Silver: Once And Future Money

Authored by James Rickards via The Daily Reckoning,

The Roman Republic and the later Roman Empire had gold coins called the aureus and solidus, but they also minted a popular silver coin called the denarius. One denarius was the daily wage for unskilled labor and Roman soldiers.

Of course, in the late Empire, the aureus, solidus and denarius were all debased by mixing the gold and silver with base metals. The decline of the Roman Empire went hand in hand with the decline of sound money.

In the early ninth century AD, Charlemagne greatly expanded silver coinage to compensate for a shortage of gold. This was successful in stimulating the economy of the predecessor of the Holy Roman Empire. In a sense, Charlemagne was the inventor of quantitative easing over 1,000 years ago. Silver was his preferred form of money.

Under the U.S. Coinage Act of 1792, both gold and silver coins were legal tender in the U.S. From 1794 to 1935, the U.S. Mint issued “silver dollars” in various designs. These were widely circulated and used as money by everyday Americans. The American dollar was legally defined as one ounce of silver.

The American silver dollar of the late eighteenth century was a copy of the earlier Spanish Real de a ocho minted by the Spanish Empire beginning in the late sixteenth century. The English name for the Spanish coin was the “piece of eight,” (ocho is the Spanish world for “eight”) because the coin could easily be divided into one-eighth pieces.

Until 2001 stock prices on the New York Stock Exchange were quoted in eighths and sixteenths based on the original Spanish silver coin and its one-eight sections.

Until 1935 U.S. silver coins were 90% pure silver with 10% copper alloy added for durability. After the U.S. Coinage Act of 1965, the silver content of half-dollars, quarters and dimes was reduced from 90% to 40% due to rising price of silver and hoarding by citizens who prized the valuable silver content of the older coins.

The new law signed by President Johnson in 1965 marked the end of true silver coinage by the U.S. Other legislation in 1968 ended the redeemability of old “silver certificates” (paper Treasury notes) for silver bullion.

Thereafter, U.S. coinage consisted of base metals and paper money that was not convertible into silver; (gold convertibility had already ended in 1933).

Let’s hope that the U.S. is not following in the footsteps of the Roman Empire in terms of a political decline coinciding with the substitution of base metals for true gold and silver coinage.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180116_silver.png

In 1986, the U.S. reintroduced silver coinage with a .999 pure silver one-ounce coin called the American Silver Eagle. However, this is not legal tender although it does carry a “one dollar” face value. The silver eagle is a bullion coin prized by investors and collectors for its silver content. But it is not money.

Who in their right mind would pay a full ounce of silver for goods or services worth only a buck?

In short, silver is as much a monetary metal as gold, and has just as good a pedigree when it comes to use in coinage. Silver has supported the economies of empires, kingdoms and nation states throughout history.

It should come as no surprise that percentage increases and decreases in silver and gold prices denominated in dollars are closely correlated.

Silver is more volatile than gold and is more difficult to analyze because it has far more industrial applications than gold. Silver is useful in engines, electronics and coatings.

Interestingly, gold is used very little other than as money in bullion form. Gold has some highly specialized uses for coating and ultra-thin wires, but these are a very small part of the gold market.

Both gold and silver are used extensively in jewelry. I consider jewelry to be “wearable wealth” and akin to bullion rather than a separate market segment.

Because silver has more industrial uses than gold, the price can rise or fall based on the business cycle independent of monetary considerations. However, over long periods of time, monetary and bullion aspects tend to dominate industrial uses and silver closely tracks its close cousin gold in dollar terms.

While gold and silver prices have a high correlation, the correlation is not perfect. There are times where gold outperforms silver and vice versa. Right now we are in a sweet spot for silver.

Gold is performing well, and silver is performing even better!

 

https://www.zerohedge.com/sites/default/files/inline-images/20180116_silver1.png

The latest data is telling me that silver prices are set to rally. This conclusion is based in part on a bull market thesis for gold.

Gold staged an historic rally from 1999 to 2011, from about $250 per ounce to $1,900 per ounce, a gain of about 900% in that twelve-year span. Since then, gold prices fell in a 50% retracement (using the 1999 base) and bottomed at around $1,050 per ounce in December 2015.

Secular bull and bear market tops and bottoms are difficult to see in real time, but they become apparent with hindsight. Gold gained over 23% in 2016-2017. From the perspective of early 2018, it is clear than the gold bear market ended over two years ago and a new multi-year secular bull market has begun.

Silver is not only along for the ride, it is showing even better performance than gold, albeit with greater volatility. Both the gold and silver rallies are based on a combination of supply/demand fundamentals, geopolitical pressures creating safe haven demand, and increasing inflation expectations as confidence in central banking and fiat money erodes.

In addition, silver has an excellent technical set-up right now. Precious metals analyst Samson Li writing in Thomson Reuters on January 2, 2018 offers this insight in the current technical trading position for silver:

Technically, silver is ripe for a major breakout to the upside in 2018. The CFTC figures Managed Money positions show that COMEX silver has been in a net short for three straight weeks since 12th December. This is not unheard of but is relatively rare for silver; the last time COMEX silver was net short was between the end of June and the first week of August 2015.

