| | WD: Is it just momentum buying? Or are people buying it like gold, simply as a hedge against inflation?
We say that "silver is the poor man's gold." We are in a massive recession and have been at least for a decade, if not longer if you look at fundamentals of consumer prices or whatever measure you choose. Corporate "downsizing" goes back to the mid-1990s. The point is that you can buy silver in smaller units than gold with lesser margins against spot. Walk into a coin store and buy 1 silver dime for $4 if you want. You can't do that with gold. So, there is that.
SW (below): Traditionally, silver is purchased by Indians as a safe haven during crisis and as a long term investment. The massive size of that market has influenced silver prices in the past.
Gold was illegal for private hoarding in India on much the same terms as the USA 1933-1976. It is true that there is a historical preference for silver in India. They are largely poor and so cannot afford gold. So, there is that. When the gold markets were legalized in India about 10 years ago, it did not greatly change the price of gold, though many expected it to.
More broadly, if I may ...
I know from my studies in numismatics that "historically" the ratio of silver to gold has been 12 to 1 for a thousand years in the Mediterranean civilizations of Greece and Rome, etc. It also fluctuated in those times. However, as coins were not generally* money of account, it did not matter. Gold was for export trade (or buying off barbarians); silver was for local use. The first coins widely to carry their values were the "franc" coins of Henry III or IV of France about 1540.
After Rome, in Western Europe, the relative values - abundances - of silver and gold fluctuated for the next 1000 years based largely on the availability from existing supplies and new mining. The existing supplies were "plate" Roman household goods looted and hoarded by Dark Age warlords. The mines were opened in mountains. Hall in Schwabia was one town. The Kremnica Mint and the Joachimsthaler ("dollar") were the result of other mines.
Whether silver traded for gold in London or Florence or Flanders at 12 or 13 or whatever depended on supplies and demands. Broadly, silver was used across Europe, while gold was for export to the Arabs for silks and spices. But, again, in the Islamic lands, the relative values fluctuated over time and place based on supply and demand.
Generally, the mythic idea that the "natural" ratio of silver to gold is 16 to 1 came from England of the 16th and 17th centuries. They passed laws trying to keep that ratio. They wrung their hands over "bullion flows" and other mercantilist errors. The looting of the Americas by the Spanish completely changed the reality of gold and silver.
In fact, over the course of 200 years (1600-1820) 60% of Spanish silver went directly to China (and India, etc.) where it was valued intrinsically as well as being overvalued relative to gold. At first, in Japan, in the early 1600s, gold to silver was 8 to 1 but the influx from the Americas changed that, of course.
When the Western nations went to a "gold standard" in the late 1800s, the demand for silver coin (actually coined bullion) fell. In truth little changed: people still needed small coins. In fact, tremendous silver strikes in the USA hastened the erosion of the 16-to-1 ratio and silver was a cheap inflationary money - one of the motives for the gold standard, gold seeming more stable in natural abundance, despite "rushes" in California, the Transvaal, and New South Wales. Then, 100 years later the nations of the North Atlantic had to pay for World War II, and as we know the US stopped striking silver circulating coinage in 1964. That created a huge inventory of available silver bullion.
Most silver today does not come from mines - though more does as stocks have been depleted over the decades. (I think the number is like 40% right now; in 2000 it was like 10%, if I recall.) Most silver comes as a by-product of copper mining. We live in an electrical world -- and you cannot ring a bell with photons in glass. Work requires copper. ... But we are in a Great Recession... probably have been since 2000. You can check the copper mining figures, but the fact seems clear to me that the run-up in silver comes from:
1. Monetary inflation - paper is ever cheaper.
2. Consumption of silver bullion: even with 2% silver solder, our circuit boards are voracious consumers.
3. Drop off in primary mining of copper.
I read a lot of numismatic chatter and many silver bulls expect to profit from a perceived inefficiency in the "natural ratio" of gold to silver. I don't buy it.
*Generally. The Roman denarius (literally "tenner") was originally a 12: worth 12 one-pound bars of bronze, but winning wars to conquer Italy, defeat Carthage and get involved in Hellenistic dynastic struggles forced a revaluation downward. Some few Roman denarius series have an X on them, so show ten. Also, among the Greeks until the 300s BCE, bronze was not used and little silver coins were common. It was hard to tell 1/3 of a drachmon from 1/4 of a drachmon. Usually the designs were widely different. One town Kolophon put letters TH and TE to denote "third" and "fourth." These are exceptions. Generally, coins passed by count (tale) or weight.
(Edited by Michael E. Marotta on 4/24, 8:21am)
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