Billionaire and hard money advocate Hugo Salinas-Price was recently on the Keiser Report advocating Greece to return to a silver standard, laying forth a five step plan for how this could be accomplished. Here is the video clip; fast forward to 13 minute mark to get to the discussion about returning to the silver standard.
Here are the basic points Salinas-Price makes:
- The optimal time to introduce significant monetary reform is when a collapse is under way.
- Greece should exit the Euro and issue return to the drachma as a fiat currency.
- Greece should also issue silver coins with no listed monetary value; rather only the weight is inscribed on it. Salinas-Price offered an example of a coin that was simply 1/3rd ounce of silver.
- Greece's treasury then determines the exchange rate between these coins and paper drachma. This exchange rate can fluctuate, and can do so independently of what the market price of silver may be in other countries.
- The first step is to issue silver money that can be used in parallel with paper money; basically as a competing currency.
- Gresham's Law will unfold, and silver will be hoarded while fiat drachma will be spent. In this way, the people of Greece can re-build their savings. If Greece tries to keep an artificially low value of the silver coin relative to the paper drachma, Greece citizens could always go to other jurisdictions and trade silver on the free market.
I find this all good and well, with the exception that gold is much better suited for such an initiative than silver. Savings need to be allowed for in massive quantities, and need to be easily transported. Currency, enough gold to buy a house or car can fit in one's pocket. Conversely it would take nearly a house or a car filled with silver to buy a house or car!
There is also the issue of industrial demand: Silver has industrial purposes, and so hoarding of silver for monetary use can have an adverse effect on the cost metrics of critical industries.
These are the leading reasons why I do not think a return to a silver standard is advantageous. I think it can only occur if powerful forces vested in silver lobby accordingly, and I do not think this will occur; I think more powerful forces in gold will lobby harder for a return to some type of a gold standard, and of course the political crowd that loves easy money will continue to favor infinite supplies of paper/digital money. So, this is not something I would speculate upon.
With that said, if by chance the call for a silver standard grows stronger -- and there is a historical precedent for this, in fact multiple precedents for this repeatedly throughout history -- than the price move in silver will truly be something to behold. The gold/silver ratio will almost certainly contract significantly.
As I've noted in my previous commentary on silver, I still consider a triple-digit silver price to be a reasonable expectation. While I prefer vault storage and taking delivery of physical silver bullion, the ETFs (NYSEARCA:SLV) and (NYSEARCA:PSLV) may have a role for some individuals in their portfolios. In terms of silver stocks, I remain very bullish on Silvercorp (NYSE:SVM), and view its immense price decline as simply a remarkably favorable entry point for a company that has the lowest cost of silver production of any dedicated silver miner and is on pace to double its production within three years.
My fondness for the streaming model as opposed to actually mining the metal gives me a favorable impression of Silver Wheaton (SLW) as well. Still, though, given that many miners generate some silver as a by-product of their pursuit of either base metals or gold, I'm content focusing on gold and getting whatever silver comes in the process; Silvercorp and Silver Wheaton only earned my investment dollars because I regard them as exceptional opportunities.
Disclosure: I am long SLW, SVM.