The Fallacy of Gold and Primacy of Silver
The decade long flight of wealth from fiat currencies and naked stocks, to gold, as a safe haven to guard against economic chaos and worldwide depression, is a curious aberration of market speculation. With the vast amount of information available to those wealthy enough as a way to own gold, plus the history of gold and silver as money to be utilized for purchasing consumables; one wonders why companies, banks, and persons of wealth, along with their financial advisors, are incredibly poorly informed in regards to the impracticality of owning gold as a potential emergency money for folks and businesses; especially along with the current very distorted relative valuation of gold to silver.
Since We are more than sixty years old I can reminisce which i grew up with silver cash in my pocket, though I don't ever recall even seeing any gold money; and my parents, grandparents, and great grandparents had silver money in their pockets, nor did they ever communicate having or using gold as money.
While silver was domestic money for more than 100-years here in the U.S., both as coin and currency backed by silver; and was applied by consumers to purchase their food, clothes, and shelter. Gold, on the other hand, has been used by governments, banks, and international businesses during the past century to settle international trade accounts, and not as domestic money. Both gold and silver coins ceased to be used as money by banks and government by 1971. So buying gold to hold for an eventual use as domestic money to buy consumables is incredibly silly, or else outright stupid.
Gold and silver have already been mined, in the most up-to-date century, at a ratio up to 10-ounces of silver for each and every 1-ounce of gold. Inside of a hard currency economy where both metals would just be used as money and many types of production would be sold to governments to coin stable money, the relative price would be 10-to-1; that is, each ounce of gold would exchange for 10-ounces of silver. Yet the commodity markets have presently (Nov. 2011) continually traded these metals in a very range that is approximately 1-ounce of gold for 50-ounces of silver. In past times 20 years it has been as high as 1-ounce of gold for 100-ounces of silver; in addition to being low as 1-to-30.
It is important for anyone purchasing gold and silver to question why the foreign exchange market is so skewed. Firstly, gold and silver are not used as cash in the U.S. economy; nor does our government purchase or sell any significant amount of the metals annually, except inside production of non-monetary bullion coins. Take into account that more than 50% of all gold mined annually is trapped in bars or stamped into investment coins by several countries; while another large portion adopts jewelry and is relatively easily recoverable returning to bullion. The world has accumulated over 4.3 billion ounces of gold plus the stock pile is growing around 75-million ounces a year. Silver is a very different story; in the past generation, more silver is consumed annually by industry than is mined.
Even though mining has increased the annual output of silver more than 50% in 30 years, worldwide industrial requirements have increased even more; in ways that the above ground stocks of silver inside 1970's was around 24 billion ounces and has declined to between 18 and 19 billion ounces today; a substantial portion of which is not easily recoverable to bullion. Whether or not all the silver occupied in film, electronics, plumbing, military hardware, silverware, medical bandages, industrial catalysts, jewelry, anti-microbial clothes, etc., was available to serve as doomsday money there is certainly still less than 5-ounces of silver available to each ounce of gold for everyone as money. So 5-to-1 in quantity supports and affirms the present 50-to-1 price difference, right?
Actually, there is lots of missing more knowledge about gold and silver. Because the publication rack always right, the 50-to-1 ratio should be correct at this time, in this tight economy; the law of demand and supply can be manipulated, but it really cannot be broken. Gold production is constrained in ways that a great deal of the above ground gold is mined and trapped in a cave to cave sequestration by governments, banks, platinum investment companies, and ETFs; all hoarding a great deal of gold and some silver. In reality little new gold, compared to hoarded stockpiles, is available to be of individuals as bullion, while essentially all silver, both mine production and stockpiles is designed for sale to the highest bidder for industrial consumption. Gold is artificially full of price relative to its quantity above ground as a result of hoarding; which is completed to promote a high price and facilitate price control. The markets in gold and silver coins are not free markets; supply and price are manipulated to learn governments, banks, and industries. A substantial amount of newly mined silver is sold by miners at very low prices to benefit industry, presumably to acquire help from the financial markets in having the gold market managed in a way that prices are kept high to benefit miners; and to provide a false wealth effect to governments and banks that sequester gold. Since most of these large mining companies are publicly owned; the dumping of silver at prices as little as 10% of the spot price generally seems to disparage their stockholders unless you will find there's price benefit to their gold production side from the precious metal market.
