Gyroscopic Investing

I've heard Harry Browne say that Silver is an "Industrial Metal" and "not a monetary metal" like Gold is. If this is true, why would anyone want to hold Silver to hedge against inflation or currency issues? I assume HB left it out of the 4x25% PP for a good reason. Can someone please explain Silver's true role in the economy?

It's a great asset for speculation.

I believe it is used in building solar panels and a lot of it was used in photography before digital cameras came along.

At $45 an ounce I think it's mostly for speculation, though.

Gumby wrote: I've heard Harry Browne say that Silver is an "Industrial Metal" and "not a monetary metal" like Gold is. If this is true, why would anyone want to hold Silver to hedge against inflation or currency issues? I assume HB left it out of the 4x25% PP for a good reason. Can someone please explain Silver's true role in the economy?

Both silver and gold have been money for thousands of years, and silver was used as such more so than gold (more widespread and by more people).  However both are currently demonetized, silver more so than gold.

Gold is still commonly held by central banks as a financial asset.  Silver used to be, but as far as I know is no longer.

Silver has suffered price suppression for decades due to the tonnage sold into the market from central bank inventories following demonetization.  That might have made it a poor asset to hold during those decades (it was for me 1990-2001 or so) but those inventories are now gone.  Gold might have been suppressed also (see GATA) but it never completely lost its monetary role so such sales were far more limited and controlled than those which followed the demonetization of silver.

Gold has little industrial usage.  Silver has a lot of industrial usage.  Silver might lose relatively more value if industrial demand collapses (but I don't believe so, and I believe collapse of industrial demand to be very unlikely).

Both silver and gold will be affected similarly by inflation, as will any hard commodity.

Both silver and gold will carry value thru a currency crisis.

Silver is more bulky and heavy for a given value than gold.

Gold can be more easily manipulated by central banks since they hold huge stockpiles.  Silver can be more easily manipulated by large holders (see Hunt brothers) since it is less expensive.

Silver is more price-volatile than gold, perhaps because of the "large holder" effect.

The price volatility and other characteristics might make the value proposition more difficult to evaluate and thus might make silver unsuitable for the PP.  I don't believe this.  I believe the main reasons HB did not include silver in the PP were simplicity and personal preference.  My personal preference is to hold silver in addition to gold.  Ideally decide on a monetary ratio between them and rebalance just like any other PP asset.  (I like to split the gold holding either 1/2 each or 2/3 Au and 1/3 Ag.)

MediumTex wrote: lot of it was used in photography before digital cameras came along.

The peak usage for photography peaked in 2000 or so.  However nearly all that is used in photography (100 tons per year or so IIRC) is recovered and thus it is not consumed but is available again as part of the annual supply.

However replacing lead in solder (plumbing and electronics, see RoHS) and the other modern industrial usage of silver tends to consume it such that it is not part of the supply again for the foreseeable future.

AgAuMoney wrote:

Gold can be more easily manipulated by central banks since they hold huge stockpiles.  Silver can be more easily manipulated by large holders (see Hunt brothers) since it is less expensive.

Silver is more price-volatile than gold, perhaps because of the "large holder" effect.

Very interesting.  I've never really heard these last two points before, but they strike me as likely to be true. 

Adam1226 wrote:

AgAuMoney wrote:

Gold can be more easily manipulated by central banks since they hold huge stockpiles.  Silver can be more easily manipulated by large holders (see Hunt brothers) since it is less expensive.

Silver is more price-volatile than gold, perhaps because of the "large holder" effect.

Very interesting.  I've never really heard these last two points before, but they strike me as likely to be true. 

or the cme can raise margin rqmts on silver 2x in a week to get a correction

murphy_p_t wrote: or the cme can raise margin rqmts on silver 2x in a week to get a correction

Yeah. 

A rule change like that is a good reason to hold physical or to at least avoid leveraging your position.  As I recall, it was a similar rule change that did in the Hunt brothers in 1980.

AgAuMoney wrote:
A rule change like that is a good reason to hold physical or to at least avoid leveraging your position. 

