Posted on 03/12/2010 10:14:21 PM PST by Jet Jaguar
Silver is often perceived to be subordinate to gold. But history clearly shows that during precious metal bull markets, silver outperforms gold. Just consider the precious metal bull market of the 1970s...
Between 1970 and 1980, gold prices increased from the Brenton Woods fixed price of $35 an ounce to a high of $850. It was a 2,329% jump in the ten years. Meanwhile, silver went from about $1.50 in 1970 to over $50 an ounce in 1980 — a 3,233% increase.
So far, gold has already crossed its nominal high of $850 an ounce. But silver has come nowhere near its 1980 nominal high of $50 an ounce... I think this is all about to change because...
Silver is Money, Too
The investment community’s general neglect of silver has historical origins. For thousands of years, silver — not gold — was the coin of the civilized world.
One of the most complete histories on silver can be found in the book "The Silver Bonanza" by Franklin Sanders and James Blanchard. The book begins with the following quote from Milton Friedman: "The major monetary metal in history is silver, not gold."
Evidence of silver being used as money extends back to at least 4,500 years. According to "The Silver Bonanza," the first mention of silver in the Bible is in the Old Testament in roughly 1850 BC. During King Charlemagne’s reign, silver was the only legal tender metal.
Early colonial America also preferred silver to gold. Settlers rigged the gold-silver ratio to encourage the flow of silver into the United States. It took 15.5-16 ounces of silver to buy one ounce of gold in the rest of the world but, by decree, it took just 15 in early America.
Silver was the major monetary metal for the U.S. until 1873 when it was demonetized; when this occurred, its richer cousin gold was given the sole key to the currency kingdom.
Gold has received all the accolades and nearly all the ink ever since. Most "hard money" advocates will talk about gold as money for hours, as if it were religion. Lowly silver gets little or no time at all...
But don’t shy away from silver. Gold always moves first in a precious metals bull market because it is seen more as money, yet silver posts better percentage returns nearly every time there is a sustained rally in gold. So why do people still ignore silver, especially as it is priced so reasonably compared to gold right now?
There are five reasons that I see:
The 1873 demonetization of silver occurred roughly 100 years prior to the official end of the gold standard. Investors have short memories. So when they think of metal-backed currency, they think of the modern era’s more recent experiences with gold, despite silver’s richer monetary history.
Silver is known as an industrial metal, while gold is considered an alternative to currency, an inflation hedge, and a legitimate investment tool even by those not necessarily in the "hard money" camp. Yet silver functions often as a better inflation hedge alternative currency as well, even though few investors believe it.
Even though there is far more silver on earth than gold, the silver market is much smaller than the gold market. This makes transactions much more visible and the market more susceptible to large fluctuations. (Note: There is approximately 17.5 times more silver than gold in the world; coincidently, this is very close to the 16 to 1 monetary ratio of silver to gold that existed for thousands of years.)
The discovery of the great Comstock Lode in 1859 caused the great decline in silver as a monetary metal. The supply of silver gushing out of Nevada simply overwhelmed its monetary usefulness with the result that silver became viewed as an unreliable standard for paper currency.
As industrial economies of the world grew and photography was invented, a growing demand for silver began emerging for uses in these new areas. This industrial demand conflicted with silver’s monetary demand, which also caused volatility to silver’s purchasing power.
While there is nothing to do about the tendency of investors to have short memories, there is a definite substitution effect between silver and gold. Silver may not be seen as a currency alternative right away... but its monetary history eventually prevails and catches up and usually surpasses gold.
As problems with the dollar, euro, and other fiat currencies continue to worsen, some of the wealth fleeing paper money will flow into silver, causing the ratio of the precious metals to decline — just as it has since the ratio was over 100 in the early 1990s.
Eventually I see silver returning to its 16 to 1 ratio with gold before all is said and done with the secular bull market in the precious metals.
What does that mean for how high silver could go?
