Guest Post: The Case for Silver

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Submitted by Deviant Investor

Silver has no counter-party risk. It is not someone else’s liability. The same is NOT true for hundreds of paper currencies that have become worthless, usually because the government or central bank printed them to excess to pay the debts of governments that did not control spending.

Since Nixon “closed the gold window” on August 15, 1971 and allowed the dollar to become an unbacked paper currency that could be created in nearly unlimited quantities, the gold to silver ratio has ranged from a high of approximately 100 to a low of approximately 17.
There is room for silver prices to explode higher, narrowing the ratio to perhaps 20 to 1. When gold reaches $3,500 (Jim Sinclair) and subsequently much higher in the next few years, and assuming the ratio drops to approximately 20 to 1, the price of silver could approach $200 per ounce, on its way to a much higher number, depending on the extent of the QE-Infinity “money printing,” panic, hyperinflation, and investor demand.

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    • Silver has no counter-party risk. It is not someone else’s liability. Silver Eagles or Canadian Silver Maple Leaf coins are recognized around the world and have intrinsic value everywhere. The same is NOT true for hundreds of paper currencies that have become worthless, usually because the government or central bank printed them to excess to pay the debts of governments that did not control spending.

 

    • The price of silver in US dollars since the year 2001 has been strongly correlated with the ever-increasing official national debt of the United States. Read $100 Silver! Yes, But When? I doubt that anyone believes the national debt will decrease or even remain constant over the next four years. We have every reason to believe that it will increase by well over $1,000,000,000,000 per year for many years. If the national debt is rapidly increasing and it correlates, on average, with the price of silver, then we can be reasonably certain that the HIGHLY VOLATILE price of silver will increase substantially over the next few years.
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    • Silver has been used as money (medium of exchange and a store of value) for over 3,000 years. In most cultures, silver has been used for daily transactions far more often than gold. The word for “money” is the same as the word for “silver” in many languages.
    • In the United States silver was used as money – coins – until the 1960s when inflation in the paper money supply caused the price of silver to rise sufficiently that silver coins were removed from circulation. Do you remember silver dollars? They contained approximately 0.77 ounces of silver. Currently the US Mint produces silver eagles which contain 1.0 ounce of silver – and cost approximately $35.

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  • Argentina has devalued their currency several times and has dropped eight zeros off their unbacked paper money in the past 30 years. The United States has not dropped any zeros from dollars, but it took approximately one-half of one dollar to buy an ounce of silver 100 years ago, while it takes over 30 in today’s reduced value dollars. It took about 20 dollars to buy an ounce of gold 100 years ago and it takes over 1,600 dollars to buy that same ounce of gold today. There are many more dollars (paper and electronic) in circulation today compared to 100 years ago. Hence the prices, measured in declining value dollars, for silver, gold, wheat, crude oil, bread, coffee, and ammunition is MUCH larger.
    • Throughout history the prices of gold and silver have increased and decreased together, usually with gold costing 10 to 20 times as much as silver. A historical ratio of 15 or 16 is often quoted and that places the current ratio, which is in excess of 50, as relatively high. Since Nixon “closed the gold window” on August 15, 1971 and allowed the dollar to become an unbacked paper currency that could be created in nearly unlimited quantities, the gold to silver ratio has ranged from a high of approximately 100 to a low of approximately 17. There is room for silver prices to explode higher, narrowing the ratio to perhaps 20 to 1. When gold reaches $3,500 (Jim Sinclair) and subsequently much higher in the next few years, and assuming the ratio drops to approximately 20 to 1, the price of silver could approach $200 per ounce, on its way to a much higher number, depending on the extent of the QE-Infinity “money printing,” panic, hyperinflation, and investor demand.

 

  • If you think a silver price of $200 per ounce is outrageous, I suspect you would find near universal agreement among most Americans. But is a national debt in excess of $16,000,000,000,000 less outrageous? If unfunded liabilities are included the “fiscal gap” is, depending on who is calculating it, approximately $100,000,000,000,000 to $220,000,000,000,000. For perspective, that places the unfunded liabilities of the US government at approximately $700,000 per person in the United States. Is $700,000 unfunded liability (debt) per man, woman, and child more believable than a price for silver of $200?

