Tuesday, February 5, 2013

Why Buy Silver?

By GE Christenson

  • 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. 

  • 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. I have read that 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.

  • 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.


  1. Silver is no longer money. Are central banks holding silver? No. Are government holding silver? No. Are the worlds super producers holdings silver? No.

    Gold is money and will be revalued one the debt bubble pops.

    1. You think that central bank gold holdings are money? Did you see the news that it will take 7 years for the US to deliver a fraction of the German gold? With that kind of prompt settlement, there is no way any sane person would use "central bank gold" as money.

    2. Regardless, it is on their balance sheets. It is there because it is money. Whether they actually hold it, is irrelevant to it being money.

      Though I do think they actually hold it. There would be very little to gain from lying about it. But who knows. One day I believe we will.

  2. Gold and silver have failed us as a medium of exchange - otherwise we would still be using it. They were so easily displaced by the criminals. Where will we find or create a more resilient money? Is Bitcoin "the one"?

    1. Fiat money will probably be the MoE going forward. Gold "failed" only because of dishonesty and mismanagement from the powers that be.

    2. You obviously don't understand why gold and silver (money) is no longer used as a medium of exchange. Its because of 2 things, Greshams laws and Fractional reserve banking (Money = Debt) . the implementation of a Fiat currency allows for the expansion of a money supply beyond any relative constraint due to it being backed. TPTB wanted unlimited access to create money as debt instruments which allows them to make money from "nothing" FRB. The introduction of a fiat currency that allows for and promotes inflation drives good money out of the system (Greshams law) It happened to Gold and Silver and is happening now to copper (Check your pennies, you are starting to see less and less of pennies dated before 1982) I'll let you see if you can figure out why

  3. I disagree. Silver is money just as much as Gold. It meets every definition that Gold does. Depending on what resource you utilize, it can also be argued that above ground stores of Silver are in fact much less abundant than Gold with greater uses in industry. Gold has the advantage of size vs value but if you're talking about possible upside, Silver has greater potential. A wise PM investor will play both. Gold for a store of wealth and Silver for money.

    Course there's always treasuries as well /puke

    1. There are many elements more rare than gold. Being rare does not make it money. Gold is a veblen good, its value is arbitrary, but silver is simply a commodity.

      Would it be wise to use a valuable commodity as money?

    2. As the sole currency, no. A Gold standard is as easily manipulatable as anything else. A competing currency, sure.

      Assuming it fits the definition of money ie fungability, durability, inherent worth, etc.


      Silver is money as much as Gold is classically.

    3. Yes, silver USED TO BE money. Don't let it be your baggage. Silver is now a valuable commodity. There is no need to have two forms of money. Those who control populations either through force or through production of goods determine money and they have chosen gold.

      Sure the price of gold can be manipulated, but only for so long. Just like all other markets, the guy holding the real stuff at the end will win.

    4. As was Gold. They both USED to be money. They are both reestablishing themselves as monetary metals. Gold will soon have the advantage of being recognized as Basel III collateral but other than that they are very similar.

      I think you're making the mistake of lumping Silver in with other PM's like Palladium and Platinum. Why do you think Silver tracks Gold so closely ( although more volatile ) instead of following the other PM's?

      Could that perhaps be because of its recognition as a monetary metal instead of just an industrial metal or a simple valued commodity?

      Could it be because it is in fact much rarer than many believe and if so, doesn't that imply that it will have greater increases in value on a percentage basis than Gold?

      As far as your comment that the people that control populations via force or production determine what is "money", I think you're sorely mistaken. The market and the people within it determine what is money and what isn't. Greece is a good /recent example.

      As far as Gold manipulation goes, we agree. It will go on until it can't, and then the price will increase significantly. That's a sucker bet. When and by how much are the unknowns.

      Correct me if I'm wrong, but it seems like you're advocating a Gold standard?

      Why on Earth would you want to do that? Competing currencies makes much more sense and would be much more difficult for TPTB to "futz" with.

      I'm also curious what are your thoughts regarding China / India and what appears to be significant interest in obtaining not only Gold, but Silver as well. I don't see them going nuts for the other PM's atm.

      Don't get me wrong. I love Gold and I do own it. On a percentage basis though, I think you underestimate the upside potential of Silver by comparison.

      You may end up missing quite a ride if you aren't on board.

    5. Silver and gold track closely? In what time frame?

      Most hard assets move higher with inflation. Does that mean they are all viewed as money too? Again, there is no need for two different types of money.

      Greece is a good example of what? Greece can't make the rules because they are dependent on everyone else for their consumption.

      I am not advocating a gold standard, which in an imperfect world probably won't work, I just think international trade will be settled in gold and not USDs.

      I don't see those countries obtaining much silver, and certainly not as much silver as gold. They do have extraordinary amounts of gold and they will get a huge living standard bump in the coming financial system.

  4. Thanks for the article...I wondered if you had some insight on this Bob: Since demand for silver is at historic levels - to the point where the US mint ran out of eagles -- why has the price not reflected this demand?? It seems that supply is not keeping up with demand but price has been around 30$ for a long time now?

    1. Demand for silver eagles does not represent all silver demand and US mint supply does not represent all silver supply. Both are very small compared to the total market.

  5. Silver is far more volatile. It should be purchased, but gold should be the main focus of accumulation.

    I like a recommendation of 80/20 gold to silver holdings.

  6. From Professor Hulsman's "The Ethics of Money Production"

    "Looking at the historical record we notice that, at most times and most places, people have chosen silver. Gold and copper too have been used as monies, though to a lesser extent."

  7. The 80/20 rule seems to be the best for gold and silver investment, since gold is more valuable and precious than silver. But this doesn't undermine the value of silver. The point is to maintain a portfolio while investing in gold and silver and other commodities. Maintaining a portfolio reduces the risk and creates more wealth in the future.

  8. Yes, silver USED TO BE money. Don't let it be your baggage. Silver is now a valuable commodity not as gold BUT it is!! Silver is far more volatile. It should be purchased, but gold should be the main focus of accumulation. Both two are precious, only difference is our thinking, our mind, how we are investing and how we are purchasing!!