As investment sentiment can swing from one extreme to another, and given silver’s innate volatility, this net short position should point to the possibility of a sharp short-covering rally. Looking back at the corresponding period in 2015, silver price was trading at $15.61/oz on the 7th July, and it was the third consecutive week recording a net short position. Approximately a year later, silver was trading over $20/oz in July 2016…

[T]he current poor sentiment does suggest that silver could be one of the better performing precious metals in 2018, barring any crisis that could trump most of the commodities but gold.

The good news is that this secular rally in silver is in its early days. Recent gains will be sustained and amplified in the months and years to come.

Silver will outperform gold in the short-run, and shares in well-managed silver mining companies will do even better than silver.

Comments

J S Bach zorba THE GREEK Tue, 01/16/2018 - 22:18 Permalink

What is flabbergasting to me is not only the high ratio of silver to gold (1-to-77), but how its price in fiat dollars is kept so low with all of its industrial uses.  The demand in batteries, solar panels and all kinds of other up-and-coming high-tech fields is astonishing.  Yet, it remains at $17.

I, too, believe its trading power will rise substantially in the near future, but not solely for monetary reasons.

In reply to by zorba THE GREEK

Mallus Darkblade J S Bach Tue, 01/16/2018 - 22:26 Permalink

Silver is also used in circuits, dentistry, medicine, jewelry & hundreds of other applications:

http://www.silvercoins.com/uses-of-silver/

 

When you look at the amount of physical silver vs other types of "real money" & debt/derivatives it's amazing that it's still only $17 /ounce

http://money.visualcapitalist.com/worlds-money-markets-one-visualizatio… 

 

Based on the dollar to silver ration it should be around $736 /ounce, which makes more sense to me:

http://www.usdebtclock.org/

In reply to by J S Bach

The_merovingian cheka Wed, 01/17/2018 - 03:47 Permalink

I’ve started buying some gold again (the last time I bought some was in 2005 and sold in 2011). The reason is simple, Gold is 5% of my diversified portfolio. Its main value to me is that it is an uncorrelated asset class (and so is Bitcoin). Gold has formed a nice base since the bubble popped in 2011. God knows when it will take off again, the only thing I know is that I will own some when it happens.

In reply to by cheka

Maestro Maestro J S Bach Wed, 01/17/2018 - 04:45 Permalink

The silver price is kept low by CHINA and RUSSIA through their collusion with Western bankers.

China, like Russia, is not pro-gold in reality and acts in collusion with the BIS, IMF, COMEX, and LBMA to suppress the price of gold.  When gold goes up in price, it will be against the will of the Chinese, the Russians and the Indians.

The BRICs are all IMF member countries and are thus forbidden to monetize gold, or link their currencies to gold, or use gold as a trading or exchange mechanism:

http://m.beforeitsnews.com/silver/2016/04/how-the-imf-forbids-the-use-o…

 

http://www.24hgold.com/english/news-gold-silver-why-does-the-imf-prohib…

 

India recently collaborated with Western bankers and following the West's instructions, temporarily destroyed the purchasing power of its own Indian population by demonetizing physical cash, under the guise of eliminating tax evasion and cash-only criminal activity.  This has had the effect of crashing the gold price by temporarily removing the Indians from the gold market, exactly when the Trump inauguration lit a fire under the gold price.  

 

The Russians never abstained from using dollars even at the time of the communist USSR!  If they did not demand gold for their oil during the Cold War, why would the Russians do it now when the Russian central bank is owned and controlled by the City of London banking establishment since the creation of the new Russian Constitution under Yeltsin?  The Russians are forbidden to issue their own currency the Ruble without permission from Western bankers and the Russians can only buy US Treasuries with the dollars they get for their oil, not gold.  There are more dollar assets than Rubles in Russia:  

 

http://anonhq.com/checkmate-central-bank-russia/

 

http://www.pravdareport.com/russia/economics/30-12-2014/129431-usa_russ…

 

The gold price would have skyrocketed if the Russians and the Chinese were buying gold hand over fist as alleged.  Why do you think that Western bankers would give gold away at or below cost to their purported enemies?

 

Unless they were not enemies in reality, and just partners playing good cop, bad cop for the purposes of fooling and manipulating their unsuspecting respective populations?

 

http://www.mygen.com/users/ufo/Mao_was_a_Yale_Man_2.html

 

Why do the Russians never ask the Americans to leave Syria where the Americans are illegal invaders under international law?  Why did the Russians never prevent the Israelis from attacking their allies the Syrians?