The cave-to-cave component of gold comes from the vast system of caves expressed by miners to remove gold ore; refine half that ore into gold bars; which are to a large extent bought by governments, banks, and ETFs and immediately put into concrete caves with thick steel doors, to keep it locked away as a hoard, and not gonna ever be used as money by citizens to buy consumables. So if the 50-to-1 price ratio reflects the available amount of silver to gold, if there are 18-billion ounces of silver that may be made available for exchange and consumption by markets, then there are only 360-million ounces of gold intended for exchange and consumption with the markets. At least which is the quantity relationship held by the lack of information on the users, holders, and investors of gold and silver coins. But this quantity relationship is false, since banks and governments have sequestered somewhat over 2-billion ounces of gold (most of the mined gold), leaving 2-billion ounces or more to be held by individuals, businesses, and ETFs; and also, since several billion ounces of silver are sequestered in film, electronics, etc.; the number of silver available to individuals as bullion is approximately 4-billion ounces; giving us a ratio of tradable bullion of 2-ounces of silver to 1-ounce of gold inside possession of private citizens, (this includes jewelry and bullion that could act as money). If silver is correctly charging about $35.00 per ounce then gold should only command an amount of two times greater or $70.00 per ounce; based simply with a supply foundation for price. Since the current price ratio is 50-to-1 this could lead us to suspect how the market is skewed by ignorance, misinformation, and doubtless disinformation through market management; which includes created a speculative market in gold, instead of an investment market, which could only correct itself downward as individuals be more knowledgeable about the bullion supply plus the more effective monetary use of silver versus gold.
There a few aspects of investing in gold that make it undesirable to own, if there is an economic meltdown. You are that governments have the power to force those that possess gold to offer it to government at a price set by government. I thought this was done in the U.S. by President Roosevelt in 1933, when private ownership of most gold became illegal; until President Nixon overturned this law in 1971. The purchase price paid to those earning their gold was $20.67 per ounce; although the following year, in 1934, President Roosevelt devalued the dollar 41% by declaring how the U.S. would exchange gold internationally at $35.00 per ounce. Why would anyone want to own gold when government can confiscate it and cheat the proprietor while doing so? Granted silver may also be confiscated by government, but which is highly effective as domestic money and has many industrial uses, government would cause economic problems for itself by interfering inside use of silver as cash in our economy.
An worse problem for those who speculate in gold ETFs, ETCs, or purchase gold that is certainly stored and managed by investment companies, is simply because will never gain possessing the gold they've invested in; and therefore won't have any of the economic protection we were holding seeking when they bought in to these investment scams. The full meltdown of the world economies could happen in a matter of days or at many a few weeks; and together with such a meltdown all kinds of secure distribution of products will fail; making it impossible to ship items just like gold and silver from any type of investment depository to individuals and businesses. In addition in an economic meltdown all depositories of metals (which include all kinds of precious metals investment companies) will likely be raided; and their gold and silver will likely be confiscated by governments inside political interests of those in power at the time.
There is a relatively new technique to speculate in commodities like gold and silver coins called Exchange Traded Funds (ETFs). A platinum ETF is run often be a trustee organization that buys and sells an asset like gold plus sells paper certificates that work like stock in that ETF. The trustee hires a bank to generally be the custodian of the gold; to store it in order to receive additional gold once the trustee buys, or deliver gold to the buyer when the trustee sells. You as a possible investor (actually you're a speculator in paper, no investor in gold) can trade your paper ETF stock with other speculators, who as a group must pay all the overhead and profit from the trustee organization, such as wages, rent, shipping, storage, insurance and brokers fees. It truly is impossible to find a chair in this particular game when the music stops, as the custodian banker may be the only one with a chair anf the husband is not playing the overall game; the banker already has got the gold; you hope!
I recently had a good laugh within the expense of a popular television business program when considered one of their reporters was carrying out a series on gold, wherein he is in London and was ready to view gold which he reported was of a very large Exchange Traded Fund (ETF). He viewed this gold only after surrendering all electronic products that could pinpoint his location and after being driven around London in a very blacked-out van to ensure he previously no idea of his location. For reasons unknown he felt privileged to participate is this charade, without his if you know an ETF is surely an investing charade by design. Should you not know where ignore the is, or its condition lacking an audit for quantity and quality, it will as well still be disbursed inside crust of the earth.
