Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Silver Is Not Real Money

Commodities / Gold and Silver 2016 Nov 21, 2016 - 12:05 PM GMT

By: Kelsey_Williams

Commodities

Is silver real money?  I don’t think so.  But I know that my proclamation will likely draw vociferous contradictions  from others who consider themselves “hard-money advocates”.

That’s okay.  Let’s look at the facts.    And in order to be consistent with the introduction of my companion article GOLD IS REAL MONEY, let’s start similarly here.  In this case though, I will list what silver is rather than what it is not.  Silver is:


  •  an industrial commodity
  • a semi-precious metal
  • a possible investment

Gold is MONEY.  Silver is an industrial COMMODITY which has been used at times as money.

Silver is used in batteries, dentistry, photography, medicine, semiconductors, nuclear reactors, etc.  Also, it is highly malleable (as is gold) but it has several characteristics which detract from and limit its use as money:

  • it tarnishes easily and its use in coinage results in a higher amount of visible/actual wear
  • it is in reasonably plentiful supply (not nearly as scarce as gold, nor as beautiful)
  • its value is subject to wide (sometimes ridiculously so) changes based on economic conditions and speculation.

“The Federal Reserve Bank of the United States was established in 1913.  At that time the US dollar was fully convertible into gold at a rate of (roughly) $20.00 to the ounce.  You could exchange paper currency of twenty dollars for on ounce of gold in coin form whose dollar value was stamped on the coin.  And the paper dollars had a statement printed on them which stated that they were convertible/exchangeable into equivalent amounts of gold.”

At that same time the US dollar was also exchangeable and convertible into silver at $1.29 to the ounce.  The seemingly odd number was based on the silver content of .77 ounces in a US silver dollar ($1.29 x .77 ounces = $1.00).

In the intervening one hundred years, gold’s value as measured in continually depreciating US paper dollars is up sixty times ($1210/oz divided by $20/oz = 60).  Silver’s value, however, as measured in the same depreciating US paper dollars is up only fourteen times ($17/oz divided by $1.29/oz = 13).

The US dollar has lost ninety-eight percent of its purchasing power since 1913. In other words, it takes (generally speaking) FIFTY times as many paper dollars today to purchase comparable amounts of similar goods and services you could have purchased in 1913.  The sixty fold increase in gold’s US dollar price compensates quite well for the decline in US dollar purchasing power.  The thirteen fold increase in silver’s US dollar price clearly does not.

For silver (or anything else) to be considered real money, it must be a store of value. According to Investopedia, a store of value is a “form of wealth that maintains its value without depreciating”.  In this case, being a store of value means it must at least match inversely the decline in purchasing power of the US dollar.  For this to be so, silver’s current value needs to be at least US$64.00/oz.  It isn’t even reasonably close to that benchmark.

It is true that there have been a couple of times (1980, 2011) when silver reached a price level of approximately $US50.00/oz.  But both of these occasions were the result of speculative excess and were short-lived.

The Gold/Silver Ratio 

As far back as the early 1970s, when I purchased my first gold and silver coins, people were talking about the gold/silver ratio.  Of course, just as today, there were expectations that the ratio was ‘destined’ to return to the level of 16 to 1 ($20.67 divided by $1.29) which existed one hundred years ago.

There is no fundamental reason which justifies any particular ratio between gold and silver.  The gold/silver ratio that existed a century ago was more the result of political influence regarding the specific fixed price of silver per ounce.

The origins of the “political persuasion” involved came from the western mining states.  And that fixed price was higher than the actual market price. Thus, in actual effect, silver was one of the first commodities to benefit from government price support.  This was in the early 1900s, before the depression, and before New Deal.

Whatever the reasoning or justification behind the specific fixed price, all we need to know is what has happened since.  Meaning, what has happened to the purchasing power of silver, gold, and the US dollar.

In my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold , I discussed the price history of the three items listed compared to the US dollar.  Gold over the past century has maintained its value/purchasing power and the US dollar has not.  If we do a similar price comparison of silver, we find that it does not maintain its purchasing power over time.  Hence, it is not a store of value. Since it is not a store of value, it cannot be real money.

Does that mean silver can’t or shouldn’t be used as money?  No, of course not. For one thing it is certainly a better choice than paper currency.  And its use as money is evident throughout history.  Two of the most recent examples are US silver coinage and British Pound Sterling.  Nevertheless, silver’s role as money will likely (and should) be secondary to gold.  In any case, it will not change what history has shown to be true.  Silver is a commodity – with industrial uses primarily and a sometimes secondary role as money.

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2016 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules