Coin Collectors of the World, Unite!
I’m not sure which one of the usual suspects is behind the effort to get people to go out and buy silver this month (Keiser, Krieger, or Jones), and I’m not sure what makes December 11th so special, but this peaceful act of civil disobedience against the banking state nonetheless got my attention. The beauty of the internet is that, like the proverbial man stranded on a desert island, it is possible to send your message in a bottle out into the open ocean and receive a response. So it is with all of the posts and discussions surrounding the December 11 “Movement,” for lack of a better term, to encourage people to buy silver. For a while now, I have noticed more and more concerned citizens posting youtube videos describing their silver purchases, or at least recounting their support for contrarian economics. One interesting example is from the thoughtfully goofy “silverfuturist”:
Peaceful civil disobedience with regards to converting fiat money into real money appears to be growing. I am not surprised, given the level of anger, disappointment, and frustration with banks. Yet I still hear from people who lament that their bank C.D. is 1 percent or less, and who don’t seem to want to do anything about it. I do what I can to try to convince these burdened souls that you don’t have to take it, and perhaps you shouldn’t take it. I tell people to move at least some of their money out of the bank and into precious metals as a form of protest, if for no other reason. You might even find, in the end, that it was the best investment decision you ever made.
In my case, I probably can’t wait until the 11th to buy more silver. But the month of December and silver does have a special relationship for me, because- perhaps like others- silver coins were first introduced to me by my grandmother as a holiday gift. I can’t recall which was first, but I think my earliest silver coin was the 1984 Los Angeles Olympic coin. Like most people born after 1964, I never had the honor of seeing (much) silver in circulation, but being the nerd that I am, coin collecting quickly became an addiction thanks to gifts from a different generation who remembered what constituted real money. This Christmas, I will be assembling a small number of silver coins to give out to younger members of my family, in the hopes of sharing a different take on money and investing.
Keep It Simple with Silver Investing: Supply and Demand
I may also be sending some silver coins to adult friends of mine, friends who are still on the fence, or even opposed to buying gold and silver at these supposedly “expensive” prices. I understand that some of these people are good, loyal believers in fiat currency, and they probably view precious metals as “doomsday” investments. For these people, I have grown tired of outing myself as some sort of Ron Paul-loving, radical libertarian ideologue who puts his money in the “floor board” bank located under his home next to the machine gun.
So let’s just focus on one of the most bullish supply and demand factors for silver, shall we? Keep it nice and simple without any sort of political rant involved. I am going to ignore other factors influencing the silver market between 1940 and 1980, and just compare global mine data with the price of silver in dollars over that period. Something I don’t often see or hear online is that during the last bull market in the silver price (1940 to 1980), the silver price went up in spite of increasing global mine production. In the 1940s, the average price of an ounce of silver was around 60 cents, and the average annual global mine production over the course of the decade (according to the U.S. Geological Survey, https://minerals.usgs.gov/ds/2005/140/silver.pdf) was roughly 7,000 metric tones. In the 1970s, the average price of silver for the decade was around 5 dollars an ounce, and the average annual mine supply was over 10,000 metric tones. So as with gold, the silver price increased ALONG WITH THE MINE SUPPLY during this multi-decade bull market. Increasing mine supply did not help knock down the price until the 1980s (I realize there are other factors, but I want to keep this article under 5,000 words.) During the 1980s, average annual mine supply was close to 15,000 tonnes. When looking at decade averages between the 1940s and 1970s, world production in silver was up over 40%. To translate into this decade (where so far the average annual mine supply has been roughly 20,000 tonnes as the price has risen from 4 dollars to over 20) you would expect silver mine supply to reach up to 30,000 tonnes before it would have a negative impact on prices, if the relationships of the last bull market hold.
I realize this analysis does not take into account the industrial applications of silver- that will be another article for another day. However, I would be willing to bet that the industrial side of this equation only makes the case for higher silver even stronger. As David Morgan has recently stated: if you take away all the gold in the world it does make nearly as big of a difference as if you take all of the silver out of the world. You may want to think about that for a minute, when you realize how much more useful silver is than gold in industrial terms. Ted Butler has basically said that silver is more versatile as an industrial metal than copper. But silver is a very tiny market. You should realize that all of the 22,000 tonnes of silver mined last year, plus the 4,500 tonnes of industrial stockpiles, 1,700 tonnes of official stockpiles, 5,000 tonnes of primary production and imports, in addition to possibly 3,000 tonnes of investor bullion and coins only equals a dollar value of around 40 or 45 billion dollars an ounce at current silver prices. Remember, there are estimated to be over 5 billion ounces of gold above ground, with a value of roughly seven trillion dollars.
When to Sell Silver? I’d say around 2035
I am struck by the number of articles or commentaries written by gold and silver bugs addressing the issue of “when to get out.” This tells me that people in the precious metals community are still shell shocked from the horrible performance of gold and silver in the 80s and 90s. I also have to ask: did internet stock bugs in the 1990s hold conferences about when to get out of their investments? (Please set me straight if I have forgotten). The precious metals community has to go on the offense, and this means adopting the attitude of our investing adversaries. Would Ben Bernanke ever ask about when to get out of fiat money??
When people begin to redefine what money is, when they catch gold and silver fever, it takes quite a while for the investment mania to wear itself out. In the case of the last bull market in silver it was forty years of more or less increasing annual averages in silver (I should also add that the price drop in silver in 1975 was far less than that in gold- also not widely reported). During the 1940 to 1980 silver bull there were roughly thirty five years of price gains that were basically preserved between 1975 and 2000. This is because silver’s price of roughly 4 dollars in 1974 pretty much held up through the next twenty five years (though I realize the price of silver did occasionally dip just below 4 dollars a few times in the 1990s.) It was only the late 1970s that people lost money on silver when the price jumped from 5 dollars to (briefly) 50 dollars and then collapsed back down again.
So if in the last bull market, you had 35 years of gains that were never taken away in the subsequent spike up and collapse in silver, then at a minimum you should hold part or all of your silver until around 2035, roughly 35 years since the beginning of this current bull market in silver which began in 2000. This is likely an oversimplified thought experiment, but I am surprised at how many people only focus on the 1970s when talking about the last bull market. They understate how long and powerful the last silver bull was. They also forget to mention that between 1940 and 1980 silver mine supply increased sharply (something that I doubt can happen this time around) and that the U.S. dollar was still thought of as “King” during most of the 1940s, 50s, and early 60s- also something that I doubt is true today.
I remember the first time I read Michael Maloney’s prediction for 1,000 dollar silver: I thought he was a little off- and I say this as someone who has owned silver for over 25 years. But then I actually read his book and did a little digging of my own into the past, and now I don’t think 1,000 dollar silver is so nutty after all. Remember that in 1980, the value of gold equaled the broadest measure of the monetary base in the country when it briefly hit 850 dollars. This would roughly equal 15,000 dollars an ounce for gold given the massive increases in M3 and revolving credit in the intervening thirty years. If the gold/silver ratio narrows to 1:10 (where it has been before) you would see silver at 1,500 dollars an ounce. So actually I just outdid Michael Maloney by 500 dollars in offering an “outlandish” silver price, but if you were to hook me up to a polygraph I wouldn't fail it. I believe my own bull. There are many measures for where silver might go one day, and 1,000 dollars an ounce may seem unlikely to many, but make sure to do your homework before you are so convinced that four-figure silver can’t happen.
