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.
Considering the vast amount of information available to those wealthy
enough to be able to own gold, and the history of gold and silver as
money to be used for purchasing consumables; one wonders why companies,
banks, and persons of wealth, along with their financial advisors, are
so poorly informed about the impracticality of owning gold as a
potential emergency money for individuals and businesses; especially
considering the current very distorted relative value of gold to silver.
Since
I am more than sixty years of age I can reminisce that I grew up with
silver money in my pocket, though I do not ever recall even seeing any
gold money; and my parents, grandparents, and great grandparents all had
silver money in their pockets, nor did they ever speak of 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 used 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 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 purchase consumables is
incredibly silly, if not outright stupid.
Gold and silver have
been mined, in the most recent century, at a ratio of about 10-ounces of
silver for each 1-ounce of gold. In a hard currency economy where both
metals would only be used as money and all 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 at this time (Nov. 2011) continually traded
these metals in a range that is approximately 1-ounce of gold for
50-ounces of silver. In the past 20 years it has been as high as 1-ounce
of gold for 100-ounces of silver; and as low as 1-to-30.
It is
important for people purchasing gold and silver to question why this
market is so skewed. First off, gold and silver are not used as money in
the U.S. economy; nor does our government purchase or sell any
significant amount of these metals annually, except in the production of
non-monetary bullion coins. Consider that more than 50% of all gold
mined annually is stored in bars or stamped into investment coins by
several countries; while another large portion goes into jewelry and is
relatively easily recoverable back to bullion. The world has accumulated
more than 4.3 billion ounces of gold and the stock pile is growing
around 75-million ounces per year. Silver is a very different story; for
the past generation, more silver is consumed annually by industry than
is mined.
Even though mining has increased the annual production
of silver more than 50% in thirty years, worldwide industrial demand has
increased even more; such that the above ground stocks of silver in the
1970's was around 24 billion ounces and has declined to between 18 and
19 billion ounces today; a large portion of which is not easily
recoverable to bullion. Even if all the silver tied up 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 still less than 5-ounces
of silver available to each ounce of gold to serve as money. So 5-to-1
in quantity supports and affirms the current 50-to-1 price difference,
right?
Actually, there is a lot of missing information about gold
and silver. Because the market is always right, the 50-to-1 ratio has to
be correct at this time, in this economy; the law of supply and demand
can be manipulated, but it cannot be broken. Gold production is
constrained such that a great deal of the above ground gold is mined and
stored in a cave to cave sequestration by governments, banks, precious
metal investment companies, and ETFs; all hoarding a lot of gold and
some silver. In essence little new gold, relative to hoarded stockpiles,
is available to be owned by individuals as bullion, while essentially
all silver, both mine production and stockpiles is for sale to the
highest bidder for industrial consumption. Gold is artificially high in
price relative to its quantity above ground because of hoarding; which
is done to promote a high price and facilitate price control. The
markets in gold and silver are not free markets; supply and price are
manipulated to benefit governments, banks, and industries. A great deal
of newly mined silver is sold by miners at very low prices to benefit
industry, presumably to gain help from the financial markets in having
the gold market managed in such a way that prices are kept very high to
benefit miners; and to give a false wealth effect to governments and
banks that sequester gold. Considering that most of these large mining
companies are publicly owned; the dumping of silver at prices as low as
10% of the spot price seems to disparage their stockholders unless there
is a price benefit to their gold production side of the precious metal
market.
The cave-to-cave aspect of gold comes from the vast system
of caves made by miners to remove gold ore; refine a fraction of that
ore into gold bars; which are to a large extent bought by governments,
banks, and ETFs and immediately put back into concrete caves with thick
steel doors, to keep it locked away as a hoard, and not likely to ever
be used as money by citizens to purchase consumables. So if the 50-to-1
price ratio reflects the available amount of silver to gold, and if
there are 18-billion ounces of silver that could be made available for
exchange and consumption by markets, then there are only 360-million
ounces of gold available for exchange and consumption by the markets. At
least that is the quantity relationship supported by the lack of
information to the users, holders, and investors of gold and silver. But
this quantity relationship is false, since banks and governments have
sequestered a little over 2-billion ounces of gold (about half of the
mined gold), leaving 2-billion ounces or so to be held by individuals,
businesses, and ETFs; and since several billion ounces of silver are
sequestered in film, electronics, etc.; the amount of silver available
to individuals as bullion is about 4-billion ounces; giving us a ratio
of tradable
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