Source: Maurice Jackson for Streetwise Reports 01/23/2020
Andy Schectman of Miles Franklin Precious Metals Investments and Maurice Jackson of Proven and Probable discuss investment strategies centered on precious metals ratios.
Maurice Jackson: Joining us for a conversation is Andy Schectman, the president of Miles Franklin Precious Metals Investments.
Always a pleasure to have you on the program to discuss the value proposition before us in precious metals. Today we will identify three exciting value propositions for your precious metals portfolio that are currently selling at a deep, deep discount.
Mr. Schectman, you have a proven pedigree of success in the precious metals space. I want to discuss a methodology that has made you and the clients of Miles Franklin very handsome returns over the years, and that is your use of ratios. Sir, please explain why it is paramount for precious metals investors to have a thorough understanding on precious metals ratios.
Andy Schectman: When we last spoke I shared that legendary investor Rick Rule is fond of saying, “the deal’s in rhetoric,” and he deals in arithmetic. I like to look at the world the exact same way, from the standpoint of arithmetic, and at least in terms of any precious metals investor, ratios are very, very, very important in mathematics. They are another way of saying the law of averages. As we look at ratios that fall out of historical average, they represent opportunities—in fact, distinct opportunities. I guess the easy way of saying that is the farther away you get from long-term established averages, the greater the magnetism that pulls you back to the average.
I’m here in Minneapolis, where the high today may be 20–25 degrees. If I woke up this morning and it was 85 degrees in the middle of the winter, I wouldn’t rush to pull out my lawn furniture and assume that spring has come early. It’s an aberration, it’s an anomaly. When I look back at what has made me successful over the years, in many respects the ability to identify and exploit price anomalies or averages or ratios has really been at the very forefront of my success. It’s something that I’m keenly aware of and like to share as often as possible.
Maurice Jackson: Speaking of opportunities and anomalies, let’s discuss our first value proposition, and that is gold. Andy, please introduce the Dow-Gold ratio.
Andy Schectman: Historically, when the Dow can be bought for five ounces of gold, we buy stocks and sell gold. When it takes over 15 ounces to buy the Dow, you sell stocks and buy gold. Bill Bonner, who’s a very smart man, has a chart [and] he’s been tracking this for the last hundred years. Had you followed that pattern over the last hundred years, there would have been six possible trades that you could have made and you would have won on every single one of them. I guess as a rule of thumb, 15 or higher you sell the Dow, you buy gold. Five or lower, you do the opposite.
I would argue, however, that due to the manipulation of the price of gold and the easy currency by the Federal Reserve that has found its way into inflation of asset prices, that these ratios are even more skewed than they should be. They are artificially positioned, and so like the rubber band being stretched or a spring being stretched, when it pops it will pop significantly more because both prices have been artificially positioned, that of gold and arguably of the Dow, [which is] at all-time highs based upon every single metric.
At this point right now with the ratio much higher than 15:1—closer to 19:1—the idea would be to sell the Dow and to buy gold, absolutely. I could make the strong argument that the Dow is strongly overvalued based upon metrics. It still may go higher, but based upon historical metrics, the Dow is overvalued, and based upon historical metrics, you could argue that gold is significantly undervalued, making this a no-brainer trade, actually.
Maurice Jackson: Now that we understand the virtues of knowing the Dow-Gold ratio, let’s look at another value proposition, and that is silver. Andy, please introduce the gold-silver ratio.
Andy Schectman: Geologically, the silver-gold ratio is 15.5:1, meaning geologically, what comes out of the ground is 15.5 times silver, more abundant than gold. For the last hundred-plus years, that ratio has been about 42:1 on average. If you listen to some people in the industry who are at the forefront of it, like Keith Neumeyer, the CEO of First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), he’s publicly said that what they see coming out of the ground is closer to 9:1.
In the respect that silver is found in nature in what is called epithermal [deposits, which] means that it is very close to the surface, most of the big deposits of silver have been found long, long ago, and 65% of what is mined today in silver comes from byproduct mining of other metals. It’s a situation where you could argue that what’s coming out of the ground right now is far less than what has historically been expected to come out of the ground. In other words, 9:1 might even be more than what we see coming out of the ground. In any case, a ratio right now of 86:1 or thereabouts is an anomaly. It’s only happened a few times in the last 150 years.
