a couple POS questions

Considering how energy intensive modern mining is, I wonder how tight the correlation is between oil and PM long term. Just like food can be seen as "condensed water", PM can be seen as "condensed oil".

 

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What years are more appropriate to the point? I explained, in detail, why I picked those years. I took care to make sure the numbers were honest ones as I checked several sources. If you have an issue about that method, then raise the issue about that methoad and we can discuss another set of years that would be more relevant and to your liking. Else, them Im'a feared, you are just complaining to be complaining.

 

No that isn't correct because the value of those items are still expressed in $s and not grains of Au. Prior to 1969, the value of Ag was still expressed directly in terms of the value of Au in terms of grains because the government was still making redemptions (locally for Ag and internationally for Au) of USD in for the metal. This doesn't exist now for obvious reasons. i.e. the unlimited printing of USD.

Furthermore people hold gold to preserve wealth being destroyed by money printing, lack of regulation in the finance industry, and low interest rates. At some point in the future, when that gold is redeemed, there is no guarantee they will use this wealth to purchase any of the items you mention.

 

But his point, a fair one in my eyes, is ALL commodities would be affected by money printing. If it takes half an ounce of gold to buy a bale of cotton today, more than likely it will take half an ounce of gold in the future regardless of what happens to the dollar. Same with oil, and there is a tighter correlation between oil and most other things since modern society produces most raw materials with oil. So, a barrel of oil most likely will be worth maybe 1/15th an ounce of gold regardless of currency markets. If oil went to $400 a barrel, I would expect gold to be around $6000 an ounce. Its not perfect since every commodity has its own market, but as a generalization its fair.

 

What else would they buy with it?

 

The difference is that you don't know, with those other commodities, what other factors might affect the future "rate" vs the USD. For example the value of cotton is subject to weather conditions, competition with other very similar commodities which can directly replace it, current fashions, etc. Not to mention, it has a shelf life. Oil is subject to huge amounts of political interference, military actions, etc, changes in technology, etc. It's hugely expensive to store, transport, and maintain.

There are perfectly good reasons to invest in these items, but because their primary purpose is not a hedge against currency, then the investor should be focused on the factors that will affect future price and wealth preservation due to currency collapse isn't one of them. Gold is extremely small by volume for the wealth it contains and it doesn't degrade sitting in a warehouse which makes it an excellent alternative to currency. This is why people, institutions, governments and central banks buy gold for that.

Aside from that, these types of arguments completely ignore the numbers that I posted above. Silver doesn't follow Gold which of course, validates what I've said here.

 

I can only speak for myself and I don't see where I would ever sell gold to buy silver. I might buy some silver because I also like coins and there are some pretty silver coins, but I wouldn't be deluding myself to think this is a poor man's gold. Too many concrete, very verifiable items tend to disprove it.

It took me 5 minutes to look up those numbers. (It took me considerably longer to format the message in a table to work on this forum.) The numbers tell an very inconvenient story to those who think there is some relationship between gold and silver, which, IMO is why they are now being ignored and instead we are talking about what people might buy with their gold in the future.

 

While I liked your table Fatima and appreciated you putting it together, I do not think it proves why we are talking about gold, nor prove that silver is not also a store of value, as is platinum and a few other metals. I think it shows each metal has its own market and can behave differently, but I am still sticking to my belief that long term there will be a relationship between oil and all PM, since incremental mining is dependent on the number. Like I said, I view PM in this light as "condensed oil" that is easy to store. Will ratios vary over time? Yeah, but that makes more of a case to hold a varied basket of metals more than proves one is superior. I would fully expect in an economic recovery, (and it will happen), for platinum to outperform gold in that period.

Its like the Spanish Inquisition, no one ever EXPECTS an economic recovery until it happens. I like to be a contrarian, so I have been preparing for a recovery for a couple of years. When times are good is when I like to prepare for a downturn. More money can be made riding bulls or bears, but I have never been very good at that timing, and simply prefer to place my bets on my 5 year view and let it ride.

Not trying to make anyone else believe me, but its my thoughts.

 

What I posted does not disprove that oil pricing and that if PMs have a relationship. I didn't even address this.

What I did post however was on the issue of the direct relationship between that of gold and silver and their roles in currency hedges. There is none and the use of ratios in regards to commodity pricing is folly at best. I also wished to point out that historical charts are meaningless as we move forward. The numbers prove this as well.

 

I like how your one year span proves your point but my one year and ten year spans prove nothing, it's cherry picking on both our parts....Fact is on a daily and hourly basis they track each the overwhelming majority of the time, that's 100% fact.

 

What your data proves is that when the dollar is not backed by gold that the correlation between gold and silver is less consistent. I would expect as much. However, as I've pointed out before the correlation has been very consistent since the year 2000 when the recent bull market began, so your last point is only valid in a vacuum.

Anybody who believes that money is not going to return to a gold standard may feel free to do so, but central bank buying and parabolic buying of gold in China begs to differ. We can pick our timelines to make whatever point we want, but the question is not what timeline is appropriate, but rather what situation is imminent. The timeframe without a metal backed currency is the anomaly in history, therefore if anything that is the timeframe I would be most apt to dismiss in my analysis, and if and when there is a return to a gold backed currency I would anticipate the relationship between gold and silver to revert to its behavior prior to 1971.

The reason why the gold standard was even capable of ending 40 years ago was because in 1832 silver was demonetized. Otherwise it would not have been possible on a bi-metal standard to swap one metal for paper currency outright. Silver was demonetized because the gold to silver ratio was fixed way back in 1791 by Alexander Hamilton shortly before implementing the first central bank of the US. A fixed GSR is not what the founding fathers intended, and its folly is that 'good money drives out the bad'. People will play the fixed ratio against the free market ratio to profit, and the bad money will disappear from circulation. This is why silver was a monetary metal, and should be again, with a floating ratio as was originally intended. If not silver, then some other metal that constitutes the definition of money. It was an unsustainable path, and I question whether Mr. Hamilton knew this, and whether it played a role in his duel with Aaron Burr.

