Hello All,
Why is silver so cheap compared to gold? I had been looking for an answer to this question for a while now. I did not find a convincing answer until now; May be I wasn’t looking at the right place.
Pre-Requisite Knowledge: Gold/Silver is money and their price is controlled by major bullion banks through market manipulations on COMEX and LBMA. They do this to retain the public confidence in the fiat monetary system. The details about this argument is out of scope for this article; you may read about it elsewhere.
The Original Question (once again):
I understand the price manipulation of gold/silver. But for silver especially, if the current mining ratio is 9:1 and availability on earths crust is 15:1 and if there are tons of industrial uses for it, what incentive is there for "them" to hold the price down so low at ~ 70:1? If there was an enormous shortage of silver, as most precious metals analysts present, couldn’t they let it rise a few times from the current price? That should still retain the confidence on the fiat system and also reduce pressure on such enormous COMEX short positions.
Answer 1 (Lynette Zang):
Lynette argues that the banks and individuals are suppressing the price to accumulate a lot of gold & silver for themselves. They are getting ready for the wealth transfer. She considers silver as a monetary metal, same as gold; gold as primary & silver being secondary. Not convincing enough!
Reference Q & A with Lynette Zang - YouTube
Answer 2 (Keith Neumeyer):
The closest answer I had got so far was from Keith Neumeyer, the CEO of First Majestic Silver Corp. Neumeyer thinks the banks are pushing the silver price down due to the commercial aspects of it. They would be able to deliver the actual physical metal cheaper to the Sonys, Tiffanys and Toyotas etc. But it wasn’t convincing enough for such a big disparity in the price.
Reference Keith Neumeyer Interview - CrushTheStreet - YouTube
Answer 3 (Charles Savoie):
Silver is a strategic war metal!!!
Charles Savoie probably knows all about silver. The wealth of knowledge he has accumulated about the metal is so great. But unfortunately, he is not very good at “telling the story” or rather not good at “explain to me like I am 5". Although, I had looked at his research on (www.silverstealers.net) earlier, I found them to be too detailed and too long to read without losing interest. And then I recently stumbled upon his article http://www.silver-investor.com/charlessavoie/cs_nov04.htm and I guess I have the answer.
The above article is actually a couple a hundred pages long. Again, as I had expected, it is way too detailed and took me a while to go through. I have to admit that I had to skip parts of it and I also got lost at times due to boredom. But here are are the interesting points I learned:
Apart from the numerous usages that we already know about, silver is very important metal during wartime because it is :
- an essential metal in building battleships, bombs, guns, shells, tanks, torpedoes, trucks, airplanes and submarines
- used in container linings, mirrors, batteries, medicine, dentistry, chemical industries, bus bars, electromagnets, desalination equipment
- can withstand shock and vibration inside airplane engines at high speed; essential component for bearings.
- used in brazing alloys and solders giving extra strength to joints.
- has high corrosion resistance: hence used as linings in tanks, autoclaves, tubes etc.
- irreplaceable component in various instrument panels across radars, satellites, defence equipments because of great electric and thermal conductivity.
- was extensively used in wartime photography in films and development solutions (most of which is now lost)
- is used in Atomic weapons and also in making them.
- … actually it’s a lot more than this if you are patient enough to scavenge it from that article
In addition,
- use of silver released a lot of copper, nickel and zinc for other wartime purposes
- helped (or may be still helps) in weather manipulations (eg: creating rain although I’m not too sure about this)
Charles mentions about “Silver Users Association” who lobbied since WW2 to hold the price of silver down and also manipulated the treasury into selling stockpiles to keep the price down. This must have helped the defence contractors to profit from cheap silver. There were government interventions at times in the form of rationing of silver for non essential requirements (eg: jewellery, silverware or other civilian use) and also applying artificial price caps on imports.
He believes the treasury has run out of strategic stockpiles since the year 2000 and investor positions in COMEX is all that is left. They could possibly pay off the investors at current prices and use the silver if the need arise.
As an investor, it is probably safe to assume that the silver stockpiles might have fallen and there will soon be a "real" shortage of silver. The COMEX short positions are probably their last resort to suppress the price. But considering the fact that they successfully managed to suppress the price for more than 75 years (or actually may be since 1873), I am very wary about getting my hands too dirty.
I believe, silver stackers are actually betting against the fall of the United States. That is because if I am connecting the dots here correctly, a real silver-shortage or moon-shot price of silver will bankrupt not only the bullion banks but also the defence contractors or what we currently know as the "Military Industrial Complex”.
Charles considers silver as the “fuel” for war. So if the cost of going into war suddenly becomes much more expensive, America would lose control of their strategic locations (eg: the middle east) leading to a stall in the petro-dollar system or may be a collapse altogether. End of Dollar? Maybe!
All of that that I deduced could be wrong but at least I do now have a more convincing answer to “The Question". I wish I could go through the article once again and come up with a much better summary but I am too worn out to look at it again.
I would really appreciate your thoughts. Thank you for your time!!!