Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver's Achilles’ Heel

Commodities / Gold and Silver 2012 Jul 10, 2012 - 05:16 AM GMT

By: Dr_Jeff_Lewis

Commodities

Best Financial Markets Analysis ArticleIn the grand scheme of things, people have traditionally had more faith in silver as a currency than in paper fiat currencies.

Furthermore, since modern paper currencies are only backed by the creditworthiness of the authority issuing them, if that authority goes into default on its debt, the currency it issued could become virtually worthless.



Basically, in order for the fiat money system to keep going, more paper currency must be printed. Also, 'old money' like silver and gold must be kept at arm’s length, both literally and figuratively, by the use of propaganda.

Ultimately, a lack of confidence will force this grand paper experiment into default as the essentially flimsy physical reality underlying fiat currencies is gradually exposed to the public currently being duped by it.

Silver Shines When Defaults Seem More Likely


A major series of defaults seems increasingly likely, especially given the LIE-bor gate scandal and the sovereign debt crisis in Europe. Countries around the world are having their debt ratings downgraded as government spending remains unrestrained by fiscal responsibility.

Another factor is the increasingly public exposure of the silver market’s manipulation over the last few years. The price of silver has been kept artificially low by futures exchanges allowing short sellers to control whether or not physical delivery into a futures contract actually occurs.

Rather than actually having to deliver silver into a short futures contract, a government can simply print more money to pay for its losses should the price of silver futures rise.

Possible Default Scenarios
  
In the event of a substantial COMEX default, silver’s price would soar mostly because of the scarcity of the metal relative to the underlying demand for it and the greater confidence that investors have in it relative to paper assets.

Furthermore, the exchange would probably set limits on position sizes and price fluctuations. Trading might also be halted or a sellers-only market established.

This sort of default scenario would seriously erode confidence in such one-sided paper futures markets as a way of setting prices for intrinsically valuable physical commodities like silver.

Price discovery for precious metals might gradually move to a more physical-based valuation system. Nevertheless, the retail sector would surge, and the demand for physical silver would likely determine its market value, at least for a while.

One could expect to see long lines with people buying and selling silver at the retail level. Governments might also place restrictions on precious metal holdings to avoid seeing their paper currencies devalue as a loss of confidence in paper assets grows.
  
Even if a metals futures exchange default is not the event that triggers the final stages of a loss of confidence in fiat money, the reactionary blow off as metal prices are allowed to move closer to a fair value equilibrium price will unmask the great fragility that has lurked beneath the surface of the manipulated paper silver market all these years.

Silver Will Remain a Store of Value

Insufficient supplies of physical silver could mean that the metal may not "flow" enough to become a de-facto currency in a default scenario.

Basically, using physical silver as a currency has some drawbacks, which include:

  • An insufficient supply of above ground physical metal to cover massive currency circulation requirements
  • As demand grows, the price of silver as a commodity goes higher
  • It is consumed as an industrial and jewelers’ metal
  • Its market suffers from a lack of physical sellers
  • Low mobility relative to paper and electronic currency
  • Safe storage challenges

Nevertheless, silver does not need to circulate as currency within a country to be considered a form of money or to act as a store of value.

The fact remains that silver will continue to be a valuable, mobile, liquid, tradable and recognizable asset that is in short supply relative to its true underlying demand.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2012 Dr. Jeff Lewis- 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.


© 2005-2022 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