What proof can this reporter provide how the gold he saw belonged compared to that ETF? How often is that often gold randomly assayed to prove that it is gold? What assurance can the ETF provide that any gold they possess won't be confiscated by the British government, or any government associated with a country that allows ETFs to hold precious metals in their banks? What prevents the custodian of gold or silver from selling the metals to pay short positions or raise cash by selling metals to profit from price spikes, once they, as banks, speculate inside precious metal markets, without informing the trustee from the ETF?
If ETF funds are good investments, using their hidden gold and just ownership of paper stocks inside ETF, why not create an ETF on gold that is certainly hidden in the earth and cannot be mined. Roughly we have mined roughly 5% from the gold in the earth knowning that future mining will extract a further 5%, leaving 90% of the gold in the earth to form the basis for the ETF. All sales and purchases of the stock will be through our broker at current spot prices. Since 5% represents over 4-billion ounces of gold, our planet ETF would be roughly 90-billion ounces of gold; and now we know exactly where the entire thing is; we also recognize that it is secure and cannot be stolen or confiscated by government. If our fund would need to sell gold you can sell ownership of gold in cubic kilometers from the earth's crust and purchase those ownership rights back, when our fund has better cash flow from higher gold prices that should bring in more investors. We'll sell stock in the ETF for a premium (broker's fee) outside of our gold's value and live off that premium while speculators aim to out speculate one another trading our ETF stock through our broker. Since cows must be milked and investors must be bilked; not only can we form one ETF in this manner, we can form hundreds utilizing the same gold; the gold does not matter, because ETFs are all about paper. Beyond ETFs concentrating commodities that make it easier for governments to confiscate those commodities, absolutely nothing is special about them; they are just a newer game inside gambling casino known as Wall Street; plus in every ETF you happen to be speculating in paper and just paper.
Then there are companies that will sell you gold and silver coins and offer to store it and insure you its being lost or stolen on an annual storage fee and insurance fee. When the economy adopts inflationary meltdown and you want to take possession, you are going to first need to have getting some distribution network that is certainly still operating and it is trustworthy to bring your gold for your requirements; then you will need to be sure the company storing your gold haven't repeatedly sold and resold your gold and stored it for a lot of other investors that may also want delivery of "their gold", causing that company just to send everyone a cash refund, in the event it. If you do not have it inside your land you cannot sell or spend it to support life and limb.
Consider the possible scenario occurring about mid-September 2013, the limited wheat and corn harvest is coming in, controlled by government after social declension the result of political corruption and greed, plus the self-fulfilling prophecies of December 21, 2012, cause an economic meltdown in the winter of 2012-2013. Anyway, by September 2013 you will discover long lines inside cities to purchase the meager quantity of goods available. Government is simply by Marshal Law and standing in bread lines may be the priority activity for anyone. On one side of the street you will find there's very long line of people waiting to obtain two slices of bread almost daily from a government storehouse, provided they have the proper government identification; while you're on the other side of that street a line forms outside a bakery that is certainly allowed to bake and then sell on their own surplus bread outside of what they bake to the government dole. The bakery sells with a black market that the government tolerates in order to avoid social unrest, but which the banks will be jealous about, since it shuts them out of these transactions.
The bakery sets a set limit of two loaves per person a week at a profiteering price of one ounce silver per loaf; along with a sign that says unfortunately we cannot make change; obviously the baker will barter for other items of value, but he can not accept Federal Reserve Notes, as their value will be declining daily and they cannot be trusted to replenish the baker's flour, sugar, and shortening. In the line outside the bakery many people with questionable assets that they can hope they can trade for bread. Obviously whomever with two 1-ounce silver pieces can get two loaves of bread plus the person with six half-dollar coins (minted pre-1965) containing 2.16-ounces of silver can get two loaves of bread. How about the person that is the baker a 1-ounce American gold eagle coin; after that they get? They will receive two loaves of bread for 1-ounce of gold, assuming that gold is exchanging for a few or more ounces of silver; and they will receive no change. Although the person with the nice ETF certificates, showing a perception of gold on each certificate, will presumably manage to exchange them for any piece of paper with a picture on the loaf of bread on it. Similarly to the person that owns gold stored by an investment company; the baker informs them that if they have gold or silver within their possession he will work with them.
