Why isn't silver going up.

You should never invest in something you aren't comfortable with. The way I look at it, silver follows gold, but isn't a clone.

 

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But it should be clear enough now that it doesn't. Even if you choose to simply discount everything else that I said about it, the numbers simply don't justify this position.

 

When I made my first purchase of gold and silver, gold was at $1013/oz and silver had just broken through the $10/oz level. My silver has grown by 400% and my gold by 80%. I don't necessarily see a downside in silver sufficient to stop buying it, even at $40+. Silver will become more rare because, unlike gold, silver is being industrially consumed. Almost all of the gold ever mined in history still exists. Not so silver. More than half of silver mined each year is used in manufacturing hundreds of different products. What remains is either stockpiled by firms that need silver for manufacturing or it is purchased by governments for minting coins or is stored and sold as bullion. It will become more rare in time. Frankly, I see a good upside on silver through the next two years. But I'm an amateur.

 

Maybe a more accurate description would be to say that silver inherits gold's monetary qualities, but it also inherits a lot more industrial qualities than gold. Historically silver follows gold when its monetary status kicks in. In cases like recently silver is being pulled in opposite directions, but it's built quite a strong base up to $41 now with everything else being quite volatile, and it appears to be following gold so far this week. I would also hesitate to use this one example as justification for discounting previous examples where they have moved together numerous times.

 

This is the very issue that puzzles me about another metal, mercury, which has shot up in value considerably in the past two years, from around $500 a barrel in Aug 2009 to $1300 per barrel now. Bearing in mind that due to its toxic nature its use has been in sharp decline over the past few decades (banned in several countries) and there are huge stores of surplus used mercury in various places in the US, then why suddenly has it gone through the roof in value?

My only thought is that it has to do with gold mining, demand for gold is on and going higher and higher, so more gold miners are buying up mercury left right and centre to use in the mining process?

 

Understand this only happens when governments define silver as such. There is no automatic inheritance. Historically in Western civilization, this has been when silver was defined as some sort of ratio to gold. The USA included. The legal definition of silver has yet to happen in the modern world and unless it does, don't expect silver to do it again. Will governments be forced to some sort of standard that involves silver? I have no idea and nobody else does either. This will first require the present world's governments to admit their currency has failed as they seek to redefine it.

In this country, the value of silver was first set by the USA government in by the Coinage Act of 1792 where silver was equal in value to 1/16 the same weight measure of gold. i.e. Ratio of 16:1. In 1834 the Congress lowered the ratio to 15:1. This is where silver got it's monetary value from, and it remained this way, more or less until the final silver certificate dollars were withdrawn in 1968. (Or rather the physical silver value was nullified. The notes themselves are numismatic items now.) After this point, and lacking any governmental definitions, silver has no relationship to the price of gold.

 

If gold is a monetary hedge against inflation then silver and all other commodities are inherently tied to gold. As these are the goods you are hedging to buy in the future. Therefore the amount of gold you pay for these commodities in the future should only represent the forces of supply and demand for that commodity at the time of exchange being that your gold investment removed the effects of monetary policy and inflation from the equation.

 

We look at the same numbers, but draw different conclusions. While gold was rising from $252 to $1800, silver was rising from a $5-6 level to $40. That is close enough for any investment decision you wish to make.

 

Mercury in used in the new light bulbs the environmentalists are trying to be legally required in Europe and the US. That is the new source of demand.

 

looks like it is having a nice pop up right now- it will be interesting to see if it holds or just slides back down.

 

AH! Yes I'd forgotten about those. That would explain a lot of it, as a lot of legislation is coming into force now or within the next ten years.

I wonder how long it will be before environmentalists demand these new bulbs are banned because of their potential hazard to the environment?

With regards to silver, I wonder how much the switch to digital cameras has affected the demand for the metal?

 

This is true, but other factors also affect pure commodities. If for instance, they create a new strain of corn that makes a stalk yield 20% more corn, then you can expect a price drop. If say, there is a disaster, such as the one this year in Japan where most of the rice crop was destroyed, then you will see an increase in the price of rice. Both of these movements are independent of what the currencies are doing.

I am restating what you very correctly said, but the point is that silver is being driven by other factors beyond the price of gold, just like the rice and corn examples above.

 

This has already happened in Europe and starting next year in the USA the laws will prevent people from buying most incandescents here as well. It's an example of the insane central planning of our government that has destroyed the economy.

Interestingly, a couple of states at least, are moving towards nullification of this federal law where they are working to pass laws that will allow incandescents to sell bulbs that are produced within the state. SC and Texas are examples. This is a distraction from the topic, but in the same token, SC is also one of the states that is moving to allow gold and silver to be used as legal tender within the state.

 

I'm betting on silver testing its highs again and then dropping back. May not win the bet, but my life savings is not on the line

 

The silver institute shows usage of silver. Photography is going down, some new applications going up, (solar cells), but this is government subsidy driven and I expect that usage to go back down. The biggest "usage" increase has been coins and investor demand the last few years. I have posted before how this "usage" isn't really usage, and makes me nervous for the market long term. I see added volatility from this inventory.

Chris

 

I can see your point, but I am going to have to respectfully disagree. I don't believe that intrinsic value is determined by the state. I believe it is determined by the people who are willing to place value on it, AKA the market which always inevitably seeks fair value regardless of the laws that impact it or even the manipulation we are seeing today. There isn't enough silver around for it to be used as a representation of how much money there is in existence today, but just because the government doesn't declare it as money doesn't mean there aren't enough people willing to use it as such.

Silver has been used as money throughout history in Rome, China, the US, and probably others for a reason. Understanding these reasons is what makes it good for such a purpose. Government declaring it as money is not a reason, it is a logical outcome based on those reasons, mainly being fungible, everlasting, and unable to be created out of thin air.

I would also add that silver had it's monetary value long before the US passed the laws you refer to, let alone was in existence. Judas sold Jesus out for 30 shekels. I think you are putting the cart before the horse with your line of thinking. There have been times in history where silver was worth more than gold in Egypt. I'm not saying that's what it should be, or even that 15:1 is a perfect ratio, but that is determined by the people willing to pay for it, not the government (in a free market).

 

I collect ancient coins and I know the reason silver and gold were used for them. It is simply that they were available metals, (most metals we have today were unknown in pure forms to the ancient world), and were in enough supply to allow coinage, but weren't common enough to lose their value.

That's it really. Had platinum been known and enough around it would have been used as coinage as well, same with palladium, aluminum, molybdenum, etc etc. There simply is not a lot of easy to smelt metals with somewhat limited supply to choose from. Only other alternatives were copper, iron, tin, and lead. All of these at times were also used for coinage, but mostly found to be too common to be valuable in a small form.

There is nothing magical, mystical, about these metals, and God did not hand them down dictating only these are "money". Its simply what was available and most easily used as a medium of exchange. Their small size but relatively high trade value simply made them most practical.

Chris

 

I would agree with you that all fungible metals are worthy of monetary status, and not all of them are treated as such. So this doesn't make gold and silver special in that regard, but what does make them special is that due to the circumstances you've described they are considered monetary metals by people at large, even if it's all just a shared fantasy (not unlike the fiat dollars we put our faith in).

 

Yes sir, I would consider that a fair statement. They are, because of circumstances, seen by the general public as monetary metals.

 

In the Christian Bible, the book of God (at least one of them), gold is specifically mentioned many times as a sign of wealth and given to man to be used as a currency. There are many warnings that advise men not to worship it because of this. Finally, one of the signs of "the beast's" arrival on the Earth and the coming end days is the forgoing of this metal to be replaced by a world currency marked with the sign of the beast.