The market price of silver means nothing

content by:  Grant Cagann

On the 6th day of July, 1785, Congress officially cleared the air on the exact definition of a “dollar”.  While the CONSTITUTION had referred to the dollar as a unit of money, this was in relation to the Spanish milled silver coin at the time (called the dollar).  On 7/6/1785, it finally went on record:

Congress by their Act of the 6th July last resolved, that the Money Unit of the United States should be a Dollar, but did not determine what number of grains of Fine Silver should constitute the Dollar.

We have concluded that Congress by their Act aforesaid, intended the common Dollars that are Current in the United States, and we have made our calculations accordingly.

The Money Unit or Dollar will contain three hundred and seventy five grains and sixty four hundredths of a Grain of fine Silver. A Dollar containing this number of Grains of fine Silver, will be worth as much as the New Spanish Dollars

So, according to the Constitution and supported by congressional clarification just a few years later, SILVER IS DEFINED BY LAW AS MONEY IN THE UNITED STATES.  Any discussion you’ll ever have on sound money will end with “gold is and always has been the only true sound money”.  This is 1/2 right, since silver has always been issued WITH gold as money, and as gold has “reset”, or re-valued all fiat currencies at some point throughout history, gold and silver have averaged a relational value ratio of 16 to 1 (16 troy ounces of silver = 1 troy ounce of gold).

Since most historical examples of the failure of fiat currency systems are pre-industrial, I must note here that a great % of silver mined during this century has been used for industrial purposes and is either currently in use (cell phones, flat screen tv’s, computer motherboards, etc.) or is sitting in a landfill never to be seen again.  Gold, on the other hand, has far fewer applications, and the majority of yellow metal ever mined is currently in the form of coins/bars and jewelry.  Technological advancements alone (solar being the biggest recent example) should tell you that the price of silver should be much higher than the traditional 16/1 ratio.

For reference:  this weekend gold sits at a (highly manipulated) price of $1,746.30/oz, with silver at $32.74.  A ratio of over 53 to 1!  So…assuming ZERO manipulation in the gold price, and assuming we WEREN’T living in this technological age, the price of silver tonight should be $109.14/oz.

Why is silver trading at a 53 to 1 ratio?  I’ll save the silver manipulation rabbit hole theories for another day, but there is plenty of information out there and I hope you’ll investigate for yourself.  The one question I WILL ask is this:  How can an un-backed (fiat) currency system survive WITHOUT manipulating the price and availability of real money (physical gold and physical silver)?

The point I’m trying to make here is that the value of silver is SUPPOSED to be tied to the value of the US Dollar.  In reality though, the market price of silver (which everyone reading this probably associates with silver’s actual value) is tied 100% to PAPER SILVER DERIVATIVES.  Proving this is very simple…

The current demand for silver is in the 900MM oz/year range (with 300MM+ oz. of this being consumed industrially), and current production is around 750MM oz/year.  Not only does the 2nd chart above show that production for the past decade plus has been less than demand, the numbers leave only a few hundred million ounces of silver each year to make jewelry and mint coins.  Let’s go conservative and say that 200MM oz/year have been available for coin minting GLOBALLY.  As a reference, the US Mint sold 36MM silver eagles in 2010.  Sure, the market value of silver should include industrial purchasing and use, but I focus on the physical/investment grade bullion due to the fact that once the industrial inventories are used up, they are (aside from computer and x-ray film recycling) gone forever.  If silver goes to $1MM/oz, it still wouldn’t be economical to dig up all the world’s landfills just to extract the miniscule amount of silver contained in calculators, personal computers, medical devices, batteries, etc.  Also consider that most of the private-mint bars and coins being sold these days are made from melting down jewelry sold to pawn shops, mailers, and television commercial promotions…or in other words, silver produced in the past being re-introduced as current physical inventory.

At this point it is safe to say that the amount of silver available for minting each year is only a few hundred million ounces and shrinking.  That is LESS THAN ONE OUNCE FOR EVERY AMERICAN!  Wait a second…isn’t silver (like gold) one of the hottest things in personal and institutional investing right now?  Aren’t people moving their IRA funds into silver in record numbers?  Didn’t your broker just mention silver last month for the first time ever? Skip the next paragraph to learn where all this demand and money is going!

The most important question to ask is:  Didn’t Eric Sprott just file a shelf offering of$1.5B in physical silver take-down over the next 2 years?  This means that 1 advisor and his client list is going to consume 5% of available global bullion!

OK, back to the surge in silver “investing” sweeping America right now.  I’m going to focus on silver alone, but picture the gold and silver markets as kettles.  The fear-based media blitz on gold & silver is steering naive investors and their agents towards PAPER METAL, that is supposedly backed by actual physical metal.  When these investors move their money from paper stock (also a joke these days) to paper metal (oxymoron?), this essentially acts as a pressure release valve, diverting pressure away from the real prize (physical, “held in your hand” silver) and pushing it out into the wasteland that is the derivative bubble.


Think I’m just some conspiracy nutjob?  Well, consider this…the COMEX (one of many silver markets) currently claims to have 100M ounces of physical silver, yet PAPER silver tied to COMEX contracts will equal 100 BILLION ounces for 2011!  That is a paper to physical ration of 1,000 to 1!!!

check out page 3

With a market as small and potentially squeezed as physical silver (again, see charts above), the execution of a few hundred thousand ounces in either direction SHOULD be enough to move the price, no?  NO…not when more “ghost” silver is traded each market day (about 500MM ounces on average) than is available for investor consumption in a year!  At that point, it’s up to the banks, who trade these mountains of contracts back and forth to each other every day, to use them to set the price WHEREVER THEY WANT.

This is derivative-based, fractional reserve selling at it’s finest, and the prospectus fine print for ALL paper metal products, which states that they can be redeemed in physical metal OR THE CASH EQUIVALENT is the icing on the cake.  The bottom line is that when just a small fraction of investors (or a single advisor as mentioned above) demand settlement in physical metal, the game is over, and anyone purchasing paper metal as a hedge against the dollar will receive their payouts in…dollars!  That’s if they receive a payout at all (see MF Global as the model for how brokerage accounts are treated these days).

Once again…fiat currency cannot survive without the suppression of gold & silver (both in market price and in people’s understanding), and the creation and explosion of a global paper metal market shows just how ignorant the general public has become. It is truly frightening to see how far we’ve turned away from our Founding Fathers’ idea for sound money.

CONCLUSION:  Like the dollar, paper silver is worth the paper it’s printed on.  If you can’t hold your gold and silver in your hand, you don’t own it.

-Subscribe to and comment on this blog, and please spread the word to wake up those around you.  Thank you for reading


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