If there has been one main thing that I have been pushing on this blog, it has been get out of ALL paper assets and into real assets. You may have not felt it over the past month, but the markets are listening. I wrote on July 24th in Another Silver Drive By Shooting Coming? that we were at a key moment where the dollar was poised to break down and that Gold and Silver were about to explode. This idea added to the debt ceiling talks and the opening of the Hong Kong Mercantile Exchange and that gave me the feeling something BIG was going to happen. I thought with the mass shooting in Norway we were going to get another silver drive by shooting like we saw after the OBL buried at sea lie. What that feeling turned out to be was a massive shift out of paper assets into real assets.
Gold has been on fire versus the S&P 500, the Dow and the 10-Year Treasury. This action says to me that very big money like China, South Korea, Mexico, Hugo Chavez and massive funds are moving huge money into real assets and out of paper assets. I believe that this “smart” money finally sees the futility of owning paper assets with a US and European governments content on being the spender of last resort and a Fed and ECB willing to be the lender of last resort. Couple this with an ever slowing economy, a double dip in the housing market and the inevitability of QE3, owning paper assets is suicide.
I wrote in my article 10Reasons Why Gold is the Gut Reaction… that when people first buy real assets, they tend to go to gold first. I believe all of these big guys piled into gold, but this will spread throughout all commodities soon. This action is also very significant because the 4 markets mentioned above are huge in terms of the amount of money it would take to move the markets as much as we have seen in the past month.
If you missed that huge move between gold and the major paper market, don’t worry. The major rush of humanity out of a mathematically inevitable collapse of the dollar, the world’s currencies and markets will send all real assets to the unprecedented heights. I believe that silver is going to do phenomenally well relative to not only all paper assets but even against gold. I think there is a strong case that can be made that we will go below the 1:16 or 1:10 ratio, possibly all the way down to a 1:1 gold to silver ratio.
(Please note that I do not play with the fun game of guessing the dollar price of gold or silver. While it is fun to throw out numbers like $10,000 gold or $1,000 silver, the reality is that I do not care what the dollar price of silver is, ever. I am investing in silver because the dollar is going to become useless as a Confederate Note. I would not consider selling one ounce before the collapse of the dollar. Whatever the new monetary paradigm is created out of the ashes of the dollar, whether it is a new dollar or a gold or silver currency, there will be tremendous opportunities to by thoroughly inexpensive income producing assets for nothing. I will hold until that day. Read: Who Cares About Your Bet, If The Casino Is Being Demolished?!)
If you cannot or should not use the dollar as your measuring stick for your assets, then the best way for determining relative value is ratio investing. If you look throughout history there is the 1:1 Dow to Gold ratio during the 1980 peak of gold. The one that I like the most for silver is the 1/1oth of an ounce of silver for a day’s wage for hard human labor. (Read: Honest Work For Honest Silver Pay or Retire Off Of $30,000) The gold to silver ratio is probably the best known ratio and it currently is at 1:43. I know that by any logical sense that silver is extremely undervalued relative to gold, besides any other factors that are extremely bullish on silver. (Read: The Ultimate Silver Investor.)
1. The historical monetary ratio of gold to silver is 1:16 to 1:12, which means that silver should rise 200%+ faster than gold.
2. The natural mining ratio coming out of the Earth of gold to silver is 1:10, which means that silver should rise 350% faster than gold.
3. The ratio of gold to silver at the CRIMEX is 1:9. There is 11,575,304 ounces in total registered and eligible Gold holdings and 105,694,470 ounces in total registered and eligible silver holdings. (In late 2008 there was approximately 3,000,000 ounces of Registered gold at the CRIMEX and 85,000,000 ounces of registered silver, that was a 1:28 GSR back then.)
4. If we understand that all of the gold ever mined has been treasured by humanity as a truly precious metal, while silver has been used and abused as an industrial metal, this Gold to Silver ratio must be lower than either of the above ratios. Most silver is used in such small quantities that it is uneconomical to try to recycle a few grams out of an old cell phone.
5. All of the major stockpiles of silver that all of humanity ever mined are gone. The US government had 5 billion ounces of silver in 1950. Only 29 million ounces in the Registered vaults of the CRIMEX.