Well, if gold is $1,200 an ounce and you divide by 16; you would get $75 an ounce silver. If gold goes to make a true inflation adjusted new high — which would be roughly $6,500 an ounce — silver (based on the 16 to 1 ratio) would be $406.35 an ounce!
Right now the silver to gold ratio is about 60 to 1, but with what I see happening in 2010... I think you will begin to see this ratio cut in half.
For this reason, I think it is time to add more exposure to silver in our recommended companies, and I am on the hunt for new silver stories.
Good Investing,
Greg McCoach Editor, Wealth Daily Investment Director, Greg McCoach's Insider Alert and The Mining Speculator
Agreed.
For the last year, I’ve been buying 1-oz silver ingots or 1-oz American Eagles.
I buy one or two a month and keep ‘em in my safe deposit box.
Will I get wealthy? Hard to say - but I really can’t picture myself losing substantially.
Nodding.
Broke people go to pawn shops to sell their silver and gold for cash for groceries and mortgage payments.
Deflation.
Yep.
Yup. Gold has to reach $2300/oz to double your $’s.
While Silver as to reach $33/oz.
I’m doing the same with Silver Dollars as you’re doing with
1oz bars.
ping.
How much are picking up Silver Eagles for where you are?
I recently bought a few from Blanchard at 17.20
So what grades did Blanchard send you. Did you get different dates?
I just buy junk silver currently have 50 half dollars at 90% silver. By my math that is 22.5 oz
Here’s a pretty good web site.
http://www.coinnews.net/tools/automated-silver-coin-valuator/
So what do you have Franklin’s, Walker’s?
You might not want to keep your wealth in a safety deposit box. The bank or government will seize it under certain conditions. As for silver, I think you are making the right choice.
The Case For Investing In Silver
http://www.silverbearcafe.com/private/04.09/roota.html
http://www.silverinscripture.com/archives.php#silver
http://goldismoney.info/forums/
Both, I like the look of the Walking Liberty better, but silver is silver, if I am brave I will even get some 1964 Kennedys. I bought them recently and paid 6.50 each
US Silver Dollar (1878 - 1935) = .77343 oz of silver.
2 half dollars = .77343 oz of silver
10 dimes = 77343 oz of silver.
I buy dimes and halfs. THe outfit I deal with does not charge extra for half dollars. I pay about 2.5% over spot for the coins.
At some point, the dimes may be easer to use than any sized gold.
And if everything turns out all rainbows and unicorns, I have a lot of fun coins for the Grandkids to play with / earn for chores performed.....
Gold bugs think you can't have inflation on a gold standard. But the truth is, if production is increased you can, just like this example of inflation with silver.
But you are more likely to have deflation with gold. The supply won't grow fast enough to keep up with the population or supply of goods. That will give us bouts of deflationary depressions. the 1979/198 highs in the silver market is when the Hunt brothers cornered the market.
It also makes the market easier to manipulate.
I remember when the Hunt brothers made a serious attempt at cornering the market. Officials at the Comex futures exchange changed the rules, without prior warning, to state that all new silver positions had to be long.
In other words, during a major market advance selling was suddenly disallowed unless you were unloading what you'd previously bought. I read at the time that in the exchange restrooms you could see traders vomiting and weeping.
It came out later that the exchange officials were personally long silver at the time. I expect to see more of these unsavory interventions by governments and regulators if the financial crisis deepens.
How much did the junk silver cost you? Was it sold to you at a ratio to face? IE. 12 to 1 (12 dollars to 1 dollar face). 6.50 for a Kennedy is 13 to 1. With silver spot right now 17.05, the silver in one Kennedy is 6.17, so to me 6.50 ain’t bad. I buy my junk at two different coin shops. When silver is above 16.80, I go to the guy who seems to always sell at 12 to 1. He even sold me junk at 12 to 1 when silver was almost 20 bucks a couple months ago. When it’s below 16.80, I go to the other one who always sells it, except for Morgan’s and Peace dollars at a ratio to spot. One thing that has helped me out is remembering that any dime, quarter, half combination that equals 1.40, also equals 1 oz of silver, well within .01276 troy ounces.
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