So many articles and books have been written about gold as money, but so
few about silver. However, a lot more silver has been used as money than
gold, mostly because of its lower value and therefore being easier to
transact for day-to-day needs. Throughout history, three metals have
dominated the monetary world: gold (electrum), silver (sterling) and copper
(bronze). Gold mostly for large transactions, silver for medium transactions,
and copper for small transactions.
Any United States dime (10 cents), quarter-dollar, half-dollar or dollar
that is dated 1964 or earlier was made of 90% silver. Half- and one-dollar
coins dated 1971 or earlier were also made of 90% silver. In Switzerland
until 1967, the 50 centime-, one franc-, two franc- and five franc- coins
were silver coins. In French the word for money is “argent”, meaning silver,
while in the UK, they still call the British pound Sterling, even though
there is no more silver in any of the legal tender British coins.
Silver demand today is approximately 56% industrial versus 10% for gold.
However, since the 2008 financial crisis, silver’s industrial demand has
decreased 1.24X and gold’s industrial demand decreased by 1.5X. On the other
hand, silver’s investment demand has increased 3.4X while gold’s investment
demand has doubled since the crisis. Official gold demand increased also from
0% (actually there were sales until 2009) to 11.21% of total gold demand,
with no official silver demand.
In the chart below, I want you to observe the explosion in silver coin
demand (see also annexed charts # 5a and b). It started in 2007, just before
the financial crisis, and continued until 2011. Even after 2011 you can see
that the demand for coins has not retraced all the uptrend but just
fluctuated at the higher level.
Graph #1: World Silver Demand Since 2005
Even today, 150 years after silver has been demonetized and 45 years since
silver has disappeared also in any proportion from physical coins, silver
still is circulating, even if not in any official manner but only as
numismatics and as a store of value. In addition, if you observe in the chart
above, silver is still cherished as a store of value. With the help of some
pictures, since a picture is worth a thousand words, I want you to see that,
through space and time, silver has been and still is coined. The demand has
not gone to zero, as some predicted in the ‘90s. Still, today, close to 40%
of silver’s demand is as store of value (I do consider jewelry and silverware
as store of value). Aristotle defined, more than 2,300 years ago, the
characteristics of a good form of money as having these attributes:
1. It must be durable
2. It must be portable
3. It must be divisible
4. It must have intrinsic value
Aristotle also said at the same time, “In effect, there is nothing
inherently wrong with fiat money, provided we get perfect authority and
god-like intelligence for kings.” The problem with fiat hasn’t changed, and
neither have the natural attributes of gold and silver. Still, today, gold
and silver possess Aristotle’s characteristics of a good form of money.
No surprise that they have the highest level of marketability and have
survived all other forms. After extensive trial and errors through time and
space, other things physical and virtual have been tried, but none have
survived like gold and silver. President of France, Charles
de Gaulle, spoke of “gold whose nature does not alter, which may be
formed equally into ingots, bars or coins; which has no nationality and which
has, eternally and universally, been regarded as the unalterable currency
par excellence.” Change gold with silver and it still applies
today as much as it did thousands of years ago, and on a continuous basis.
Take the time and look at the pictures below which take you on a trip
throughout the world and 2,000 years of history. You cannot not be impressed.
With the help of the diagram below of the US dollar, I want to show you
what a dollar certificate represented and what has happened to money since
the introduction of paper certificates, and then, since the ‘80s, the
introduction of virtual money. You can apply it to any other paper currency
of the world and it will work as well. As you can see, the original
certificates that represented something real (silver) and, by simple
modifications of words, those certificates became worthless, having only
trust in maintaining some value and that, thanks to the coercion of the
state. The same thing happened with the first paper certificates, created
in1023 in China, that Marco Polo brought back to Europe.
I think it is a great mistake to dismiss gold, but also silver, as money.
Even if they both have been out of circulation for a long time, they both
remain in the background of the monetary system as “real” money “in
extremis”: gold as part of the official foreign exchange reserves, and silver
as “poor man’s gold”. During both financial crises of the ‘70s and of 2008,
both gold and silver have spiked on monetary demand (see chart #6).
Sandip Jaitly, de Fekete Research, in an excellent article on bimetallism,
The Validity of Bimetallism, argues that the problem
of bimetallism comes with the attempt to fix prices. He further states, “The
problem was not with bimetallism but with the mechanics of its establishment.
Bimetallism is paradise so long as exchanges between the metal are free, and
mints are open to unlimited tender in both metals.” An excellent example of
silver’s value as money is the recent events in India, when the government
imposed restrictions on the importation of gold. Yes, the black market in
gold exploded, but also there was immediately a large increase of silver
buying. Do not dismiss history with such ridiculous statements as “relic of
the past” or “useless metal”. Every scientific invention or innovation has as
its inspiration observations and knowledge of the past. There is a good
reason why gold and silver have survived while every fiat currency has passed
away after a very short passage.
We hear more and more, and that is all over the world, of banning cash and
regulating crypto-currencies. It would be easy for the state to do it, but I
expect the demand for gold bars from one gram to one kilogram to explode if
that happens. We already see one gram gold and silver bars starting to
circulate and gaining in popularity.
While gold is usually only money, silver today, on the other hand, acts
more as a commodity in good economic and geopolitical times; but as soon as
there are signs of a crisis, it becomes money and starts acting as poor man’s
gold. Both gold and silver have remained and still remain money, even if only
in extremis, no question in my mind. However, both gold and silver have not
been circulating much in the last 50 years. They have been mostly a store of
value. Governments have coerced people by decree to use fiat currency only.
Soon it seems even paper fiat will be banned and only electronic fiat will be
allowed.
I would like to conclude with Julian D. W. Phillips who, in a recent issue
of the Silver
Forecaster, says it best about silver: “The silver price has moved with
gold for several years now and we believe it will continue to do so. However,
silver has led the way on this breakout, so we ask again, is this because of
the excellent fundamentals? We think not, as it has moved and will be moving
as a monetary metal, despite it having no monetary role. With the health of
the monetary system slowly decaying over the years, savvy investors are
protecting themselves. Many will question this conclusion because it is so
long since silver was recognized as money. We would answer by saying that it
is more a turning away from fiat currencies to items that have always been
recognized as measures of value over man’s existence. It is only since 1973
that the world decided to reject precious metals as money.” (see chart # 6)
Annex – Nick Laird silver
charts:
Chart #1: Silver 1260-2015
Chart #2: Nominal Silver Price, UK Inflation and Real Silver
Price 1560-2015
Chart #3: Gold/Silver Ratio 1260-2015
Chart #4a: Gold and Silver as a Percentage of Global Assets
1980-2014
Chart #4b: Silver as a Percentage of Global Assets 1980-2014
Chart #5a: US Mint Coin Sales – Gold vs Silver (Ounces)
Chart #5b: US Mint Coin Sales – Gold vs Silver (Million
Dollars)
Chart #6: Gold and Silver Percentage Growth Since 1970
Chart #7: Roman Currency Debasement (Silver Content) – Denarius
- 64AD – 274AD