6. Silver is second only to oil for the amount of uses of any commodity. It is the indispensable metal with so many vital uses. As we move from a carbon economy into a new technological economy, silver may become more vital than oil to the next paradigm with its uses in solar, tech and medical industries. These industries are incredibly profitable industries and they use such small quantities of metal that the price is unimportant. This demand for industrial use makes silver more important than gold.
7. Silver has started to catch investment demand, but so far most of the money has gone into paper derivatives of silver like SLV, futures or mining stocks. At some point investors are not going to settle for anything less than the real physical metal. This should have a dramatic effect on the price of silver due to all of the blatant price manipulation pointed out by Andrew MacGuire. He and others have claimed that there are as much as 100 to 1 paper ounces of gold and silver traded for every physical ounce of gold and silver available. The day they can’t deliver there will be a mad rush to claim the real metal from industrial users and investors alike.
8. Silver has naturally been used as money more times and more often than gold. In a world about to lose faith in all paper currencies, silver will once again find a unlimited demand to be used as money once again. This demand on top of the investment and industrial demands will be a powerful force on the metal that gold simply does not have. (Read: The 3 Demands of Silver.)
9. There is already a 1:1 ratio of dollars invested in gold and silver in Sprott Asset Management , GoldMoney and the US Mint. The 1:43 ratio we currently have cannot sustain that much of a dollar demand difference, without coming closer to 1:1.
10. The 1:1 Gold to Silver Ratio has happened before.
“For the first time in history, silver coin, of the leading nations of Europe sold at a higher price than gold coin. This of course does not mean that silver is more valuable than gold, merely a silver dollar or shilling is worth more than a gold dollar or shilling.”
Silver the World Sensation in 1919-1920
January 24th, 1920
“Are the New York financiers living up to their claims of honesty that they made
so vociferously in 1896, or are they paying their debts in a cheap gold dollar?’.’ asked Mr. Bryan
the other day when the bullion value of a silver dollar had soared beyond the bullion value of
a gold dollar.”
The commoner. (Lincoln, Neb.) December 01, 1919
“With the bullion in a silver dollar worth five cents more than bullion in a gold dollar the cross of gold does not look so yellow and the crown not so thorny as it was”
Silver coinage throughout the world is worth more at bullion value than the par value of gold coin. For instance, 5,900 British shilling coins contain just 1,000 Troy ounces pure silver, but are worth 6,929 shillings at the market price of 77 pence for British silver bullion. Over 1,000
shillings is the premium on the market value of 1,000 ounces of pure silver over the coin value in British coinage. The 5,900 shilling coins were worth 346 in the silver bullion market, and only 295 at par or gold value of 295 in gold sovereigns or in gold bullion;…
Mohave County miner and our mineral wealth. (Kingman, Ariz.) January 24, 1920, Source
William Jennings Bryan:
“I’m too much perplexed by the news of the day. The morning papers announce that
the bullion In a silver dollar Is now worth five cents more than the bullion in a gold dollar.
The shock upsets me. I am not able to speak with composure. My thoughts insist on running
back to 1896, when the self appointed champions of an honest dollar vociferously declared
that their consciences would not allow them to pay their debts In any but the best money. I
am patiently waiting for tho afternoon papers to learn whether these men are paying their
debts today In silver dollars at a premium or whether they are using the cheap gold dollar
for liquidation purposes. If I find that they are using gold coin, now five cents below tho
silver equivalent, I shall suggest the appointment of a congressional committee on conscience
to ascertain why these men who used to profess so highest standard of patriotism and honor,
have fallen from grace….”
The commoner. (Lincoln, Neb.)December 01, 1919,
“For a silver mine today is more valuable than a gold mine” (Source.)
The State of the Union by Archer Wall Douglas
The Independent April/May/June 1920
11. Finally, the USGS said that silver has the very real possibility of becoming the first element on the periodic table to become extinct by 2020. That is in 9 years! That is less than 9/11 ago. This means that unless there is a massive revaluation of silver and we keep consuming silver at this pace, there will not be any silver left. This alone should make silver rise to unprecedented heights. (Read:The Ultimate Silver Investor for more info on silver.)