 

Silver was not demonetized in 1832. It was still coined by the government into $s into the 1970s and silver certificate $s could be directly redeemed into physical silver until 1968.

In regards to the Founding Fathers, a fixed gold silver ratio is exactly what they wanted. The Coinage Act of 1792 absolutely defined the ratio:

SECTION 11. And be it further enacted, That the proportional value of gold to silver in all coins which shall by law be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals.​

This bill was signed into law by none other than George Washington who is of course, the definition of Founding Father. There is a further definition of the bill in terms of grains of silver to the $, and remained on the books until 1968. Until that time, you could take your silver certificate USD to the US Treasury and they would exchange it for this. (credit from another coin talk post) Notice the dates and language on the pak. i.e. In 1968 they were still doing USD/Silver exchanges in terms of the Coinage Act of 1792.




The dollar standard ended in 1971 because the Nixon technically declared a bankruptcy of the USD and told the other countries, "too bad". He was forced to do so lest all the gold in Ft. Knox and elsewhere, end up in France.

When this relationship ended, so did the relationship between silver and gold as priced in $s or any other currency.

(IMO, if you ever run into one of these, buy it.)

 

I disagree with both of you. Silver was demonetized in 1873 I believe, and its aftershocks gave rise to William Jennings Bryan's career.

Read more:

http://en.wikipedia.org/wiki/Free_Silver

Just because coins were made of silver did not make them on a silver standard. We strike zinc cents, are we on a zinc standard?

 

From a technical standard, yes, but zinc isn't worth much. However your retort fails because you didn't to put it into the proper historical context.

When currency was in terms of PM, the value was in the PM itself not the fact that it was a $. The $ only represented a convenient and very safe assay from the US government that your coin that it in fact, contained X amount of silver and gold. Nothing more, nothing less. You could have just as easily performed the transaction with a vial of silver grains, as long as the parties agreed that it contained what it said it contained. People have to be very careful when dragging up history, to understand the context in terms of that history.

As long as currency has a legal definition in terms of silver and gold, then it is monetized.

 

This. +1. I got the year wrong (the pitfalls of going strictly off of memory), but everything else I stand by

Back then since the money was only coins, not FRN's (sure silver certificates were intermediary), the metal content of the coins was the de facto monetary backing since the intrinsic value contained within the money itself played that role without the need for external backing like we have the need for today.

 

Did you read about the act of 1873? It is in "proper historical context". The definition of a dollar in a certain number of grains of silver was eliminated. You quoting the Act of 1792 does not mean it was still in effect. If you researched it you would find the number of grains distributed on redemption on a $1 silver certificate was no where near what the Act defined, and the little paperwork was completely wrong.

 

I never said the act was in full effect nor in effect at ail. I bought up that act to prove the government had established a legal ratio as far back as that. Of course the definition of the $ was changed over the years until it became completely fiat. But it didn't change this fact that silver & gold were directly tied to the currency and hence to each other until 1971. I've proven that in part above with the photos of the Silver redemption pak from the US Treasury.

This is of course straying from the fact that Silver and Gold, these days, are not related to each other because Silver's legal connections to the currency are now eliminated. It is a mistake to stock up as a currency hedge simply because this is the role of gold. Silver & Gold no longer have that connection. The history I gave over the last 40 years easily demonstrate this.

 

I mainly agree, but the silver pack was misleading since it referenced 1792 as the controlling act and it was not. Also, they only reason silver was given was because it was a SILVER certificate, not a US note or FRN. The US did not redeem currency for silver, they only redeemed silver certificates, because they were explicitly a promise for silver. I simply disagree silver was a monetary metal after 1873 legally. My view is silver was a commodity, (well suited for coinage), after 1873 legally in the US.

Agreed its off topic, I just wanted readers to be clear.

 

That was an official certificate from the US Treasury. I'm not sure what is deceiving about it. In regards to silver being a monetary metal, silver dollars were minted well into the 20th century and silver certificate dollars could only be issued in amounts that equaled the silver the US government had on hand. It's monetary metal during that period. However it's irrelevant as the point, is that it no longer is now. It hasn't been since 1968/71.

 

Silver in the position it is in now, buy. Silver below 35 buy at a faster rate. Silver @ under 30, back the truck up. Silver moves up to 40, buy a little. Silver over 45, buy Gold unless it over $1758, then buy Platinum. I try to find the best sitting metal that can be bought at spot with a little over, and at ,or under spot. The prices are out there you just have to find them. All part of what makes the market shaky at best, make the shakes benefit you. to make it work you have to keep a close eye on metals you don't even have so you can see the buying opportunities present themselves. PM is a waiting game and hoping it will move up. Nobody KNOWS when the next run will be so you just keep on stacking so when it does move you have the capitol to sell and turn profit. Plan on long term holding and don't sweat the small losses, just buy then to increase your sell out when the price goes up, I think we all KNOW this will happens and the spot on any metal will have it's day in glory. the days price is when I think is glory is listed below.

GOLD would be $2,400
Silver, get this $70
platinum 2,800
palladium 1,300

Not all of these will be in a sell, so when you sell one, buy the that has the best potential to move. I'm NOT talking day trading, this is long term with slow movement that you can make it work for you. The younger you are the more time you have use them. But don't neglect the money markets, most of them are sitting in a good buyers market now.