Thursday, February 16, 2006

 

Debate Continues: Silver Versus Gold

The Lew Rockwell site has this debate on gold versus silver. Highlights, "Unless you are invested in gold and/or silver, the details of this debate may not interest you enough to read a long debate. But you should at least know about its existence. It is a debate over this question: Will above-ground supplies of silver run low before above-ground supplies of gold, gold actually available to the market, run low?"

"It is also a debate over this question: In a time of an unexpected level of price inflation or after a terrorist attack, is the demand for silver likely to exceed the demand for gold? Finally, it is a debate over this question: During a recession, is silver’s price likely to fall by a greater percentage than gold’s price?"

"From 1792 to 1972, silver went essentially nowhere. Then silver began moving up. In 1979, silver spiked upward by 10 to one. It hit $50/oz in January, 1980. Then, beginning in mid-January, 1980, it fell like a stone. It kept falling until 1991, when it bottomed at $3.60. What happened? Bunker Hunt happened."

"Two things happened to stop him. First, the FED reversed policy in October, 1979, from monetary inflation to monetary stability: tight money. Interest rates began to skyrocket. The end of double-digit price inflation was imminent. Second, the commodity exchange changed the rules. Demand for silver futures contracts died overnight."

"Newcomers to the silver market may not remember what has gone before. Silver is approaching $10 now, up from $3.60 in 1991. That is a nice move upward. It began before gold’s move in April, 2001. The two metals have moved up in tandem since then. The question is: Will this continue?"

"I have heard this same argument about silver’s imminent shortage ever since 1973, when I sold silver for a living. When a wise man hears the same argument used over and over, decade after decade, to buy silver, yet the price only once has moved far out of a trading range of a few dollars, then he grows suspicious every time he hears the argument."

"I believe that the dollar price of gold will eventually rise, because the purchasing power of the dollar will decline by a much greater percentage than is presently expected by conventional investors. Price inflation alone will not drive up the price of gold or silver, as we can see in the prices of both metals after January, 1980. There was steady price inflation and also a price collapse of both metals for two decades. Unexpected price inflation is the deciding factor."

"I think the economy is getting closer to a recession. So, I think silver, an industrial metal, is more vulnerable to a decline in price than gold is, which retains its status as money for central banks. Don’t get your hopes up for a killing. Some profits, yes, but not until after the next recession. Is it better than owning fiat money? A few thousand dollar’s worth, yes."

"When recessions loom ahead, it is best to sit on the sidelines unless the FED is pumping hard (as it is today), or unless a major terrorist attack occurs in the United States, or unless some nation bombs Iran. None of this has much to do with an alleged imminent shortage of silver."

Comments:
The industrial uses of silver are a plus, IMO, and the lesser role as a monetary tool are long standing. Gold and silver have both been used as money for centuries. To me, the key is not paying too much for the insurance. Mr. North should have pointed out that when gold jumps in price, silver can move up higher, in percentage terms, although I don't know of a direct reason it should. It's good to know both sides of this debate.
 
This guy totally ignores the consistent dumping of silver by the CBs over all those years. Well, that silver is gone! The US has to buy silver just to mint Eagles.

p.s.: Ben, I was going to suggest that you should look for good contrarian articles to post for debate. If someone out there knows something we don't, best to find out now. Can't fall too far into that "confirmation bias" trap now, can we??
 
I don't see any reason why the long-term gold/silver ratio won't move closer to 15:1. it did during the late 70s.

a lot of silver mined now is sold by companies who don't seem to care what price they get for their silver. they make their money mining other metals and silver is almost waste to them.
 
(The industrial uses of silver are a plus, IMO, and the lesser role as a monetary tool are long standing.)

they seem to find new little uses for silver every day. they use it in socks so they don't smell! you could use silver in every bit of clothing sold that you didn't want to smell. or in carpets, who knows?

I don't know if silver is a lesser metal. gold maybe used for international transactions, but if I'm not mistaken silver is what the everday person used.
 
TJ Said: p.s.: Ben, I was going to suggest that you should look for good contrarian articles to post for debate. If someone out there knows something we don't, best to find out now. Can't fall too far into that "confirmation bias" trap now, can we??
This is exactly what I was thinking today.
Ben, I know specific theme may bring more participants, but since there is no many of us anyway, why not to hear "contrarian" voices?
John LawII
"I don't see any reason why the long-term gold/silver ratio won't move closer to 15:1"
You know, it can be achieved by silver going nowhere and gold going down?
 