It seems likely that the populace will eventually realize that:

  • Government spending is out of control and will not be voluntarily reduced.
  • “Printing money” or debt monetization (QE) is necessary and inevitable in order to continue funding the excess spending of the US government. More money in circulation means a declining purchasing power for the dollar. The decline is likely to accelerate at some time in the future.
  • The real value of our savings and retirement diminishes as the dollar declines in value.
  • People will panic and shift into real assets to preserve their purchasing power. (There is no fever like gold fever!)
  • That panic will cause gold, silver, and many other real assets to drastically increase in price, as measured in devalued dollars.
  • It is better to be early than late if a panic-moment is about to arrive.
  • Silver is less expensive per ounce than gold and more available for purchase than gold, particularly for middle-class westerners. An investment into silver is likely to appreciate more than a similar investment in gold.

What Do You Believe?

    • Do you believe that excessive spending and debt will be reduced?
    • Do you believe that the decline in purchasing power of the dollar over the last 100 years will suddenly reverse?

 

    • Do you believe that congressional promises for Social Security, Medicare, Medicaid, and government pensions will be broken?

 

    • Do you believe the Federal Reserve will continue to print the money to pay for those promises?

 

    • Do you believe your savings and retirement are totally safe in paper investments denominated in dollars?

 

    • Do you believe, as history indicates, that paper money eventually devalues to zero while gold and silver retain their value?

 

  • Do you believe that the world will suddenly stop using silver, instead of finding new uses for it every year?

Would you rather trust silver coins in a safe place or paper money and political promises?

Most people will do nothing to protect their financial future. Will you?

 

GE Christenson
aka Deviant Investor

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Comments

  1. Good article. Makes sense of course. Meanwhile I’ll be stacking, getting pissed off as the price action remains predictably counter intuitive and at times negative, and cobbling together my list of “F*ck yous” to hand out when silver finally does haul ass to something approaching a high (fair) price.

    • Canadian D, lighten up my friend. I know you already know this, but these artificially low prices are our friend. I saw you’ve mentioned in other comments you recently picked up a good chuck of slave queens and freedom girls… just think, you wouldn’t have been able to if prices were up at $120 or $200. Yes, it’s been a painful waiting game, and it can be maddening at times watching how blatant the manipulation is and how woefully deceived the general public is. We’ve just gotta remind ourselves that this presents an incredible OPPORTUNITY to stack more silver we otherwise wouldn’t be able to, and get silver into good peoples’ hands while prices are still low. Keep encouraging others to stack, and lead by example. We’ll thank ourselves one day. And hopefully, that day won’t be too soon! 

    • Exactly right, RPL.  What we are in now would be called “an acquisition phase” by investors.  In such a phase, we cannot worry about the price of a share of stock or, in this case, an oz. of silver.  We simply continue to save our dollars and then buy as much silver as we can on any price dips that come along.  As SRSRocco has already nicely shown, the cost of energy needed to produce silver from the Earth is what sets the price floor below silver and other mined materials as well.  Will we ever see $20 an oz. silver again?  Possible, I suppose, but also very unlikely.  For that to happen, there would have to be a cheap source of energy available to the miners and such things rarely come along in life.  
       
      Just buy the dips and keep gathering what real wealth we can while we can.  There will come a time when silver prices shoot up, although no one knows when that will be.  When it happens, though, few of us will be able to buy any more and will have all of the silver that we likely ever will.  Don’t know about others but I am nowhere near done buying silver and would very much like the opportunity to continue buying for the next couple of years.  After that, let ‘er rip.
       

  2. Yep….can read things like this all day.
    Seems best to my way of thinking for Silver to rise slowly, like $3- $6 a year for the next 15 yrs…would be best for everyone….know not everyone would agree with that, but I hope we don’t just jump to $200 Silver….that might be a fun week watching charts…but would likely be  shiity times to follow……. 

