Silver: Until Paper Currencies Stop Losing Value

Alasdair McLeod wrote an excellent article in which he said,

“So if anyone asks you when you might take your profits in gold and silver, smile sweetly and just say, ‘When paper money stops losing its value.’”

When will paper money stop losing its value?  I submit that unbacked fiat paper money will, based on history, never stop losing value – as long as it is backed by dodgy sovereign debt issued by governments descending deeper into debt ever year.  A viable alternative is currency backed by gold and silver, but even though precious metals have been used successfully as money for centuries, there is far more profit for TPTB when they use the paper stuff.  Consequently paper and digital currencies will not disappear anytime soon.

But given that we are stuck with the paper stuff… and given that we erroneously believe that the paper stuff is an adequate measuring tool… and given that we live our daily lives within the universe of paper currencies … and given that we need silver (and gold) to compensate for the loss of value in paper currencies …  THEN:

The critical question is:  Is silver inexpensive now?  Consider silver ratios to the S&P 500 Index, the official US national debt, and others.

Examine the following ratio of (1000 times paper COMEX) silver to the S&P 500 Index.  Silver is at the low end of its long-term range indicating that the S&P has been levitated by QE and central bank policies while paper silver prices have been crushed.  Massive profits came from levitating the S&P so this is sensible, but the ratio indicates that silver is likely to substantially increase in price over the next several years.

O-SI-SP Ratio

Examine the following ratio of (1 trillion times paper COMEX) silver to official US national debt.  Silver is at the low end of its long-term range indicating that silver prices are low compared to the national debt, which has increased consistently for a century.  The ratio indicates that silver is likely to substantially increase in price over the next several years.

o-SI-ND ratio

 

O-Si-NatDebt

Examine the following graph of monthly paper COMEX silver prices on a log scale back to 1988.  Note the following:

  1. The red vertical lines are spaced 83 months apart. I have circled major lows (1995, 2001, 2008, and 2015) in green.  Paper silver prices have currently descended into a seven year cycle low.
  2. Note that silver has fallen hard in the past 4.5 years and has returned to its 200 month moving average – the green line – which is a severe correction.
  3. Silver prices are erratic but on average they rise along with national debt, government spending, and currency in circulation.
  4. It is difficult to quantify but I think we can safely assume that silver prices will also rise based on increasing warfare in the Middle-East, increasing fiscal and monetary insanity, and increasing foreign policy stupidity.

 O-silver

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New Fiction!

“Who Killed Doctor Silver Cartwheel?”

(A mystery story that discusses silver demonetization

and future silver prices)

by Gary Christenson

Available from Amazon: Paperback and Kindle eBook

Also available at www.gechristenson.com

______________________________________________________________

 CONCLUSIONS:

 

  • Silver price ratios (paper COMEX) are near historical lows compared to both the S&P 500 Index and the official US national debt.
  • Central banks are aggressively devaluing their currencies and trying to inflate consumer prices. They will probably succeed since they own the legal “printing presses” and consequently we should expect erratically higher gold and silver prices in the relatively near future.
  • Politicians will continue spending and descending further into a devastating pit of debt, and central banks will not voluntarily reduce debt and currency in circulation. A deflationary accident may occur but we should assume central banks will fight it with a flood of global “printing press” currencies.  Think Japan, “helicopter drops,” a war on cash, negative interest rates, more QE, and “bail-ins.”
  • It is relatively easy to increase debt, increase currency in circulation, devalue currencies, and spend more on warfare and welfare. It is difficult to increase silver and gold reserves.  The prices for silver and gold will eventually reflect their scarcity, their high demand, and the ease with which central banks can devalue their currencies.
  • Read Steve St. Angelo’s article on silver coin demand.
  • Paper Dies, Silver Thrives!

 

Gary Christenson

The Deviant Investor

www.gechristenson.com

 

 

 

 

7 thoughts on “Silver: Until Paper Currencies Stop Losing Value

  1. As someone who began buying gold on the day that Richard Nixon broke the commitment to exchange gold for proliferating fiat dollars, and kept buying for most of the 1970s before cashing in for about 15X price in under a decade, I am aware that gold can sell at very low prices for very long times. The same is true for silver and metals miners, with a multiplier on the volatility. However, as John Hussman cogently has said, markets tend not only to mean-revert but to mean-invert, sometimes extremely rapidly. No one should take that as a prediction under current conditions.

    As far as favorite miners, in general there are so many selling at such absurdly low prices that it is difficult to choose among them. Some may go to zero before they rise 5X to 10X, as I experienced with Consolidated Modderfontein in the 1980s: 50 pence to five pounds GB within a few years. Those things do happen.

    From the standpoint of safety, look for companies with little or no debt, some cash in the till, and a current ratio above 1, the higher the better. There are dozens of these.

    Please note that I am NOT a qualified investment advisor, only a private person (though with many years of experience as a value investor), and WARNING! here I am talking part of my book. In my experience there are few mining company heads with the track record and integrity of Jim Sinclair. You can have shares in his company for under 30¢ today. I own a lot of them. Remember Consolidated Modderfontein, and don’t ever invest money that you can’t afford to lose.

    Robert B. Eckhardt, Ph.D.


  2. English money had always been associated with silver, giving us the term ‘sterling silver. This was also common with much of China, Europe and India but money in the Middle East was based on gold. (A lot of pristine Arab gold coins were recently found in the sea near the Port of Caesaria in Israel).

    The ‘Tael’ was a Chinese unit of weight that, when applied to silver, was long used as a unit of currency. The Tael was equivalent to 1.3 ounces of silver.

