Gold and silver, like other commodities, have an intrinsic value, which is not arbitrary, but is dependent on their scarcity, the quantity of labour bestowed in procuring them, and the value of the capital employed in the mines which produce them.
Silver has been money for as long as gold. Therefore, we could have just included silver into the gold argument of Part 4 and left it at that. But unlike gold, silver is also a heavily used industrial commodity due to the following unique properties:
- Highest thermal conductivity of all metals
- Highest electrical conductivity of all metals
- Highest reflectivity of all metals
- Chemical and anti-bacterial properties that make it attractive in medical
Silver is used in medical equipment, consumer electronics, photography, batteries, and jewelry. In most applications, silver is ‘used up’ and most of silver applied is not recovered in scrap. The fact that silver gets scarcer over time is what makes silver a special metal. It suffices as both money and as a highly sought after commodity.
Therefore, we have to add an analysis of silver scarcity and market demand to our previous discussion of gold as money to get a read on silver’s potential future value.
What’s unique to silver is that it has been in a deficit consumption pattern for more than sixty years, with very low prices over most of that time. That would be impossible for any commodity, except that it has actually occurred in silver. But the very reason it has occurred in silver is the reason I think silver is the best thing to own.
According to a 2005 Jensen Strategic report (.pdf), we know that the world inventories of silver have fallen about 95% since 1950. That means that demand for silver increases, the overall amount of silver inventory as a whole number has declined from 10 billion ounces to 340 million ounces in 2005 and has continued to fall. That is about 4 months worth of world-wide demand for silver.
Mine production is therefore said to be inelastic. This presents an extremely interesting opportunity for those wishing to store their wealth in precious metals.
There has never been a situation in any commodity where such conditions have failed to cause a dramatic price increase.
In an excellent analysis of silver, Seeking Alpha contributor Jeff Nielson explains in a 3-part series why silver’s price can stretch very high with little change in demand. If you have not read Nielson’s work at BullionBullsCanada.com, I recommend it very highly. His pieces are very well researched and in-depth.
In addition to supply and demand, we can look at silver from a ratio to gold perspective. Because silver’s price has been suppressed more than gold’s, this is useful in determining the relative leap in value silver will take compared to gold as demand for silver as money increases.
The historic relationship of silver to gold during history has usually been sixteen to one, owing to mined quantities. From 1900 to 1980, the ratio was in the mid-30s. Since then, it has risen to a high of ninety-four in 1990 to the current ratio of sixty-three. Therefore, if the ratios come back to historical levels, silver may be more undervalued in terms of dollars and may have a much higher upside percentage-wise per ounce than gold does.
To bring supply and demand factors into this argument: while through most of recorded history silver was in greater abundance than gold, the industrial demand for silver has left it in significantly short supply compared to available gold stocks.
So not only will the price ratios need to move back to historical equilibrium (16 ounces of silver to 1 ounce of gold), but they will likely invert. At some point in time, perhaps in the next 10 years as economies begin to collapse under the weight of debt and currency failures, the value and therefore the price of an ounce of silver should equal and exceed the price of an ounce of gold.
If this relationship plays out as it should, silver may have 63 times the upside of gold and more. The final upside number will be determined by many factors including amount of private silver hoards being brought to market, rate of fiat currency collapse and alternative currency arrangements being made, and rate of change in world-wide GDP affecting industrial demand for silver during these events.
But one thing is for sure. Silver’s potential is the most powerful investment opportunity I have ever seen. It may offer a legitimate chance for people over leveraged in stocks and real estate to recoup some of the wealth they will lose in coming years. Silver, in this instance, may become an equalizer for at least some people.
We noted in previous Parts in this series of articles that gold and silver suppression schemes are already starting to unravel. I don’t think it will happen ‘overnight’ unless hyperinflation and paper currency collapse comes swiftly. Currency collapse all depends on how many more tricks central banks have up their sleeves for extending the elasticity of the current fiat dollar that we have not seen yet, and whether people believe them.
But it should begin to happen during the next 5-10 years in earnest. And considering how crappy your 401k is doing, that is not a bad timeframe at all. That gives you time to deleverage out of our existing credit cards, cars, and homes and into something that will maintain and grow in value in the future.
The choice of whether to invest in precious metals is simply in your corner.
Why did I write this series? Contrary to what you may think, it’s not so that we can all become stinking rich. That’s not a bad thing, but given current and future economic chaos, I would settle for people avoiding poverty and having a decent quality of life moving forward using an honest money system.
In one way, taking advantage of price suppression schemes by investing in gold and silver puts you on the opposite side of the incredible destruction of wealth that is coming when the paper collapse happens. That is nothing to brag about as many other people will suffer because of it.
And in reality, not everyone can take advantage of this opportunity at the same level. Demand for precious metals will overwhelm market suppression and quickly drive the price up. Therefore, as more and more people realize the opportunity, the same opportunity will become less available for everyone else. They simply will not be able to afford it as metals prices surge to equilibrium points and beyond.
If we all had remembered the lessons of our parents’ past, we could have all invested in real precious metals over time (or used them as money). This is what makes the central bank suppression schemes so ‘barbarous’.
Regardless of how many people hear this message, some large group of formerly middle class citizens is going to have their wealth stolen by the elites of our society that have access to the best insider information. And that is not conducive to a politically and financially democratic society.
That, in my opinion, will be the great tragedy of our generations. That tragedy is that we lost the vision of our forefathers and allowed our society to once again become the rich and the poor, with little in between.
It is not too late for everyone. Please do not hold this information to yourself. Help as many as you can by spreading the information here and through all of the other information sources quoted in these articles.
Disclosure: Long the physical