How will gold and silver coins compare in an economic meltdown? Well if gold will not be confiscated by governments worldwide; and hoarded gold will not be sold to businesses and folks by governments and big banks, there'd be about 1-billion ounces of gold in tradable bullion coins and bars leading to 1-billion ounces of gold as jewelry, that somewhat would serve as money when the gold content associated with a piece of jewelry is often estimated. Similarly for silver, there are about 4-billion ounces of silver as coins and bullion worldwide as well as a billion ounces of gold in the form of jewelry and silverware that could serve as tradable money. Leaving us a ratio of 2-ounces of gold to 5-ounces of silver, held by individuals, for everyone as stable money worldwide.
These figures are declining right now in Europe plus the U.S., because several companies are canvassing those who own gold and silver coins, bullion, and jewelry to sell it for money; and as this recession continues, a growing number of gold and silver is disappearing into increasing industrial consumption and big depositories such as governments, banks, and ETF funds. Through Eugene Oregon we have had over 100 full page ads from my newspaper in the past year, offering to buy gold and silver in any form; as well as the almost continuous television ads who have occurred over almost a year in the past year, soliciting viewers to offer unwanted gold jewelry for money. This is causing a significant decline inside amount of gold and silver still available to individuals to be used as cash in future economic duress; although this recycled gold is mostly sequestered to maintain the high expense of gold, this recycled silver is sold mostly to industry, and producing depressed silver prices until it is actually consumed.
It is important to notice that the ratio of gold to silver that is certainly held by individuals is somewhere within 1-to 1 and 1-to-2.5 ounces of gold to ounces of silver. Therefore the barter value (money value) of the metals in a failed economy will likely be parity or near parity; investing in gold just for personal economic preservation an extremely unwise act. It truly is silly to stockpile a shelter with champagne, caviar, and frozen pastries, against a threat of war or natural disaster, when apple juice, peanut butter, and crackers will sustain you just as well, for a fraction from the cost. It is therefore silly to buy gold to insure your economic future when purchasing silver would give you between 20 and 50 times the worthiness at today's prices (gold around $1750 and silver around $35 per ounce each). Even for people playing the metals markets as investors or speculators, without concern or deliberation over using gold as future money, the price of gold relative to silver continue to change in favor of silver plus the cost of investing in gold will be needing more capital on the cheap profit relative to silver as time passes.
So when is it a fun time to buy silver or perhaps gold if you are still so inclined? Anytime between now along with a global depression, if you will presumably stand to maintain a flow of food clothes, shelter, purchase raw and finished commodities, pay wages, make loans, etc. Individuals, big businesses, small and large banks must have a stock of silver bullion where they can profit from while stabilizing their local economy with liquid barter money. It matters not what you pay to buy silver; today's market valuation of silver cannot be from the value it will have in a very global depression. If market conditions cause silver to drop in price to $10.00 per ounce it's a good deal, or if conditions lead it to rise to $100,00 per ounce its still plenty; obviously a lower price means that you can acquire more, which for folks should be at least 350 ounces (1-oz on a daily basis for expenses for starters year); a two year supply would be more prudent, since it gets you through two growing seasons where food production and preservation really should be recovering from the depression's initial shock for all forms of production.
The so-called free market thought of buying and selling any stock, bond, commodity or consumable is a fallacy. Open competition in energy and industrial commodities is a myth. Demand would not control supply; rather supply is been able to provide maximum profit regardless of how great or small demand may very well be at any given time. If consumers reduce their sales of gasoline by 10%, the provision of crude oil and delicate gasoline are reduced 10%. The oil companies just decrease the amount of oil they pump out of the ground and they reduce the amount of oil that is certainly refined into gasoline, to keep prices as high as the market industry will bear. Oil is a totally managed market lacking competition. Commodities like corn, soybeans, sugar, etc., can also be controlled in production to give maximum profits to people who process and distribute products made from these commodities; by managing the amount of acreage to be utilized to grow any specific crop. Government programs to keep farm land idle and unproductive, are ongoing to limit supply to consumers so that producers can increase sales in a managed market.
Gold and silver are similarly managed, nevertheless for different reasons. Beyond decorative accessories to our own persons and a limited sales of industrial uses, gold is a totally useless metal, which explains why most of it sits in vaults and safe-deposit boxes (caves). It serves no economic purpose outside personal decoration; it is no longer money. Gold is always to a large extent hoarded, and has always been hoarded by governments plus the controllers of business activities.
