the strike price, because there is a possibility that could happen.

That being said, look at the above graphic. The buyer of the put we sold has the right to sell SLV at 15 should he or she decide to exercise that right. Now in this case, why am I smiling?

Honestly, this is where I want to buy it… why? It's historically low, that's why! And by selling puts at this level, I am standing in line to buy at 15… and getting paid to do so.

Remember, the buyer pays me a premium, in this case $1.10 or a nearly 8% premium that I collect if SLV doesn't go back to 15. What if it does? That's fine, my cost is actually $13.90 when you factor in what I am getting paid!

Once again, not a strategy I employ often, but if you're bullish on silver, this could be a golden opportunity…

Good Trading,


Source :

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules