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.
 
(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!
 
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