    China did not have a national currency until 1933, and hence external trade was conducted in foreign currencies and internal trade in ounces, or Tael silver. The Tael was seldom minted in the form of a coin but rather served as a standard unit of account; actual transactions were completed with ingots of silver, with bank notes or checks expressed in Taels, or with silver coins, especially the Spanish or Mexican silver coin. (Brit Encyclopedia).

    Some historians speculate that because of the English folks’ love for Chinese Tea, which must be made with boiling water and therefore eliminated diarrhea, which was endemic in London due to the drinking of polluted from the river Thames, by 1710, Britain was running short of silver as Chinese merchants would only accept silver as payments for Tea.

    This led the cunning Rothschild-funded East India Company to traffic opium into China to sell for silver to buy tea and then waged two Opium Wars when China wanted to stop the drug-trafficking.

    When Sir Isaac Newton, the famous mathematician and physicist (2nd law of motion), became Master of the Mint, on the first day at work he asked his staff what was the unit of the pound sterling and no one had any clue. He said “Gentlemen, in applied mathematics, you must describe your unit.”

    He asked “Is a piece of paper of certain dimensions (length, breadth, and thickness, or else weight) a pound? Certainly not. Is a given sized piece of paper a dollar even if numerals and words of a certain size are stamped on it with a given quantity of ink? No.”

    He became the father of the gold standard and worked out what the pound was worth in grams of gold. The shilling, pound, and pence were redefined so that twenty-one shillings and six pence would stay equivalent to one GOLD guinea.

    But Britannia waged too many endless colonial wars and she went broke and went off the gold standard in the early 20th century. In 1944 at Bretton Woods the US dollar replaced the pound as the new world reserve currency, back by gold at US$35 an oz.

    So why is the US dollar still qualified today to be the premier world reserve currency after Nixon closed the gold window on Aug 15, 1971 and it is no longer backed by gold at $35 per oz and the US is now wasting money waging endless war on terror?

    Can it possibly be because of the confidence in the US economy when it has trillion of unfunded debts? Hardly.

    So is the US dollar back by the business end of a gun? IMHO, yes but as sure as the sun will rise tomorrow, it will be replaced as the world reserve currency like the Portuguese escudo, Spanish peso, Dutch guilder, French franc and British pound were before it , when the US implodes with over US$20 trillions of debts, when Obama leaves office in Jan 2017.

    Now that the IMF has voted to include the yuan as a reserve currency in the IMF basket of currencies in Oct 2016, China will not need to hold so much foreign reserves, which amount to US$3.47 trillion today. It’s a no brainer that when the time comes to dispose of the dollars and euros, China will buy gold and silver in way that will astound the world.


  3. the entire world economy is tied up by fiat debt currency. if/when that goes away then gold/silver will be irrelevant too, because production will plummet to mediaeval levels. remember, money is a medium of exchange, and at such a time no-one will be selling anything valuable for any amount of fiat debt paper or silver or gold.


  4. Thanks for hanging around and your tireless optimism.
    Do you have a favorite miner, gold or silver? Own them?
    Mine -Tahoe, Pretium( CEO Q’main, The Best), the Kirkland Lake, Fortuna


  5. Oh PULLLEEEZE now, Gary!! From WHERE do you get your train of thoughts re: fiat paper currency/electronic bookkeeping entry financial systems? Did you know that a few years ago, some guy was tasked by his boss with finding out how many fiat paper currencies that had been launched in the last couple hundred years were still around? Well, he began to tally them up, and had over SIX HUNDRED of them that had failed before he even got past the letter B of the alphabet!! So he asked his boss if he wanted him to continue on any further, which of course he did not, because it was just so obvious that there would not be any found!
    Gold, silver and copper are for hanging on to for the day when the world wide fiat paper currency/electronic bookkeeping entry financial system falls on its face! Unless you know the timing of the ups and downs of the PM markets, you will never know just when you can make a trade that will generate enough of a profit in terms of fiat paper to buy more PM with. Your last sell point will have to be your very last transaction in PM, unless you know for sure when the next up point peak will be.
    How can ANYBODY actually compare a PM which has a substantial amount of human labor invested in it, with a fiat paper currency or electronic bookkeeping entries that were merely created out of thin air by someone on a computer’s keyboard and has virtually NO human labor in it, with a straight face? I can’t do that, I’d be ROTFLMFAO!! No matter how hard I might try, I just wouldn’t be able to pull that one off.
    ALL PM will have a point in time where NO AMOUNT of fiat paper or electronic bookkeeping entries will be accepted in trade for them! Do you get that, or do you deep down inside still delude yourself into thinking that maybe the price of an ounce of a PM will reach into the stratosphere and no one will bat an eye over it? There IS a limit there somewhere, but no one can say where it is until it is found.
    So now that you have been told the folly of trying to game the system unless you are an insider, what do you have to say?
    Fiat paper currency systems begin to fail on the very first day of issue! It’s just that it’s usually such a small amount, that it goes unnoticed. But just like a bearing failing in a machine, it gets worse and worse as time goes on! It never gets better and repairs itself.
    As to any crypto-currency that is in vogue, when the electricity goes off for any number of reasons, caused by Nature or Man or just the scam being found out, the computer currency will wink out too. How will the power companies generate electricity when they cannot pay their fuel bills? Why will any men come in to work in those dangerous places if they cannot afford to put groceries on the table or gas in the tank? You’re simply not thinking in a straight line past the end of your own nose here!

    Randy


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