Should You Arbitrage Silver for Gold Now?

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"If the financial markets take more than a conventional correction, then the conventional view on gold might also be wrong"

The lessons of the past couple of years clearly indicate that precious metals get swept down fast in a big global selloff of financial assets. There is a rally into the dollar, rather than into precious metals as a safe haven asset.

Gold:Silver Ratio

Moreover, the leverage of silver to gold that works to the upside is also seen to the downside, and this can result in huge volatility for silver prices. It could therefore make sense to arbitrage silver for gold for a few months at least until the crisis is past, or just to sit on cash for a while.

We can be fairly certain that gold will be among the most stable of asset classes in a big selloff—like last time—and among the first to recover. The yellow metal also has the high possibility of a big pay out coming more immediately down the road.

If the financial markets take more than a conventional correction, then the conventional view on gold might also be wrong. This has been an exceptionally strong rally driven largely by proprietary trading by the banks—who else is buying? The unwinding could be exceptionally fast and steep.

Could gold then catch an early upwind? That is obviously possible, and in that case the upward leverage of silver would still apply.

So this rather circular argument suggests swapping silver for gold could be a mistake unless you are an exceptionally astute trader, and even they get it wrong, particularly if we enter a new paradigm in financial markets and the old rules are thrown out of the window.

Besides as Zeal Intelligence shows on the graph below, January and February are usually good months for silver:

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