The last time we saw it was in 2010. We saw a ratio of 80:1. Within one year in 2011, you had gold at nearly $2,000 and silver at $50. That’s 40:1. The historical average going back literally over 150 years is 42:1, so at this point right now, at 86:1, a strong, strong argument could be made for temporarily trading your gold into silver. What I mean by temporarily is we sell the gold and buy silver. When the ratio normalizes, you trade back into gold and you double the amount of gold you started with without spending a penny. Here again, a ratio of 86:1 is like waking up in Minneapolis in January to find 85-degree weather. It just doesn’t happen, and if it does it’s an anomaly.
Maurice Jackson: Let’s discuss value proposition number three, and it’s probably my favorite, and that is platinum. Andy, please introduce the gold-platinum ratio.
Andy Schectman: When I think of platinum, first of all, platinum is about 30 more times rare than gold. I don’t know exactly how many more times more rare, but it’s significantly more rare than gold, and forever, platinum is traded at a higher price than gold. In fact, I can remember—I think it was around 2008, with gold around $800 and platinum north of $2,000—it was three times the price of gold. But [for] the first 20-plus years of my career, 25 years—going back 50 years [from] that—platinum always traded at a premium to gold, sometimes a hundred bucks, sometimes double, sometimes triple, but always a premium.
The fact that it’s trading at a discount to gold right now is another anomaly, just as the platinum-palladium ratio is an anomaly.
I think at this point the argument would be to sell gold and buy platinum, obviously, because it is so far out of whack. There are reasons, [and] a lot of it has to do with Dieselgate—the fact that. . .typically, unleaded catalytic converters are made of palladium, and for diesel, of platinum. With the push to get diesel fuel vehicles off the road due to emissions, platinum has suffered. That is the easy answer.
I don’t know if it’s deeper than that or not, but simply. . .the ratio is way out of whack, and [for] the 30 years I’ve done this, 28 and a half or 29 of those years it would have cost you more money to buy platinum than it would to buy gold.
The fact that we have that ratio upside down right now—a 1:6 ratio—it’s an anomaly. It’s 85 degrees in the middle of January in Minneapolis. These are true value propositions, true anomalies when referenced with historical averages.
Maurice Jackson: Now, Andy, we didn’t reference palladium or rhodium, and that was, again, because of the ratios. Is that correct?
Andy Schectman: That’s exactly correct. Yes, absolutely.
Maurice Jackson: Now, if somebody wants to take advantage of the buying opportunities in gold, silver and platinum, what’s the process?
Andy Schectman: Sure. It’s as simple as giving either Miles Franklin a call, giving Maurice a call, myself a call. Any of us here at Miles Franklin are happy to assist, and we start by answering questions. We prefer to do things the old-fashioned way. With the threat of identity theft and cyber threats, we have decided to really take this offline, do things the old-fashioned way, answer questions and give personal service to any of our clients, starting with answering questions first. If we do a good job at answering your questions, then hopefully we get to the point of transacting business.
As far as placing an order is concerned, it couldn’t be easier. We decide what you want, we lock in the order on a verbal handshake. An invoice is then e-mailed to the client; overnighted if they prefer by Federal Express. Once the invoice is paid for, I wire a check. Everything is sent by UPS, insured overnight or three-day. If it’s silver, typically for free. It’s pretty much that simple.
Maurice Jackson: That is registered mail, is that correct?
Andy Schectman: Yes, sir, that is correct, or UPS insured. Either one.
Maurice Jackson: Mr. Schectman, for someone listening that wants to get more information regarding Miles Franklin, please share the contact details.
Andy Schectman: The website is Miles Franklin Precious Metals Investments, where they can sign up for our free daily newsletter. I can be reached at andy@milesfranklin.com, and my number is 1 (800) 255-1129. Our main number is 1 (800) 822-8080.
Maurice Jackson: As a reminder, I’m a proud licensed representative for Miles Franklin Precious Metals Investments, where we provide a number of options to expand your precious metals portfolio, from physical delivery, offshore depositories, precious metal IRAs, and private blockchain-distributed ledger technology. Call me directly at (855) 505-1900, or you may e-mail maurice@milesfranklin.com.
Finally, we invite you to subscribe to www.provenandprobable.com, where we provide mining insights and bullion sales.
Mr. Schectman, thank you for joining us today on Proven and Probable.
Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.
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