But why suddenly change the rules?  Why do they care if the price of silver is taking off too quickly?

GATA / Max Keiser / others suspect strongly that JPMorgan & another large bank have  a massive silver short position. if that is the case, they're trying to save their a$$

Adam1226 wrote: But why suddenly change the rules?  Why do they care if the price of silver is taking off too quickly?

They're probably just trying to catch up with the price of the underlying contracts.  Even with the increase, the margin requirement is < 8% of the contract value, according to this link:

http://goldandsilverblog.com/comex-incr ... week-0231/

Why don't they make margin requirements a percent of the contract value instead of a dollar amount?

murphy_p_t wrote: GATA / Max Keiser / others suspect strongly that JPMorgan & another large bank have  a massive silver short position. if that is the case, they're trying to save their a$$

The only thing I've seen from GAT/Keiser/others has been speculation on the topic.  I found Karl Denninger's rebuttal to be very convincing:

http://market-ticker.org/akcs-www?post=185799

In a nutshell, he says that the market action on silver as a result of the (entirely reasonable) margin changes shows that it was the longs who had the uncovered positions, not the (alleged JPMorgan) shorts.

Clive wrote: [align=center][/align]

Interesting chart.

What did you use for the price history of silver back to 1926?

Silver was pegged $1 = 0.7734oz or $1.29/oz effectively for much of that time, however the commodity price varied from a fraction of that to well over that amount by 1964.  Since that time government purchases worldwide slowed, stopped and reversed until they finally sold off what they had been stockpiling for centuries.  I started picking up silver in 1989 but did not get serious about it until about 2005.  I think prices before then were artificially low.  Others think prices are still artificially low, but you can see the major movement starting in the early 2000's.

A bit of history...

During about 150 years of U.S. history the U.S. government purchased so much silver trying to maintain the dollar peg, that by WWII they had plenty of silver and used it instead of copper to make electromagnets for the uranium enriching calutrons at Oak Ridge.  IIRC, it was well over 10,000 tons of silver by the time they started shutting down the calutrons.  The silver was eventually all returned to the treasury.  The treasury stockpile was then sold into the market as "strategic reserve" silver (I have a few bars) starting in the late 1970's, and then starting in 1986 as silver American Eagles.  It's been all gone for a few years now.

The U.S. eliminated their use of silver in currency in 1964 and most other countries did likewise around the same time.  Countries used to maintain large silver supplies for and as currency, and along with the U.S. all those have been sold into the market.  Now that the artificial surplus from governments has been absorbed (finishing during the 1990's or early 2000's) the silver market is finally reflecting current supply and demand typical of other commodities.  Yet it still is a monetary metal, and there is an unknown amount in private hands in addition to ETF holdings waiting for the right price to sell...

Silver is almost at par with gold. It is a hedge against inflation. Silver is very useful nowadays especially in the computer hardware industry.

shgrunewald wrote: Silver is almost at par with gold. It is a hedge against inflation. Silver is very useful nowadays especially in the computer hardware industry.

Anyone know what that first sentence might mean?

MediumTex wrote:Anyone know what that first sentence might mean?

Recent price appreciation?

New dental crown technology?

WildAboutHarry wrote:

MediumTex wrote:Anyone know what that first sentence might mean?

Recent price appreciation?

New dental crown technology?

He wrote: "Silver is almost at par with gold."

I don't know what that means.  I don't think it had anything to do with dental applications.

I should have put a smiley after the dental line

SLV and GLD have similar price run-ups since 2006.  SLV actually beats GLD.  Maybe that is what "almost at par" refers to.

Gold seems to have a "flight to safety" role that silver doesn't. In 2008 gold was the savior out of the four PP assets for a UK based PP (because the £ devalued). The silver price crashed dramatically in 2008 against pretty much all currencies (did it even fall in value against Icelandic currency?). I wonder whether the huge central bank involvement in gold actually is what confers on gold the flight to safety characteristic that makes it work well in the PP.