Wednesday, September 16, 2009

Silver and the Raw Deal

Gold closes today at it’s all time high, $1,020.20! Incredible, no?


What's incredible is that silver is no where near it's all time high. There's a couple of interesting points when one thinks about this.

1) There's a lot less silver in the world today then there was back in 1980 due to industrial demand burning through reserves, literally in some cases.
2) Investor demand as a percentage of total supply has skyrocketed.

So what's the difference today? I'd like to know myself. Perhaps some speculation is in order.

First off I'd have to say that back in 1980 gold had just recently been legalized to own. That's right, since 1933 until 1975 it was illegal for citizens to own gold. Silver on the other hand was/is still in circulation as money although Johnson had declared silver would no longer be used for monetary purposes due to silver shortages. That's right, shortages. That's for another time. What's important to think about is that silver was freshly thought of as money then, not an industrial metal (segue, if you gave someone a silver quarter today who believes that silver is not money I wonder if they'd reject it? They'd say it's make a great spoon or something and take it anyway, dorks).

So, what do we see after gold is legalized to own? It zooms up to $875 an ounce slightly surpassing the official value of gold compared to the US money supply. Neat huh? Silver also shoots up to the traditional historical ratio of about 16 to 1 in relation to gold. Soon thereafter as the world realizes that fiat currencies are here to stay both gold and silver fall out of favor with the masses and drop precipitously. Silver then evolves into a highly desired industrial metal and still is to this day.

I guess it's that simple then. Silver is more typically thought of as an industrial metal and not money although people will gladly accept silver quarters for spoons. I love logic.

Well after the PUMMELING that silver took last year I guess people fear owning it as much since if the market tanks again silver will get smashed again, right?

But hold on! Presently there's record investor demand. Also, the number of short positions on the CO(N)EX against silver is simply staggering. There's more open short positions than there's silver to back up the contracts with! Now that makes sense right? It's always legal to sell something you don't have.

Ah well. On and on I could go. But one thing is for sure: silver and gold have always been money and the world is currently realizing once again that it is. And slowly but surely those dollars, dinars and dongs will all flood back into the metals. And when they do even the industrialist will learn to appreciate silver for it's monetary qualities. At that point the price will be so high most won't "buy" it anyway. Silver is so cheap now it's practically free.

I remember the first time I bought silver from the Toledo Coin Exchange. I plopped some cash down on the counter and said, "Give me that much in silver". I actually felt bad. I felt like I was ripping someone off buy hey, they were selling it!

I've often wondered at what point I would stop buying silver. I think soon I may be put to the test!

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