Is Silver The New Gold?
Some perspectives on the oft-ignored "other" precious metal from David Rosenberg
Below we show the latest Commitment of Traders report and we show the net noncommercial long and short positions for a variety of asset classes. It struck us, especially as long-time gold bulls, what little attention silver gets even though the two precious metals are driven by similar developments over time.
The reality is that bullish sentiment on gold right now is infinitely higher than it is for silver; and keep in mind that while gold is the most malleable metal of all (the only metal that will look the same 1,000 years from now as it does today), silver pieces going all the way back to pre-biblical times were the primary medium-of-exchange (fiat paper currency, in the overall scheme of things, is a relatively new phenomenon and a convenient one for politically sensitive central banks). How well known is that up until 1968, silver certificates were redeemable for an equivalent amount of silver?
Since that time, these have been replaced by the Federal Reserve Notes declared as being official Legal Tender and backed by a printing press (now operated by none other than Ben Bernanke, who in four years has managed to create out of thin air 60% of the entire monetary base of the country since the United States was established 233 years ago). And how well known is it that the Coinage Act of 1965 removed all the silver from newly-minted quarters and dimes?
The difference between precious metals and fiat money is that the latter is not backed by any physical asset and as such has no intrinsic value whatsoever – a medium of exchange, perhaps, but backed by nothing except its ‘legal tender’ status. Keep that in mind when you flip through your wallet (the term 'dollar', as an aside, was not a made-in-U.S.A. development but in fact was adopted from the Spanish dollar which itself was a silver coin from a Bohemian mine).
Silver also is very likely the metal that has the most industrial uses from batteries to mirrors to video equipment, so it is more than just a store of value as gold is. The silver price is more tan 60% below its prior peaks even after the impressive rally of the past year. And when you take a look at where silver trades to gold, which is still flirting near record highs, it would have to triple to get to where gold was in relative terms at the peak back in January 1980 (gold was trading near $740/oz – more than 30% below where it is today – when silver was trading at its record peak back in January 1980 at $45/oz).
Relative to oil, silver could surge 4x from here and it still wouldn’t match the prior high in this relationship over three decades ago. Considering the problems that plague every major currency in the world, from the U.S. dollar, to the Yen, to the Euro, to sterling, and knowing from the McKinsey report that the need to monetize the surge in public debt will be required to cushion the economic blow from what will likely be another 5-6 years of deleveraging in the private sector, and given the much more stable supply outlook for silver (all the low-cost shallow mines on the planet have already been gutted) and where it trades relative to gold, not to mention what little attention the metals grabs and how under-owned it still appears to be, exposure to silver, whether it be in bars, coins, ETFs or mining companies, is likely going to be prove to be a very attractive investment in coming years.
So in a nutshell you can have hard assets, or you can just try to front-run robots. The latter still continues to be the winning strategy ever since Obama told Atari 2600 to buy, buy, buy back in March.