Anything that is hoarded serves no purpose but to enhance the wealth of the hoarder in a very controlled managed market where supply to markets is fixed by those hoarding gold to optimize the price a consumer is able to pay. Oil companies hoard coal and oil in the earth, government and banks hoard gold in vaults, and they all profit from the treating their hoard, with respect to consumption. The latest gimmick to hoard commodities is ETFs. Gold mining companies can such as supply gold in an ETF in relatively large volumes, at a price beneficial to both, and permit the ETF sell stock to speculators and use that income to buy and hoard the miners' gold gradually over time. That gold is managed in supply on the market and hoarded somewhere where it may definitely be confiscated when economic conditions both permit and require it be removed from the provision and demand activity of buyers or speculators and just be used to benefit the controllers of governments and business activities (banks).
Because of the continuous relationship of expense of all goods and services with regard to dollars, year in and year out, individuals are mesmerized into convinced that the dollar is stable in its purchasing power; when in fact the dollar's instability continues to erode everyone's wealth, except those that create and loan dollars at home interest rates that are higher than the interest rate of inflation. Take into account that the current Federal Reserve Note has lost no less than 98% of its purchasing power inside 98-year history of the Federal Reserve Private Banking Corporation; which might appear to be a sad tale if you think about that the primary responsibility written in the law that created this privately operated corporation was to keep a stable value to the dollar and maintain full employment like our citizens who want to work. The dollar will not be stable, has never been stable, and do not will be stable, because there's more profit for banks with mild continuous inflation; although the Federal Reserve Private Banking Corporation now admits it can't create jobs or economic problems that increase jobs; the government Reserve can only protect, preserve, and enrich the banks that own the Fed. Which i get a laugh away from the business channels in the media that report the rising prices of gold and silver coins as nearing or reaching record prices, succumbed U.S. dollars. They cannot seem to understand that gold have to go above $2400.00 per ounce now to have the same purchasing energy it had in 1980 if this reached more than $800.00 per ounce; and silver have to rise above $150.00 per ounce now to have the purchasing energy it had in 1980 if this reached over $50.00 per ounce. Gold at $1750.00 per ounce today is about 25% below its record price; and silver at $35.00 per ounce is a lot more than 70% below its record price. The dollar will not be stable and continually rising prices of everything, year in and year out, prove it.
Silver is a fantastic example of commodity management to protect the profitability of big banks. Unlike gold, silver is both an advert commodity and a consumer money. It has not been used as money per se since 1980, when many retail businesses were accepting silver as payment instead of paper dollars in the last big run up in gold and silver coins amidst the 1970's high inflation; silver will rear its head as cash in inflationary times; provided you will find there's large enough supply to aid bartering and displace fiat dollars. The large banks are very much concerned with the competition of silver as money and are generally actively supporting the removing of as much as they can from the possession of ordinary citizens. Whenever you have accelerating inflation, business activities can only be controlled by banks if everyone must use their instantly created fiat dollars at their profiteering interest levels. Obviously banks make profits off debt; a lot of that debt is long term at relatively fixed home interest rates. This represents fixed income for banks, which will be eroded by inflation once they cannot be rolled over into new loans at higher home interest rates. While accelerating inflation causes businesses and retailers to search to direct barter or stable replacement money to the fiat paper money that could be declining in purchasing power. Beyond direct barter, goods for goods, silver may be the only competition for Federal Reserve Notes to fulfill the role of greenbacks.
So control and taking out silver from the pockets of buyers is essential to controlling business activities during the upcoming try to escape inflation. The banks must force everyone to use their fiat money at their home interest rates to maintain control of all business activities from which they can profit. Hence this all activity in the past year advertising for anyone to sell their gold and silver coins to refiners where it might be concentrated into bullion and stored by banks in ETFs, or sold into industrial consumption. When there is a run up inside price of gold and silver you will find there's coincident increase by refiners to buy these metals, then your price falls, although the latest roundup of metals is consumed by ETFs, governments, and industry; then another round of price pumping removes more gold and silver coins from personal possession, until it will have insufficient gold and also silver to compete with Federal Reserve Notes as cash in a failed and hyper-inflating economy. But without silver to do something as a relatively stable currency in a depression involving hyper-inflation of Federal Reserve Notes, economic revitalization will likely be nearly impossible, because continually devaluing fiat dollars won't be trusted or exchanged for virtually every significant transactions and direct barter is just too big slow a process to significantly and quickly improve any economy.
Oh well, the song will soon stop; despite the fact that the banker seems to be have the only chair, that chair doesn't have a legs, so the game has to start over from scratch; i.e., candles, their hands, hard money, physical labor.
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Craig D. Hanks November 2011