Suppose everyone in America, bought one single Gold Eagle. Suppose, every single silver futures contract holder, took delivery. Just suppose. The results of this, would be earth shaking. Imagine everyone in the entire world, buying just one single once of gold, and an equal amount of silver. Why not? What would be wrong with earth’s 3 billion inhabitants owning just two ounces of real money, rather than holding gobs of paper currencies? Would it be wrong, for every single American, to own an ounce of gold, and an ounce of silver, which are real money?
To give you an example of what could happen, let’s turn the clock back to the 1970’s. Here are the silver spot prices for a few years, beginning with 1974, three years before I began dealing in gold and silver. Inflation was going at a pretty good clip, Jimmy Carter had been elected President, and eventually Iran would kidnap American hostages. The prime rate went to 21% before Jimmy was defeated. At any rate, silver, in 1974 was $4.71, 1975 – $4.42, 1976 – $4.35, 1977 – $4.62, and in 1978 – $5.40. Consumer prices have at least quadrupled since then, meaning that gold and silver prices then would be four times that in 2003 dollars today. In 1979, a group of investors, decided to corner the world’s silver supply. Actually, the Hunt Brothers, and ’associates’ from the mid-east, began buying futures contracts in 1974, but continually turned them over, so as not to affect the price too much. In 1979, they decided to launch their effort, buying physical and futures contracts, literally by the thousands. The COMEX decided to raise the margin requirements for silver contracts, from $500, to $3,000. The Hunts kept on buying; undeterred.
When a futures contract’s price escalates, many go “short,” because they believe the sudden rise will be brief, and they can profit, when the price goes down. It didn’t go down, because Hunts, and a few others, kept buying. The “shorts,” had to cough up hundreds of millions of dollars, to cover their margin calls. On November 26, 1979, silver was $16.40 per ounce. November 28th, $18.26. December 14th, $21.65. December 21st, $24.35. January 2nd 1980, $30.05. On January 7th, the COMEX placed into effect “Silver Rule #7,” which was intended to make the Hunts go bankrupt. This rule, severely limited the number of contracts any one person could hold. The Hunts transferred their accounts to London, and kept buying. Finally, on January 18th, silver traded (in London) at 2,150 pence, which translated into dollars as $48.80, but briefly, as I remember it, silver went to $54. Millions of people were closing their bank accounts and buying silver and gold. Gold had followed silver up, and was $850, with a ratio of 16 to 1. Bank solvency was severely threatened. On the next trading day, January 21st, the COMEX didn’t open the silver market, till several hours past normal opening time. This was because the COMEX was figuring out how to help the shorts, and bankrupt the longs, which of course were the Hunts and others. They succeeded, and by March 27th, silver had plunged to $10.80.
America was in the dumps. Everything was going wrong. We were paying to give away the Panama Canal, interest rates were skyrocketing, and American hostages were being held in Iran. (I will never forgive Arizona Senator Dennis De Concini for casting that tie breaking vote, to give away the Panama Canal. May he rot in hell.) I was urging my clients NOT to buy, when gold and silver got so high. I knew it was not because of inflation, but because of the Hunts and associates. Some gold and silver increases would have been expected, thanks to Jimmy Carter and his idiocy, but not that much.
We are buying gold and silver, because we want to hedge ourselves, and preserve our wealth. If some anomaly happened, like the World Trade Centers bombing, as an example, gold and silver will shoot skyward instantly. Gold went to $300 when the WTC collapsed. I told people NOT to buy. I was right, because, just like in 1980, it came down quickly. The above is just for example,
Let’s suppose what happens, as I originally postulated. Not all at once, as with a terrorist attack, or the Hunt Brothers, but gradually, with ever increasing intensity, as did the stock market, but not for the same reason. The stocks went up, because of ballyhoo, and everyone following the dumb leaders. There were no profits, and that run up was similar to silver and gold’s run up in 1980. False, and for the wrong reasons. As inflation increases, and the dollar becomes worth less and less, more and more people will realize, that neither the dollar, nor any other unbacked paper currency, has a future. Logically, they will resort to other forms of investment, and gold and silver will be the main ones. Why? Because of their universal acceptance, history, compactness, beauty, and desirability.
Assume then, that every American bought one ounce of gold, and an equal amount of silver. That’s 285 million ounces of gold, and 285 million ounces of silver. Let’s see how many ounces of silver and gold the US mint uses, to compare the 285 million ounces, OK? In 1997, the Mint consumed 771,250 ounces of gold, and 3,636,000 ounces of silver. In 1998, 1,839,500 ounces of gold, and 4,320,000 ounces of silver. In 1999, 2,055,500 gold, and 9,008,500 silver. In 2000 – 164,500 gold, and 8,827,500 silver. In 2001 – 325,000 gold, and 8,827,500 silver. Last year, 315,000 gold and 10,475,500 silver. A tiny fraction of what would be needed, if everyone bought one of each. A simple math extrapolation, means that if every man, woman and child in America, bought just one ounce of gold, and one ounce of silver, the prices of the metals would be well over $300,000 per ounce for gold, and $125 for silver. Why? Because “shortages,” are always indicated by price. People call, and ask if I have noticed any shortages yet. The answer is always, “no,” because the prices aren’t up that much. When prices escalate, this simply means that consumption is exceeding supply, or a “shortage.” Imagine the entire world buying one ounce of silver, and one ounce of gold! That would be billions of ounces of each, and my math can’t figure what the price would be.
Consider: If silver futures contract holders began taking delivery of their contracts, rather than rolling them over, what the price of silver would be. That silver doesn’t exist, but is “paper silver.” If demand for delivery increased, silver, far more than gold, would go heavenward. The current ratio of 75 to 1, would probably go as far back as even 16 to 1, where it was in 1980, and was the norm for 150 years. If the current gold price of about $350 stayed the same, silver would go from $4.67 to $75! Neither will stay the same, but the potential for silver, boggles the mind. It could happen, if futures contracts holders demanded delivery, and they should.
As history progresses, and more and more people realize that paper is worthless, and tangibles are the thing to hold. Gold and silver are the most sensible tangibles, and prices of gold and silver, in paper currencies, are as certain to escalate, as the sun is to rise. The gold and silver will be the same. Only the currencies will become more and more worthless.
I have only imagined what could happen, and without doubt will, as more and more become disaffected with inane paper currencies, and seek to preserve their assets in something tangible. In the auto world, it is already happening. More and more, are becoming collectors and restorers of old autos, rather than buying new trash, even with zero percent financing. Antique shops are buzzing too, as this stuff is in short supply, and cannot be duplicated, as can new cars and paper dollars. Acquisition of tangibles, has begun, and will continue at an ever increasing rate, not only for pride of ownership and uniqueness, but as a method of preserving one’s assets, in times of devaluing currencies around the entire world. Gold and silver will remain the same, as will antique furniture, original art, and old cars. It is the paper money used to buy them, which will change, and you can bet your life on the fact that prices in dollars of anything, will not go down. Protect yourself, and have a great holiday!