Silver and Gold as Currency Commodities
Wednesday December 04, 2013 14:00
Gold and silver have a 6000 year history for their use as a currency, and until the last century, the price of gold and silver maintained a healthy valuation ratio of 1 ounce of gold to every 15 ounces of silver.
This purchasing power ratio is strengthened by the fact that there are 17 ounces of silver for every 1 ounce of gold in the earth’s crust, although physical silver stocks have dwindled as the metal is used in a wide variety of industrial applications.
Historic Purchasing Power
It has long been said that an ounce of gold will buy a custom tailored men’s suit. In the 1930s, an ounce of gold cost $35, and a suit was nearly the same price.
Today, gold trades for just under $1300 and a custom suit does as well.
With silver, similar comparisons can be made. A US silver quarter that circulated before 1965, containing 90% silver, would still buy the equivalent amounts in terms of fuel and food.
While paper prices perform in parallel, manipulation has created an artificial ratio.
It is now a widely held conspiracy fact that the gold and silver futures markets (and likely the mining sector as well), are very well controlled by paper derivatives.
Paper, in the context of precious metals, refers to any derivative including futures, stocks, ETFs, pools, and any case where the physical is held under someone else’s control.
This would apply to traditional precious metal IRA accounts that store gold or silver in a depository. Arguably, overseas storage programs could be a gray area, depending on how important it is to have personal access.
Large concentrated positions in the futures markets enable price capping, artificial spoofing, and other coordinated, yet profitable actions.
Investors have a myriad of choices when buying. However, there is only one way to own silver: by buying physical metals. But true ownership is a measure of how much personal control is maintained. Futures market manipulation is not the only tactic used to manage prices.
As documented by GATA, world central banks surreptitiously lease gold into the market to artificially boost supply.
Of course, it is in the central bank’s interest to bid up prices corresponding to an expansion of their balance sheets and share price.
By keeping precious metals in performance control, the general population fails to see outward signs of inflation – at least for a while.
Money supply and inflation are two hidden, but critical, elements underlying the prices of silver long-term.
Short-term it is a completely managed affair, suiting the needs primarily of the largest banks, and secondarily the hedge-funds that trail the momentum created by the price controlling moves.
However, how you adjust for inflation is just as important as inflation itself.
Using dollars as the benchmark, the peak of gold and silver prices in the 1980s of $850 and $50 per ounce respectively, would be at least $2500 and $150 today using the consumer price index as calculated by the government.
These are conservative measurements. If calculations were based on the things people use and need, the adjustment would be much, much higher.
However, if you were to use the expansion of the money supply as inflation, today’s gold price should be at bare minimum $7,000, and as high as $14,000 if bank bailout promises are taken into consideration. Silver should be a minimum of $450 with a maximum of $900 per ounce.
However, should those price points be reached, gold and silver’s popularity as an investment will only increase, further stoking the fires of demand and increasing prices.Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.