The Education Vault - Precious Metals & Bullion 101

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No one is more tireless in his research into silver than Ted Butler. I have cited him often, in my own previous commentaries, and do so again. In Part II, I noted that Butler had made a comparison between current silver inventories today and those of 50 years earlier (thanks to “Bullion Bulls Canada” contributor, Claude, for bringing this to my attention).

In 1959 there were 9 BILLION ounces of known, global stockpiles (at a time when our planet had less than half the current population). Butler observes that 90% of that silver is now gone – even making a generous allowance for 100's of millions of ounces of “scrap” silver which could appear on the market (given a significant increase in price).

Thus in a world with twice as many people, and with an ever-increasing number of uses for silver, we have 90% less silver to divide among us. How can this possibly make silver “less precious”?

Just ask the “experts”. Because silver is an “industrial metal” this means it's no longer a “precious metal”. This is nonsense. If we discovered a cure for cancer tomorrow which required gold as an input, would anyone suggest this made gold less of a “precious metal”? Obviously not.

Beyond that, is the even less-intelligent 'wisdom' of the market: silver is no longer deemed to be a “precious metal” because “people don't think of it as a precious metal, any longer”. Who are these people?

Certainly not the people of China and India, who make up nearly 1/3^rd of the global population, between them. Yes, in India, rising incomes fueled a greater level of demand for gold for several years, because people could afford it. However, now, with the price of gold having risen rapidly, and the price ratio with silver so extremely warped, the pendulum is swinging back in India – with silver demand rising while gold demand is stagnant.

It's certainly not the people of Germany who no longer see silver as a precious metal. Silver developed deep cultural significance to Germans when they experienced the hyperinflation of the Weimar Republic – and silver became a crucial store of wealth and real money for an entire population.

It's not the people of Mexico, where only a couple of years ago the government openly contemplated the possibility of reintroducing a silver currency to replace the peso.

In the United States, the Constitution still defines the U.S dollar as a measurement of silver. Of course, this has become an archaic document which hardly anyone pays attention to any more.

The fact is that apart from a lot of “experts”, it's hard to find any significant group of people who don't think of silver as a precious metal. Yet, with the price ratio of gold and silver currently nearing 70:1 the actual amount of available silver and gold in the world is likely no more than 6:1 – with many actual experts (including Ted Butler) convinced that this ratio is even lower.

This brings me back to the second, huge implication derived from the fact that silver is consumed (in most applications) in trace amounts. This is something which (to the best of my knowledge) has not yet been discussed by anyone else.