 

The Shanghai Gold Exchange is a fraud designed to backstop and bestow legitimacy to the fraudulent COMEX "discovered" gold price.  Goldman Sachs and JPM never could have manipulated the gold and silver prices lower without active Chinese collaboration.  That the Shanghai Gold Exchange is a physical only market is a LIE:

 

https://www.sprottmoney.com/blog/the-new-shanghai-gold-exchange-does-an…

 

The Chinese government defrauded and stole from their own Chinese citizens by encouraging them to buy gold at the top.  The Chinese bankers then colluded with JPM and Goldman Sachs to crash the gold and silver prices.  Large amounts of physical silver were leased out and sold into the physical markets by the Chinese authorities as well:

 

http://www.silver-investor.com/charlessavoie/cs_july04.htm

 

http://m.digitaljournal.com/article/279166

 

http://www.dnaindia.com/money/column-china-urges-citizens-to-buy-gold-a…

 

Do not forget:  It's the international ruling classes against the common folk.  That's the real meaning of globalism.

 

 

In reply to by J S Bach

Cloud9.5 J S Bach Wed, 01/17/2018 - 07:50 Permalink

I read an interesting hypothesis put out by Theodore Butler in his Ten Year Deal essay.  The premise is that when J.P. Morgan took over the collapsing Bear Stearns it was cut a deal by the regulatory agencies that allowed it to manipulate the price of silver for a decade.  Bear had been the biggest short seller in the COMEX. The price of silver should have skyrocketed with the Bear’s collapse.  J.P. took over those short positions and kept the price of silver down.  During that ten year period, J.P. took over the position as the largest short seller in the COMEX while at the same time it accumulated 675 million ounces of silver on the cheap.  Good old J.P. has been stocking up on Constitutional money while the herd has divested itself.

What appears to be pure brilliance often times is nothing more than chicanery.

In reply to by J S Bach

OverTheHedge SuperRay Wed, 01/17/2018 - 05:47 Permalink

He proved that to us at the top of the comments. Three fingers indeed!

(It is not clear, this being the new improved comments section, but is your comment in reply to Zorba's original philosophical treatise at the top? If so, it's come a long way down, to languish here in slightly illogical solitude. Hope I helped.)

In reply to by SuperRay

Increasingly Annoyed Ahmeexnal Tue, 01/16/2018 - 23:35 Permalink

Silver vs. Bitcoin

Power outage. Cell towers down. Blizzard, Hurricane, EMP, Other Fragilenet problems, whatever. 3 days later try to go buy some food, water or shelter with bitcoins. Or even cash for that matter. The bitcoin guy gets a sad story about policy and the cash guy gets squeezed for more cash.

Flash a Silver Dollar to the grocer and you're going home with some food. The guy see's the Silver and wants it. It doesn't matter what the exchange rate is even. He just wants it and if he can get it by doing an easy task of getting you the beef, he will do that.

How many places are ever going to accept vaporware like bitcoin in the outskirts of, say, US-centrically; downtown Baltimore in the middle of row housing, Nome AK in the middle of the wilderness, anywhere in Utah ?  

Like Tulips, bitcoins have little value except to eclectic groups of speculators.

I'm coining ( pun intended ) a term here for them : bitshits

Rhymes with Dipshits.

Definition of a Bitshit : Someone who wants to buy something and has to use an electronic device to pay for it.

Might as well rant about self driving cars too while I am at it. Self driving cars will be on the road until the first major Civil lawsuit for punitive damages is won. Then it will get real quiet.

Tesla, et al. Space, Electric Cars, Solar. Short time-frame answers to long time-frame problems. There, I said it. That being done, enough said. Bubble.com for now. If they hang in there after crashing, maybe some money to be made.

In reply to by Ahmeexnal

Food Loaf Junkie syzygysus Wed, 01/17/2018 - 06:28 Permalink

Unfortunately I am beginning to think you are correct.  The actual knowledge level of the average under 40 is appalling.  They have no knowledge of history or why things work.  They can't do math or make change without a video screen to stare at.  I fear the collapse will be rougher and longer than I first imagined.  The survival rate will be very low.

In reply to by syzygysus

B190769Sonny syzygysus Wed, 01/17/2018 - 08:57 Permalink

If (When) there is a major meltdown of the dollar, there will be a rush to buy food.  Once the trucks stop rolling into Walmart and Kroger, the shelves will be bare within 3 days.  Gold and Silver will be a stored value to buy from farmers.  At the current pace of government spending and the increase in interest rates, by 2026 the interest on the US debt will exceed 50% of the total revenue collected by the IRS.   

In reply to by syzygysus

superyankee Ahmeexnal Tue, 01/16/2018 - 23:48 Permalink

“Let’s hope that the U.S. is not following in the footsteps of the Roman Empire in terms of a political decline coinciding with the substitution of base metals for true gold and silver coinage.”

 

Right... I would sure hate to see a political decline coinciding with monetary debasement. Hopefully that doesn’t happen here.

In reply to by Ahmeexnal

el buitre Ahmeexnal Wed, 01/17/2018 - 05:20 Permalink

I wonder if there is any connection between globalist scumbag Jim Rickards' article and the other article on ZH by Simon Black that JPM is cornering the silver phyz market to a much greater degree than the Hunt Bros in the 80's.  In my opinion silver will "go to the moon," based on its irreplaceable use in zero point energy devices, suppressed for decades but about to break out shortly. Hopefully Jaime Demon will die by a silver bullet.  Where is the Lone Ranger when you need him?

In reply to by Ahmeexnal