Set your own switching rule
The Gold-to-Silver Ratio
indicates how much silver it takes to buy gold.
For example, if the prices of silver and gold are 16.38 USD and 1,418.77 USD respectively, then the ratio is 86.6.
In other words, it requires 86.6 ounces of silver to buy 1 ounce of gold at these prices.
The Gold-to-Silver Chart
indicates whether gold is historically undervalued or overvalued vs. silver
When the ratio is low (e.g. 50) gold is cheap vs. silver
When the ratio is high (e.g. 80) gold is expensive vs. silver
Since 1985 the ratio has been hitting the 50 and 80 mark every 3 to 5 years
A Gold-to-Silver Switching Rule
is designed to multiply your metal holdings by switching into the undervalued metal
An 80-50 rule for example means switching into silver once the ratio hits around 80 and back into gold once it hits around 50
Since 1985 the 80-50 rule would have resulted in only 7 trades (one every 3 to 5 years) resulting in one gold ounce to become about 4.9 ounces (or silver equivalent).
Switching Rules also tend to lowers price risk as they switch out of metals that raise disproportionally fast providing less volatile and higher results over the long term
The 80-50 Switching Rule Example
One gold oz bought for 304 USD in Jan 1985 would be worth by March 2017 using:
- Straight Gold Holding: 1,204 USD x 1.0 oz = 1,204 USD (3.96 x investment)
- The 80-50 Switching Rule: 1,204 USD x 4.9 oz = 5,899 USD (19.4 x investment)
Past performance is not a guarantee of future return, but the principle of switching into the relatively undervalued metal is a historically sound strategy.