(You know, it can be achieved by silver going nowhere and gold going down?)

then the dow/gold ratio would get to 1:1 at $540!
 
Ben Said, "...Mr. North should have pointed out that when gold jumps in price, silver can move up higher, in percentage terms, although I don't know of a direct reason it should...."

He didnt say it because he does not think so.
Click on the link to read the longer debate between North & Franklin Sanders. http://www.garynorth.com/public/997.cfm I think Mr. North used the quotes of Mr. Sanders, arguments heavily in favor of silver, to highlight excatly that silver can move up much higher than gold, it can also move much much lower than gold. Perhaps Mr. North was trying to show that because there is no fixed gov silver price - there is no non-bubble like reason for a huge jump. Hoarding and bubble mentality? There is also no gov fixed price to stop a fall to fifty-cents.

Mr Sanders, "...When any commodity returns to the same levels two, three, or four times during 100 years' trading, I begin to suspect a pattern. And while past performance is no guarantee of future, a reasonable man would bet that from 1991's 100:1 we are headed toward 16:1 before this bull market ends, say, 10 years from now. If gold reaches $1,250 (a modest target only 5 times its bear market low) and returns to a gold/silver ratio of 16:1, silver would reach 78.80. In other words, it would outperform gold 400%...."

The graph since 1700 was good. Is it adjusted for inflation? There were lots of recessions and depressions since 1700 to 1980, and silver held a steady value except for the Great Depression???? as demonstrated by that chart, totally under gov fixed prices? Todays unknown - how silver behaves without gov limitation. Up or Down? When gold is $2000, silver cannot be just as high * just* because gold is... or can it? Sustainable fundamentals?

There is alot to the longer article.

From the longer article:
"...the collapse of silver, 1980 to 1991, was not the result of central bank manipulation. It was therefore due to silver's disastrous fundamentals. So, why didn't the silver bulls see it coming in 1980, 1985, or even 1990? Because silver bulls are True Believers in silver. They are not like commodity futures' traders, who make money on price moves and care nothing about the commodity. They are True Believers who are committed to silver as a statement of principle -- the same way we gold bugs are committed to gold. But we gold bugs have a better track record -- merely terrible, but not catastrophic...."

He does mention gold leasing & the carry trade, and here is where I think he adresses a possible silver ETF:

"...Based on the carry trade argument, don't put your money on the line for silver vs. gold until you are sure that one of these carry trades will have a significantly greater effect upward on prices than the other. But silver carries the burden of proof because of the lack of information on the above-ground supplies -- an information gap that has consistently produced losses for silver investors for 40 years...."

Mr. North has another article discussing supply of silver:

http://www.garynorth.com/public/1000.cfm

In 1980 silver climbed to $50 and fell back to under $8 the ensuing year. Then in 1982, Smith claimed, "I expect the price of silver to be in the $100-plus per ounce range by 1985." Smith based this bullish conclusion on five primary causes.

Industrial demand for silver was exploding.

Mining production of silver was less than consumption.

Silver production couldn't be greatly ramped up because 75% of new silver came as a byproduct to base metal mining.

Since silver was used in such small amounts in its many applications, a price rise in silver would not reduce the demand.

The government had sold off most of its two billion ounce hoard in a way that kept the price down. Now that it was gone, free market forces would re-establish the true price at much higher levels.

Smith went on to predict, "Fundamentally, the outlook for silver is more bullish from 1982 on than for any other commodity I know of -- including the much-ballyhooed strategic metals. Silver in 1982 is a cheap precious metal on the way to becoming a scarce and expensive strategic precious metal within this decade." . . .

Millions of upsidedown, no doc, io mortaged homeowers and minimum wage earners buying socks at Wallmart, lets see, the silver socks or the low cost regular ones? It does sound like a good product tho.


Scroll down and look at this chart showing where silver is used :
http://www.silverinstitute.org/supply/index.php

What happens if the US gov is no longer a buyer, isnt it broke?
"...Since 2001, the U.S. has had to purchase silver for its coinage programs from the open market. This has boosted silver consumption by 1% annually..."

http://www.silverusersassociation.org/silver/uspolicies.shtml
 
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