(And Both are Better than Dollars)
Silver Stock Report
by Jason Hommel, November 17th, 2009
Recently many of my readers have been asking, “Why is silver lagging gold?”
After all, in March, 2008, gold hit $1020, and silver exceeded $20, yet here we are now, with gold now above $1145, and silver at $18.33, not even at $19!
The really funny thing is the way the popular media spin the price relations.
When silver underperforms gold, they say, “Silver is not confirming gold’s rise, therefore, gold prices are due for a fall.”
And when silver outperforms gold, they say, “Silver is exceeding gold’s rise, therefore, this bull run is overdone, and thus, gold prices are due for a fall.”
In other words, we have a manipulated market. Not only is the price manipulated, but so is the news coverage!
Of course, the media could give opinions the other way, and say, “With silver lagging gold, it shows that gold has much further to run, and also silver is due to catch up and exceed gold’s pace, thus making silver the much better buy now.” Or, after silver outperforms, they could say, “Silver’s outperformance has confirmed everything the silver bulls have been saying for the last ten years.” But they never do that, do they?!
As it is, the price ratio changed from 64 on Friday to 62 on Monday, so silver far outperformed gold on Nov. 16th.
Gold moved from $1118.50 on Friday to $1139.80, a rise of $21.3/oz., or a 1.9% increase.
Silver moved from $17.42 on Friday to $18.40, a rise of $.98/oz., or 5.6% increase.
Silver sure didn’t lag behind gold on that day!
So, is all news that is bearish on silver evidence of “manipulation?” Of course not. Some commentators are not colluding on purpose, they are simply willfully ignorant.
For example, here is an independent Christian newsletter writer named Gary North who writes:
Why Silver Is a Poorer Investment Than Gold (Nov. 14th)
You’d think he could have timed his article better. He published on Nov. 14th, and was proven wrong in less than 48 hours!
Nearly everything Gary writes in that article is not really the whole truth. I’m shocked to read his take on silver. After all, he has written perhaps the most thorough economic commentary on the Bible that exists (very long, quite good, but could use a bit of improvement).
So I don’t think he’s an agent of the banks, so I think it must be ignorance that is distorting his judgment, or perhaps his age. I’ve tried to answer his questions on silver over the years, but he has not replied with reason, but rather with emotion, so there must be something more at work here, but I don’t know what it could be. He wrote last year:
Jason Hommel Tells Me Off: I Do Not Understand Commodities, Silver, and Especially the Bible. He Demands That I Answer Him.
So, this and his other essays go to show he is not unfamiliar with my work, but rather, he has some sort of emotional rage against it. This is why I cannot excuse Gary as simply being ignorant of the statistics that he mocks, but rather, he is willingly ignorant.
But that’s in the past. I want to refute his recent article, and get to the recent ten year relative performance of silver vs. gold. All we need is a gold/silver ratio price chart.
A quick search on google reveals a source. I trust Gold-Eagle: Here it is:
The silver to gold ratio is the red line. You can see it topped out at 100 in 1990, when it took 100 oz. of silver to buy 1 oz. of gold. This ratio dropped to nearly 50 in 1997. It went back up to 80 both in 2003, and 2009, and now has gone back down to about 64, and now 62 today.
So, depending on the time frame, silver has out paced gold, or gold has out paced silver. As the red line goes down, silver is better. As the red line goes up, gold is better.
But if you use a selective time frame, only 10 years, you can see that the silver to gold ratio was about 60 ten years ago, and is 62 today, showing that gold slightly outperformed during that selective time period in question. But what is the main thrust of Gary’s argument? That the future must be like the past? And that the past only consists of the last ten years? Clearly, neither premise is not even remotely true, and the entire argument would deny the reality of economic cycles. Clearly, Gary is not ignorant of the economic cycle, so why did he forget that his argument would not be valid? Did emotionalism get the best of Gary?
As we can see from the big picture, Gold would have been a better investment than silver until 1990, the key turning point. Gary’s claim to the foundation of his “correctness” is being good at making interim market calls, and that he is old. Did he tell his subscribers to load up on silver in 1990? I have no idea. Did Gary tell his subscribers to load up on silver when it hit $8.50/oz. in the last year? No. I know. I’ve been a paying subscriber of his since he tried to discredit me. In his own words, “His “market calls” were utterly useless when it mattered.”
Furthermore, the dollar/gold price charts, and dollar/silver price charts do not “tell all” as he claims. Such charts contain zero information about how many dollars have been printed up in the past, and have yet to show up in futures prices of the metals. Such charts contain zero information about how much silver has been consumed and lost in the age of electronics that have ended up in landfills at concentrations too low to economically recover. It is only bad theory that the price charts contain “all the information” you need to know to make a future prediction on prices.
