Sunday, December 25, 2016

Why is silver ignored as a monetary asset?

Current monetary situation? 

It's easy to see why Governments and in a way certain financial institutions would not want to be tied to a specie (gold or silver hard money asset). Politician are allowed to spend for votes, banks lend with fractional reserve banking. Is this all bad? Our civilization has grown and we have a great standard of living! One might say there is a moral hazard to this system. Savers are key to any economy and they have been forgotten. The forgotten man hard working people who make the economy run many just want to save don't have the time to invest or do adaquete research. These people continue to get squeezed. Low interest rates punish people forcing them to either spend or buy assets or face being taxed by raising prices a hidden tax of inflation. The government has done a great job of changing inflation numbers. 

Now some history of the bimetallic standard.  

Silver use to be part of a bimetallic standard which is defined by Investopedia as A monetary system in which a government recognizes coins composed of gold or silver as legal tender. The bimetallic standard (or bimetallism) backs a unit of currency to a fixed ratio of gold and/or silver. This system was introduced in the United States in 1792 and lasted until the civil war at this time the Resumption Act of 1875 stated that paper money could be converted to gold. The ratio at this time was 15 to 1 silver to gold.  

Why is Gold held by central banks and not Silver? 

The main reason is Gold is held by the central banks of governments is quite simple it is a store of value an asset that man knows is limited and desired. 

Silver is no longer owned by the central banks and demand has to come from industrial use or by individual investors. In any market you need to have strong hands its safe to say gold is in strong hands if it hasn't been hypothecated. These are the holders that will not sell they help sure up the market. At current prices I don't see much selling. It takes time at each level to weed out the weak hands and form a base to move higher. There are other factors such as mining supply new silver on the market that effect supply and demand. Its safe to say investor demand is small most people don't know silver and most investors don't have it in their portfolio. 

The current financial situation is not changing!

Silver in comparison to the money supply is cheap. How cheap one would ask? After researching with sources I trust you can see when Silver was $14 at the end of 2015 it was cheaper than it was when priced at $5 earlier in the 2000's. The dilution from the creation of money doesn't seem like its cheaper but it is to people who understand ratio's and bigger numbers don't mean bigger. Beginners in the stock market always ask how can this stock be higher than that one... It is all based on price and outstanding shares not just the number associated with the price. Today is December 25th 2016 Christmas day and silver is only $15.81. With the Dow Jones the market at all time highs who wants a commodity that doesn't pay a dividend is the argument by many. If you are a value investor or know history and can objectively look at the world... most people are not participating. Countries like China, India know the value of precious metals. I still think the cycle is at the beginning. Assets will be adjusted accordingly. 

As always leave comments and thank you for reading. 

S. Cummings 

Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.

No comments:

Post a Comment

Buy I Bonds right now!

I have an opportunity for you to earn 7.12% risk free to your principle for the first 6 months of the investment and 9.62% (expected) for th...