    • At this rate of money creation and the speed of gold repatriation, 7 yrs soft landing would be dreaming. John Williams at shadow stats suspects at the end of 2014 there will be hyper inflation and a $ell off in about 4 mo. 
       

    • silver could easily be 150 bucks now, in a fair sense. There is no need for there to be blood in the streets as a catalyst for silver to skyrocket.
      However, the banksters won’t stop until they are forced to stop, so that IS the most likely case IMO – which is sad. That is their fault though, and the blind idiots sleepwalking through life.

    • @Canadian Dirtlump
       
      The other night I was reading the ’1800 Journal Of The House of Representatives of The commonwealth of Pennsylvania’. In it a motion was raised to re-appoint the ‘door-keeper’ of the Chambers at … one dollar per day wage.
       
      The research I’ve done on wages over the three centuries prior to the 20th, yielded an average day’s wage at an ounce of silver, which provided two days average sustenance.
       
      Since the average daily wage today is about 160 banknotes … THAT … is the most LOGICAL ‘value’ correlation I can deduce for silver … RIGHT AT THE MOMENT. So at 32 banknotes, the stuff is a screaming cheap ‘price’.
       
      Paper Rots, Coin Does Not.

    • “…that might be a fun week watching charts…but would likely be  shiity times to follow……. “
       
      Agreed.  Like many large financial moves, slow and steady would be better than sudden and turbulent but I am thinking that there will not be a lot of choice in what happens.  The pressure cooker lid (economy) is being held on by increasing force (money printing) and the pressure (inflation) is rising rapidly.  At some point, steam (interest rates)  MUST be vented, or… SHE’S GONNA BLOW!  Pity the poor bastards holding onto the lid at that point… BOOM!  …splatter…  eewwww, whatta mess!
       
       John Williams at shadow stats suspects at the end of 2014 there will be hyper inflation and a $ell off in about 4 mo.”
       
      John Williams is one of a very few economists to whom it is well worth listening.  He uses standard accounting techniques and REAL data to arrive at his conclusions, unlike the Fed and the BLS, and everyone who reads the alternative media should be paying close attention to what he has to say.
       
      “The other night I was reading the ’1800 Journal Of The House of Representatives of The commonwealth of Pennsylvania’.”
       
      Well, that should have cured your insomnia, Pat.  It sure would for me!  lol
       
      “So at 32 banknotes, the stuff is a screaming cheap ‘price’.”
       
      Agree completely, Pat.  Buy the phyzz.  Convert that paper with ink on it into something a lot more substantial and that has true intrinsic value.  Not that paper has no value, mind you.  Every out-house should have some!
       

  3. It’s funny, I recall an ounce of silver ‘priced’ at 1.27 dollars when I was a young boy. Accounting for the weight of silver in a coin dollar, that ‘price’ was simply the weight of an ounce exceeding what was in the coin. That’s why metallic money is known as Honest Money.

    • Dang Pat, you must be the oldest poster here on The Doc, Full of wisdom though, I salute you Sir!

    • Not hardly, Ranger… not with you here, that is!  But, there are a number of us old farts hereabouts and our experience is legion.
       
      I too remember the daily use of US 90% silver coins.  One of the truly great moments in my youth was when I was mowing lawns for extra money.  There was a lady a few blocks from our house who let me cut and edge her lawn one day.  I worked real hard for her because she was a new customer and I was hoping to keep her as a steady customer.  I charged the princely sum of $0.50 a yard for this effort.  When I was all done, she looked at her yard and said that it looked really nice.  She thanked me and then gave me a Peace dollar for my work. I remember holding it in my hand in wonder and delight.  It was so heavy and shiny and it was double what I had asked.  I left her place literally walking on air… and then, like a damned fool, I spent it.  ARRGGHHHHH!!!  But, it still provided a great lesson and I was MUCH more careful with money ever after.
       

  4. We are one step off the cliff and starting the fall, the delay hasn’t stopped from that initial forward momentum that keeps you from dropping like a rock.

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