The charts Gary chose to present are not even “objective facts”. All gold/dollar and silver/dollar price charts are misleading, as the dollar is not a constant measuring tool, but a varying one. What if I showed you a growth chart of my 15 month old boy, but used a ruler made out of silly putty and stretched it at different rates at varying intervals? Certainly, nobody would call such a chart an “objective fact”. Charts are also not “objective facts” when you can produce them over select time frames to distort the overall picture. Gary’s price charts from the year 2000 are not as useful as the long term ratio chart above, if you want to try to use a chart to make long term predictions.
Is anyone here planning on living for longer than a time frame of the next ten years? (Well, Gary might not, he’s old, remember.) If you plan to live longer, you might want to consider longer time frames. I know I want to. After all, I’m only 39, and if I live to be 90, I can use an investment that might not pay off in 10 years, or even 20, but should come to fruition within my time frame of up to the next 50 years. For me, silver is it.
After Gary claims that non-facts are facts, he then tells his readers to beware of statistics, because the long term statistics that the silver bulls have been presenting for the last 10 to 40 years have not yet shown up in relative price performance (even though they have).
But the facts from the ratio chart prove that silver has been outperforming gold for 19 years now, and thus, perhaps Gary should have been paying attention to both the facts and statistics for silver.
In fact, it might be considered somewhat of a miracle that silver has outperformed gold for the last 19 years, while no nation on earth has yet returned to using silver as money! Think about that!
Since Gary seems to not want to be bothered with either facts or statistics, I’ll just paint the broad picture, with limited numbers, so that maybe he can wrap his mind around the major changes that have happened during his lifetime.
Nearly 300 years ago, back in 1717, the Bank of England started devaluing silver, in favor of a “gold standard”.
This was really a change to a paper standard, since gold was valued in terms of paper money, no longer valued in terms of real silver, but only “token” silver. This continued until Germany left silver in the late 1800’s. This created a glut of silver, which continued to devalue silver, until all nations on earth stopped using silver as money, and as each one left silver, it created a glut of silver on the world marketplace. This reduced monetary demand has continued to make silver a bargain for the last 100 years. The last great mintage of silver coins was in the US in 1964. After that, the US only made 40% half dollars for a few years, (we have three $1000 face value bags of 40% silver for sale at 6% over spot, that’s 295 oz/bag x spot x 1.06). Call us at (530) 273-8175 to own a true “abomination”, a real life example of an “unjust weight and measure” from our own nation’s recent history, today!
You can see the declining value for silver over a 600 year inflation adjusted silver chart:
You may note that this chart is in stark contrast to the flatline chart showed by Gary North.
But something interesting happened towards the end of this multi hundred year long trend of demonetizing silver.
At the end of World War II, the age of electronics began. Prior to WWII, most families in the US did not have many electrical devices. After the second great war, homes began buying things like refrigerators, washing machines and dryers, dishwashers, blenders, toaster ovens, electric can openers, TV sets, air conditioners, and much more, of course.
If you look at the “statistics” you can see that the per capita consumption of silver in the USA increased by about ten times in about a 3 year period, and it has stayed rather high at about 6 tenths of an ounce per person per year ever since.
Another funny thing happened. The age of electronics was not limited to the USA, but went out to many nations, even our former enemies in WWII, and even other nations around the world began to industrialize, and they, too, began consuming silver in electronic gadgets.
Gary has written a lot of crazy things like “you can safely ignore” arguments because it would show up in the price if true. Well, it already has, and it probably continue to do so, even more so, in the future! Trends well established for over 100 years that get hit by another major counter trend that began over 60 years ago might take a bit of time to show up, and it appears it began to, 19 years ago. It did show up rather spectacularly in the 1980 spike, where a tiny bit of money from one man who tried to buy some silver on leverage was smashed by the paper money powers. That was merely the foreshadow warning of what will happen when many billionaires or tens of thousands of millionaires demand real money (silver).
But Gary ignores all that, saying that the only thing that matters is recent price performance over 10 years as measured by a bad measure, the dollar. Wow.
He also has the gall to claim that men like myself issued no warnings about the decline in the silver price. Again, another example of his willful ignorance.
I have been warning that the gold and silver markets are manipulated by the selling of paper futures contracts for at least 8 years now.
In fact, I specifically warned about the manipulation when silver hit $16/oz., on the way down from $20 from early 2008. The article is very easy to understand, even for an old man, even though it does include a few numbers.
A Tribute to 7th Grade Math August 31, 2008
In that article, I pointed out that two banks sold 40 times as much paper silver as physical investors buy silver, in one month, which crashed the price. What followed was other paper longs selling out of their positions that continued to crash the price. This real world market action utterly refutes the textbook lie that futures contracts are supposed to help smooth out market prices. No, they do not. In actual fact, and truth, futures markets manipulate prices to great exaggeration, in both directions.
