Silver as Money

Silver has an important monetary role, according to economic history.

Silver has been consistently used as money throughout history, even more than gold, but, whenever paper money fails (every 50 to 75 years), the world is subsequently littered with useless paper currencies. That’s when silver is resurrected and comes back into its own.

For example, when the Chinese government fell at the end of World War II, paper currency became distrusted, but almost like magic, U.S. silver and gold coins became the currency of choice all across that huge, primitive country. Everyone knew what an American silver dime was worth. This held true until the Communists imposed a new “fiat currency” (one that is money just because the government says it is) and enforced it with the heavy hand of government.

Could that happen here in America? No one knows for sure, but that remote possibility is becoming less remote every day. That’s why you need some silver for insurance purposes, because the dollar’s fate seems to be sealed and delivered by our present rate of internal monetary inflation. Whether it will take one year, ten years or 30 years, I don’t know, but eventually the world will be littered with worthless paper dollars, and governments will be forced to go back to a gold standard to back a new currency.  At some future time, silver coins will be minted again in massive quantities, and silver and gold will both reign triumphant over the world’s monetary system until we have a monetary system we can trust. I don’t know exactly how it will work, and probably nobody else does either, but for that reason, I repeat, you should buy at least ½ bag of junk silver (pre-1965 American dimes, quarters and halves) for your family, just for the silver content. This is not for investment (even though it will go up), but as an insurance policy against a possible inflationary calamity.

Silver always rises during gold bull markets, usually twice as far and fast as gold, but the supply/demand situation (ETFs and jewelry and industrial usage) dwarfs all other reasons why silver will soar in price, perhaps much more than twice as much as gold.

One other supply/demand factor that really matters is that COMEX, (The New York Commodity Exchange), which is by far the biggest commodity exchange in the world, has a monster silver futures exposure. Many of the “longs” have bought a silver contract from the shorts contracting for the silver, in the hopes that silver will be rising, and so will their contract. It can be settled either with a cash payment or by delivery of the physical metal. But a lot of the longs are silver users and need the metal and have only bought the contracts for delivery. They won’t settle for cash, but only for delivery, because they need the metal.

The “shorts” have sold silver they don’t have, assuming they will be able to buy it back at a lower cost in the future and thereby profit handsomely. They are pure speculators, betting that the price will go down so they can buy it cheap. Steadily rising prices are their worst nightmare.

The longs are even more dangerous than the shorts. Remember, for every long contract, there is a corresponding short. As silver has soared, shorting paper losses have mounted to billions of dollars.

I guess the short speculators never learn. That’s exactly what they did back in the 70’s, and when the Hunt brothers tried to corner the silver market and drove the price to $50, most of the governors of the COMEX were short, in effect betting against the Hunts. Their losses mounted day by day, and as they became more and more insolvent, their need to cover their shorts, either with cash or by buying silver to deliver, was way beyond their financial ability to handle. Technically the COMEX should have been shut down, as many of the shorts were governors of the COMEX, but this was unthinkable, as we couldn’t allow the world’s most important commodity exchange to close down.

Eventually they won the battle with the Hunts by, among other things, changing the rules to “liquidation only.” That’s when I decided to tell my subscribers to sell their gold and silver at $35 an ounce, before the $50 top, as when the elephants are fighting, we mice should scurry into the underbrush. Yes, it went to $50, but $2 to $35 is good enough.

This is similar to where COMEX finds itself today. But this time they are short so much silver, that if they had to buy enough silver to cover all their shorts, especially if the longs are silver users who need the physical silver for their industries (many are) and won’t accept just a cash settlement, that this could soak up as much as 100% of all silver production. Also, the short’s cash position is so dire, as their paper losses have mounted as silver has risen, that they won’t have enough money for a cash settlement.  Sooner or later they will have to buy silver, and the stability price of silver could soon be above $100 an ounce (my best guess) in order to induce holders (you) to give up yours.

Silver is the investment of the century. It will move with gold, but further, as has already been demonstrated. Gold is up about 200%, and silver is up more than 300% over the last couple of years. We will eventually find that silver at today’s $15 to $20 is the bargain of the century. Silver and silver-mining stocks will be a license to print money.