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To 250 million people in 51 countries in the world
the word for money is the same word as the word for silver. Silver literally
means money. According to Noble Laureate Milton Friedman the majority of monetary metal
throughout history has been silver, not gold. Gold is the money
of kings
while silver is the money of gentlemen.
Before we make a case for silver being money,
let’s take a look at what is money? I believe money is the grease or oil
that lubricates the supply lines that bring goods and services to where they
are needed. Without money our economy would be reduced to barter. The problem
with barter is that you would not only have to find someone that has what you
want but he would also have to have what you want in return. Let’s face
it, in this modern world of infinite goods and services this would be a
complete disaster.
So no matter what we use as a medium of exchange be it gold, silver, paper or sea shells we need an
unrestricted supply of money to keep the economy lubricated. Money is a unit
of storage or a proxy for value that must be something completely different
from what is being exchanged. This is why money must float freely in value to
coincide with the law of supply and demand.
What is the true
value of silver? I
have no idea. Silver like anything else will fluctuate with the laws of
supply and demand. I do know this. If you are waiting for industry or the
fiat printing of paper to send silver through the roof, you may be waiting a
long time. That is because like a beautiful work of art is in the eye of the
beholder the value of silver as money is perceived. It doesn’t come
with an instruction manual.
So here’s where I come down on this. A dollar
used to have stamped on it “Silver Certificate.”
They were produced in response to silver agitation
by citizens who were angered by the Fourth Coinage
Act. The Coinage Act
had effectively placed the United States on the Gold Standard which was fine but with each
subsequent act the value of the dollar was debased. So in 1878 Silver
Certificates were printed. One silver certificate could be traded for a
silver dollar. Well in 1960 silver was trading for $1.29 which meant that a
silver dollar was worth more than a silver certificate. In March 1964
Secretary of the Treasury C. Douglas Dillon halted redemption of silver
certificates for silver dollars and while you could still trade with Silver
Certificates. The new currency was the Federal Reserve
note which still
exists today.
I like to buy on AMPEX so I was on their web site and it
would take 37 one dollar Federal Reserve notes to buy one American Eagle One
Dollar coin. Last Spring in the last week of April it would have taken over
50 one dollar Federal Reserve notes to buy one American Eagle One Dollar coin. So I ask you, in the
long term, which way do you think silver will go? Let’s take a look at
a chart of Spot Silver below.
As you can see silver has been in a consolidation
period for the last month. For those of you that like the market to move at
warp speed let me save you the suspense. It doesn’t.
In conclusion, after the volatility that silver has
gone through since January of this year I think it’s healthy for it to
consolidate. When Silver breaks out again it will be to the upside.
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