The manipulation of the markets by selling too much “paper gold and silver” is one of my main themes as a writer. See here:
Controlling Gold with Paper June 10, 2002
The Moral Failures of the Paper Longs Jan 22, 2003
Major Frauds of the U.S. Monetary System Feb 26, 2004
Silverstockreport.com: Silver Users Fear Silver Shortage Oct 27, 2005
The Silver ETF: What’s the Deal? Feb 23, 2006
The Money Chart: The Fundamentals of Gold & Silver Feb 25, 2006
No Excitement by $800 gold November 2, 2007
Silver: There’s Never Enough! January 15, 2008
I Don’t Trade Futures April 4, 2008
Here’s another good one for Gary:
Silver Keeping Pace with Gold; Set to Outpace Gold January 9, 2008
The last article, from Jan 2008, makes a good point:
The dollar, as a measuring stick, is broken. Gold at $850 in 1980 is not a valid price number as a reference, because a dollar in 1980 was worth more than today. We must adjust for inflation. And there are two ways to do that, first with lying government “consumer price index” statistics, which would give a price of about $2500/oz., or you can measure by money creation, which gives a price of about $7000 to $14,000. The $14,000 figure is if you include the recent $11 trillion in government bail out promises. By the time those prices are hit, adjusting for future inflation might give us even higher numbers. and a higher level of public participation in the gold and silver markets, and thus, higher relative silver prices to gold.
After all, let’s remember that most Americans are trend investors, and gold and silver are putting down a nice, safe, solid, trend!
I’d also like to point out what I was saying in nearly every article I wrote in 2003-4:
“Long before 1% of U.S. paper dollars tries to buy gold, gold will be going up well over $1000/oz., and silver will be headed up over $50/oz.”
Now that we are well over $1000/oz. for gold, we can easily measure how much US money is flowing into gold, and, in fact, I just measured that in my recent essays:
Grass Valley Buys 12 Times more Gold than National Average November 9th, 2009
Historic Gold Mine Area Residents Know Gold Prices are Too Low November 6th, 2009
America spends 00.013% of annual wealth (GDP) on less than 2% of the world’s annual gold production.!!!
America needs to buy about 77 times more gold than at current rates, to exceed the spending of 1% of U.S. paper dollars on gold!!!
“One percent of $14.4 trillion is $144 billion. In a gold market that sees annual production of 80 million oz., such buying could double or quadruple the price, depending on how tight the market gets from competition from other nations buying.”
Yes, I see, silver is not over $50/oz.!
But neither has 1% of the money in the USA started to buy gold, we are not even close! So just wait.
I did not buy silver to wait for the day that 0.013% of USA money would be flowing into gold. Did you?
No! I bought silver for the day when the dollar would become like toilet paper, and this implies that well over 50% of dollars will try to buy gold and silver at some point.
In actual fact, gold investors are buying silver. I know. We sell silver for gold! Furthermore, no customers have given us silver asking for gold. But we have had many customers trade their gold for silver!
I suppose i should not have tried to “tell it to Gary North” as he seems to suggest his retort will be to “tell it Jerome Smith”. I know, I know, Jerome Smith was a silver bull who died. Maybe Gary is brain dead, too.
Gary is also such a fool that he has no idea that his own recommendation to buy 80% gold, and 20% silver, would cause silver to move up far more than gold. After all, the gold investment market is a $92 billion market. (80 million oz. x $1145/oz.). The silver market is 600 million oz. produced per year, which, at $18.50, is an $11 billion market. If you spent 1/4 of $92 billion on silver, (20/80), that would be $23 billion.
Please Gary, please tell us all how $23 billion will fit into the $11 billion silver market without the price moving up far more than for gold? And let’s remember now, that the statistics show that most silver is consumed by industry, so if investors bought $23 billion worth of silver and consumed all new mining production, then no new mining production could go towards any industrial consumption!
The silver investment market is a much tinier $2 billion market (100 million oz. out of 600 million oz. produced x $18.50/oz.). Gary is suggesting that more than ten times as much money should go into silver as currently does! If everyone followed Gary’s advice, silver would probably have to move up at least five to maybe ten times higher than gold, just to accomodate the 80/20 investment that Gary suggests! Of couse, that’s mine production. But if we consider above ground supplies, well, I’ll let Gary try to research that. He may well find that above ground supplies for silver are more rare than gold, and I did say I was going to try to stay away from such statistics.
I’ll leave out the numbers, and I’ll note that all the gold ever mined in all of human history would fit into two Olympic sized swimming pools. And probably less silver than that is remaining!
So ironic. Gary’s analysis is so poor. But if it were any better, would silver prices remain so low? When men like him continually mock silver, while speaking out of their own ignorance, is it any wonder the price remains low?
But since I’m a silver investor who has 3 times as much silver as gold, I really can’t complain. After all, if the world knew what I knew, silver would already be several thousand dollars per ounce, or much higher!
I strongly advise you to get real gold and silver, at anywhere near today’s prices, while you still can.
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