A while back, I wrote in this column, that the ratios between gold and silver were an all-important factor to use in purchasing with a few exceptions. This advice needs to be repeated. So I will.
I thumbed through some back sheets of daily prices, which I keep in a huge stack. I found that on October 6, 2003, Silver was $4.82, and gold was $373. A ratio of 77.37 to 1. Now don’t get me wrong, had you purchased either of these precious metals in October of 2003, you would have done just fine. With gold, in twenty months, you would have gained 13% on your investment. With silver, you would have gotten a 57% gain on your investment. Let that sink in, will you, and see if old man Stott knew what he was talking about, when he advised you to watch the ratios.
As I write this on Thursday morning, June 2nd, gold is $419.70, and silver is $7.58, for a ratio of 55.37 to 1. Gold has lagged behind silver by twenty two ratio points. Had gold gone up by 57%, as has silver, it would now be $585.61 instead of $419.70. Why? Easy. There’s damned little silver around, and uses for it constantly increase. There’s far more gold above ground, than there is silver. I know of no national government, which has tonnes of silver in its vaults, with which it can sell, flood the markets, and drive prices down. The story that the US government has 8,000 tonnes of gold in its vaults, is pure fiction. Where is it? Ft. Knox is empty, and there hasn’t been an inventory of it since the Eisenhower administration. There are tonnes of gold in vaults in New York, but the US is listed not as the owner, but as the caretaker of it. The US treasury regularly buys its gold and silver from major suppliers to make its gold and silver eagles.
The fact that the US makes gold and silver eagles at West Point New York, is no more indicative of its owning gold and silver, and removing it from its vaults to do so, than to think that a grocery store owns cows, farms, and canneries with which to fill its shelves. The US buys the gold and silver to make its coins, just like the super market buys the stuff it sells. The plain fact is that the gold and silver markets are being manipulated, as are the stock markets, bond markets, and every other market into which government or large corporations can possibly stick their ugly fingers. Gold indeed is stored and sold by many nations, in order to keep their currencies as strong as possible. Gold is the arch-enemy of paper currencies, because it happens to be real money. Silver is also real money, but it is also an industrial metal.
What are the disadvantages of owning silver? First of all, it is a large item. One can easily hold enough gold in both hands to buy a small, reasonably priced house. To hold that much silver, would require hundreds of hands, or a pickup truck maybe. That’s the main problem size of storage required. Another one, is the fact that the “spread” is higher with silver than with gold. By “spread,” I mean the difference in price at which one buys it, and sells it. With a typical gold coin, the spread is about $6, and with silver is from 28 – 40 cents per ounce, or percentage wise, a much higher spread. Currently, the spread in gold is about 1.5%, and the spread in silver is close to 5%. So, the spread, plus size of storage required, are the two main disadvantages to silver.
Some have said that the onset of digital photography has destroyed the silver market. Totally untrue. While more and more use film free digital cameras, they many times print their shots on silver backed paper. X-rays are still silver backed as well. Hospitals are now spraying silver solutions on their HVAC ducts, as germs cannot survive on silver. Lumber companies are now using a silver solution as a wood preserver, since the EPA has made them stop using the chemicals they used to use. If the low to no resistance wire ever comes on line, there will be thousands of tons of silver required for its manufacture. Such wire has already been used in electric motors, with an incredible rise in efficiency. Silver is used in computers, and hundreds of other places, not counting jewelry. Silver’s use and consumption, is increasing yearly.
Then we have the COMEX, which is the one outfit that regularly manipulates the price of silver. How? By traders buying thousands of contracts, driving the price up, and then selling, after going short, and driving prices down, all the while making a killing in the process. According to COMEX rules, one cannot trade a commodity if one does not own it, or there must be that much of it in existence and available to fulfill contracts. These rules have been violated a thousand times, and the COMEX has not seen fit to enforce them. So the manipulation goes on, but with ever decreasing success. The COMEX traders trade close to 400 million ounces of silver, and have less than half of that in stock in their vaults. If everyone decided to take delivery of their contracts, as many have done recently, a real squeeze would take place, which would drive silver to the firmament.
I urge, you, if you have a COMEX silver contract, to order delivery at the next opportunity. This will speed up the ultimate climax, when silver indeed does go to the heavens. I can do it for you at no charge.
What will the future of the gold-silver ratios be? It has gone from 77 to 1 to 55 to 1. Can it go lower? Most assuredly! In 1980, and for the previous 150 years of America’s history, the ratio was 16 to 1. Can it go back there again? I can see no reason why not, and I think it is indeed most likely. If gold goes to $500, and most think it will by year’s end, and the ratio goes to 16 to 1, silver would be $31.25 per ounce, which is still $19 per ounce less than it was in 1980. Since 1980, we have had perhaps 50% inflation, and probably more. Is there any reason to believe that gold and silver might go higher by 50%, than they were in 1980? I think so, and that would make gold $1600, and silver $100. Pipe dreams? You decide, but a quick glance at any newspaper will probably make you think it is likely.
What form to buy silver? I personally, love the ten ounce bars, because they are all individually wrapped in plastic to keep them from tarnishing, plus they are “extruded” rather than “cast,” meaning they are shiny. The most silver for the least dollars, are the “bags” of US silver coins. These “bags,” which weigh 56 pounds, have $1,000 face in US silver quarters or dimes. For an extra $50, you can get half-dollars. Forget silver dollars, as they are way over-priced. “Bags,” many times, are at or near the actual spot price of silver, and when you sell, the spread on a bag is 28 cents, or $200 for the “bag,” which is the lowest you will ever find. Why are “bags” so cheap? Because, there is no manufacturing cost. These coins were all made prior to 1965. Each “bag” contains 715 ounces of pure silver. The 715 ounces is of pure silver, even though the “bags” weigh more than 715 ounces, due to the coins’ wear, plus the fact that they are only 90% pure. “Bags” are an excellent buy.
Some have queried about whether all the “bags” may be sold out eventually. Maybe so, and if this happens, the prices of them will undoubtedly go up much higher, so this is a reason to buy them, not shy away. Silver rounds are 55 cents over spot, and made by a private mint in Idaho. Pretty too. See photo below.
US Silver Eagles are beautiful, but also expensive, at $1.50 over spot. The rounds and eagles both have one ounce of .999 pure silver in them, and both are made in the US. Take your pick. The ten-ounce bars are 50 cents over spot, as are the hundred-ounce bars, all made in the US. Take your pick again. See photo below.
As far as I am concerned, the ratios will continue to go down, meaning that silver will go up in dollar price, percentage wise, faster than gold, till they reach the 16 to 1 ratio. When will it happen? I don’t know, but in 20 months, it has decreased by 22 points, which establishes a trend as far as I am concerned. Protect yourself.