Silver IS NOT What You Think It IS

Summary

In this video, Mark Moss explores the evolving relationship between gold and silver throughout history, examining shifts in the gold-silver ratio and their implications for modern investors. He explains how gold has largely been viewed as a safe-haven asset, while silver has seen more industrial and speculative demand. With silver’s current production decline and investor demand low, Mark discusses the potential for silver’s explosive growth, while acknowledging the risks. Ultimately, he highlights the importance of understanding the different roles of gold and silver in investment portfolios and the opportunity presented by silver's potential rebound.

Takeaways

• 😀 Gold and silver have a historic relationship that has changed over time, influencing their value and investment potential.
• 😀 The gold-silver ratio has fluctuated throughout history, from 1:2 in 663 BC to 100:1 in 1991, and currently stands at about 85:1.
• 😀 Historically, silver has been used for smaller transactions due to its portability and divisibility, complementing gold's role as a store of wealth.
• 😀 The gold standard, established in the 1800s, diminished silver's importance as gold became the dominant form of money.
• 😀 Silver’s value has largely been driven by industrial use and jewelry demand, unlike gold, which is primarily bought for investment and as insurance against economic instability.
• 😀 Gold is seen as a safe investment, with central banks and investors buying it as a hedge against economic downturns, while silver is more speculative.
• 😀 The gold-silver ratio is a key factor for those looking to invest in silver, with the ratio potentially reverting to more historical standards like 15:1.
• 😀 Current low investor demand for silver, indicated by lower sales of silver coins, suggests a potential buying opportunity for contrarian investors.
• 😀 Falling silver production, coupled with growing industrial demand, could lead to higher silver prices in the future due to basic supply and demand dynamics.
• 😀 Gold’s rise in value is expected to drag silver along with it, as both metals often move in tandem in the market.
• 😀 Silver is riskier than gold but could see higher rewards if the gold-silver ratio returns to a lower level, such as 50:1, making it an attractive speculative investment.

Q & A

What is the historical relationship between gold and silver?

The historical gold-silver ratio has fluctuated over time. Initially, it was 1:2 in ancient civilizations such as the Assyrian Empire. It has shifted over time, with notable changes under figures like Alexander the Great and Julius Caesar. By the 1800s, the U.S. established a 1:15 ratio, but the ratio climbed to 98:1 by 1939 due to the gold standard's rise and silver's decreasing role.

Why was silver valuable for so long?

Silver was valuable because it shared many key attributes with gold, such as durability, portability, divisibility, and limited supply. These qualities made it an essential form of money for centuries, especially in smaller denominations and for transactions where gold was too bulky.

How did the rise of gold certificates affect silver?

The rise of gold certificates, which allowed people to trade paper instead of physical gold, diminished the need for silver. Silver's role in facilitating smaller, divisible transactions became less critical, as paper gold certificates made it easier to settle transactions without needing physical silver.

How did silver's value change during the 20th century?

Silver's value saw fluctuations through the 20th century. In 1934, President Roosevelt set the price of gold at $35 an ounce, causing the gold-silver ratio to climb to 98:1. By 1967, the ratio returned to 15:1, but by 1991, it reached 100:1. The price of silver remained low at times, particularly in the late 20th century.

What factors primarily drive demand for gold?

The primary drivers of gold demand are investors, foreign governments, and central banks, all purchasing gold as a form of insurance against economic instability. Gold is typically seen as a safe haven asset during times of crisis, such as wars or financial downturns.

What makes silver different from gold in terms of demand?

Unlike gold, silver has a significant demand from the industrial and jewelry sectors, accounting for 80% of its total demand. Only 20% of silver demand comes from investors. Silver is widely used in industries such as technology, batteries, and semiconductors.

Why is silver considered a speculative investment?

Silver is viewed as a speculative investment because its value is largely driven by industrial and jewelry demand, which can fluctuate based on economic conditions. Investors often buy silver with the hope that the gold-silver ratio will revert to historical norms, but it carries more risk than gold due to its less stable demand.

What is the current gold-to-silver ratio, and why is it important?

As of now, the gold-to-silver ratio is around 85:1, up from 35:1 in 2011. This ratio is significant because it offers a gauge for investors. A higher ratio indicates silver is undervalued relative to gold, while a lower ratio suggests silver is closer to its historical value.

How does silver production affect its price?

Silver production is declining, which could lead to higher prices due to the basic economic principle of supply and demand. As more silver is used in industrial applications, the supply is diminishing. This could push silver prices higher as demand continues to grow while production lags.

What makes silver a more volatile investment compared to gold?

Silver is more volatile than gold because its price is influenced by both industrial demand and investor speculation. When industrial demand weakens or the economy slows, silver prices can fall. Additionally, since investor demand for silver is lower than gold, silver tends to experience sharper price swings.