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Gold to hit $2400, Silver to hit $150 to have 1980′s purchasing power

The decade long flight of wealth from fiat currencies and naked stocks, to gold, as a safe haven to guard against economic chaos and worldwide depression, is a curious aberration of market speculation.

Considering the vast amount of information available to those wealthy enough to be able to own gold, and the history of gold and silver as money to be used for purchasing consumables; one wonders why companies, banks, and persons of wealth, along with their financial advisors, are so poorly informed about the impracticality of owning gold as a potential emergency money for individuals and businesses; especially considering the current very distorted relative value of gold to silver.

Since I am more than sixty years of age I can reminisce that I grew up with silver money in my pocket, though I do not ever recall even seeing any gold money; and my parents, grandparents, and great grandparents all had silver money in their pockets, nor did they ever speak of having or using gold as money.

While silver was domestic money for more than 100-years here in the U.S., both as coin and currency backed by silver; and was used by consumers to purchase their food, clothes, and shelter. Gold, on the other hand, has been used by governments, banks, and international businesses during the past century to settle international trade accounts, and not as domestic money. Both gold and silver ceased to be used as money by banks and government by 1971. So buying gold to hold for an eventual use as domestic money to purchase consumables is incredibly silly, if not outright stupid.

Gold and silver have been mined, in the most recent century, at a ratio of about 10-ounces of silver for each 1-ounce of gold. In a hard currency economy where both metals would only be used as money and all production would be sold to governments to coin stable money, the relative price would be 10-to-1; that is, each ounce of gold would exchange for 10-ounces of silver.

Yet the commodity markets have at this time continually traded these metals in a range that is approximately 1-ounce of gold for 50-ounces of silver. In the past 20 years it has been as high as 1-ounce of gold for 100-ounces of silver; and as low as 1-to-30. It is important for people purchasing gold and silver to question why this market is so skewed. First off, gold and silver are not used as money in the U.S. economy; nor does our government purchase or sell any significant amount of these metals annually, except in the production of non-monetary bullion coins. Consider that more than 50% of all gold mined annually is stored in bars or stamped into investment coins by several countries; while another large portion goes into jewelry and is relatively easily recoverable back to bullion.

The world has accumulated more than 4.3 billion ounces of gold and the stock pile is growing around 75-million ounces per year. Silver is a very different story; for the past generation, more silver is consumed annually by industry than is mined. Even though mining has increased the annual production of silver more than 50% in thirty years, worldwide industrial demand has increased even more; such that the above ground stocks of silver in the 1970′s was around 24 billion ounces and has declined to between 18 and 19 billion ounces today; a large portion of which is not easily recoverable to bullion. Even if all the silver tied up in film, electronics, plumbing, military hardware, silverware, medical bandages, industrial catalysts, jewelry, anti-microbial clothes, etc., was available to serve as doomsday money there is still less than 5-ounces of silver available to each ounce of gold to serve as money.

So 5-to-1 in quantity supports and affirms the current 50-to-1 price difference, right? Then there are companies that will sell you gold and silver and offer to store it and insure you against its being lost or stolen for an annual storage fee and insurance fee. So when the economy goes into inflationary meltdown and you want to take possession, you will first need to have some sort of distribution network that is still operating and is trustworthy to bring your gold to you; then you will need to be sure that the company storing your gold has not repeatedly sold and resold your gold and stored it for many other investors that may also want delivery of “their gold”, causing that company to simply send everyone a cash refund, if that. If you do not have it in your land you cannot sell it or spend it to support life and limb.

How will gold and silver compare in an economic meltdown? Well if gold is not confiscated by governments worldwide; and hoarded gold is not sold to businesses and individuals by governments and big banks, there would be about 1-billion ounces of gold in tradable bullion coins and bars and about 1-billion ounces of gold in the form of jewelry, that to some extent would serve as money if the gold content of any piece of jewelry can be estimated. Similarly for silver, there are about 4-billion ounces of silver in the form of coins and bullion worldwide and perhaps a billion ounces of sterling silver in the form of jewelry and silverware that could serve as tradable money. Leaving us a ratio of 2-ounces of gold to 5-ounces of silver, held by individuals, to serve as stable money worldwide.

These figures are actually declining right now in Europe and the U.S., because several companies are canvassing owners of gold and silver coins, bullion, and jewelry to sell it for cash; and as this recession continues, more and more gold and silver is disappearing into increasing industrial consumption and large depositories such as governments, banks, and ETF funds. Here in Eugene Oregon we have had more than 100 full page ads in the local newspaper in the past year, offering to purchase gold and silver in any form; not to mention the almost continuous television ads that have occurred over several months in the past year, soliciting viewers to sell unwanted gold jewelry for cash.

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Posted by on Dec 4 2011. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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