Ok... heres what I dont get about gold and silver

[blai745]

Ok... here's what I dont get about gold and silver

Ok here's what I dont get..btw I am an avid PM investor/ survivalist.. Lets say I make $750 a week which equals to $36,000 a year...And thats about the average MIDDLE ClASS male.. well I did some research and turns out that people in the 1920's-1930's made about $1000 a year.. ( this was when our dollar had meaning and we where a great productive country)

So basically the average man made about $20 a week or 20 SILVER peace dollars a week or One $20 St. guadians GOLD piece.
Now put this in todays terms... $750 per week and with a silver peace dollar worth about $33 of silver. I would be able to buy about 22 peace dollars a week... meaning Silver has kept its value as money as it did in the old days...HOWEVER I would not be able to buy a $20 gold piece seeing it is now worth about $1700 in gold value... ( a $20 saint guadians gold piece is not a full troy once of Gold)

So whats wrong here...I can make the 20 silver morgan/peace dollars like the old timers..but I cant offord the $20 GOLD piece like they did....Does that mean GOLD is overvalued... Kinda seems that way. Plus Silver/ Gold ratio is 44 to 1... when historically it around 16 to one.... So silver is kinda undervalued..but it still kept its value as money ie the the above example.

Any thoughts??

 

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[jim4silver]

Re: Ok... here's what I dont get about gold and silver

In the past, many governments set an "artificial" silver to gold ratio at 16 to 1, so the prices of gold and silver were fixed by the gov and not determined by markets.

Back until 1934 the price of gold was fixed by the gov at just over 20 bucks per ounce and at 35 bucks per ounce until 1975. So unlike today the price did not fluctuate back then.

For the most part silver is looked at as more of a commodity than a monetary metal in current times (excluding by silver bugs), where gold is thought of as a form of wealth storage and is purchased by world central banks and held as a form of "money" in times of uncertainty.

So any exact comparison between back then and now is probably not possible.

Perhaps a better way to find a metal's "true value" is to find out what it costs to product an ounce (dig it out of the ground and turn it into a bar). Back in January of this year, I read it was costing an average of 1000 per ounce to produce an ounce of gold (depending on location, fuel costs, etc this probably varies a bit), and silver was costing under 10 bucks an ounce to produce (based on what I read from various mining companies).

So if cost to produce vs. market price has anything to do with "value", silver would seem to be overvalued right now relative to gold.

PS Around Dec 2010 Platinum cost right under 1700 an ounce to produce, and its current market price is just a bit less than gold. Thus, unless we get a big correction in silver or gold, my future PM purchases will be platinum in that (to me) it looks like a better bargain.

Jim

 

[SilverFace]

Re: Ok... here's what I dont get about gold and silver

I was just mentioning something similar to this on another post. Right now gold is about twice it's all time highs of 30+ years ago and silver is below it's highs of that same time period (in nominal values). Silver prices are more volatile than gold and silver prices should start to increase again sometime before too long and to get back closer to the historic ratio of 16:1. So what that means is silver is a better "investment" right now than gold although both metal prices as well as all commodities prices in general are going much higher - THANK YOU FEDERAL RESERVE!

 

[jim4silver]

Re: Ok... here's what I dont get about gold and silver

I was just mentioning something similar to this on another post. Right now gold is about twice it's all time highs of 30+ years ago and silver is below it's highs of that same time period (in nominal values). Silver prices are more volatile than gold and silver prices should start to increase again sometime before too long and to get back closer to the historic ratio of 16:1. So what that means is silver is a better "investment" right now than gold although both metal prices as well as all commodities prices in general are going much higher - THANK YOU FEDERAL RESERVE!

I would agree that silver will probably have higher percentage gains than gold at some point over the next couple years, but I would not bet that the 16 to 1 ratio is a sure thing. Said ratio was set for centuries by several governments in that the prices of silver and gold were fixed. Thus, that ratio did not happen due to market demand but instead by government decree, and when the fixed pricing of gold and silver ended so did the 16 to 1 ratio.

Not saying it won't happen, but I would not bet the farm on it either.

Jim

 

[SilverFace]

Re: Ok... here's what I dont get about gold and silver

Yeh, I'm not too focused on that specific 16:1 ratio myself either. But if silver prices were at near double it's historic highs right now like gold is then silver would be near $100oz and that would put the ratio near 18:1. I think it's a good idea to own both (as well as pm stocks - many of which are way off their highs right now) but because silver prices haven't kept pace with gold and the ratio right now (44:1) is so large I continue to think silver is a much better "investment" in the long term.

 

[blai745]

Re: Ok... here's what I dont get about gold and silver

In the past, many governments set an "artificial" silver to gold ratio at 16 to 1, so the prices of gold and silver were fixed by the gov and not determined by markets.

Back until 1934 the price of gold was fixed by the gov at just over 20 bucks per ounce and at 35 bucks per ounce until 1975. So unlike today the price did not fluctuate back then.

For the most part silver is looked at as more of a commodity than a monetary metal in current times (excluding by silver bugs), where gold is thought of as a form of wealth storage and is purchased by world central banks and held as a form of "money" in times of uncertainty.

So any exact comparison between back then and now is probably not possible.

Perhaps a better way to find a metal's "true value" is to find out what it costs to product an ounce (dig it out of the ground and turn it into a bar). Back in January of this year, I read it was costing an average of 1000 per ounce to produce an ounce of gold (depending on location, fuel costs, etc this probably varies a bit), and silver was costing under 10 bucks an ounce to produce (based on what I read from various mining companies).

So if cost to produce vs. market price has anything to do with "value", silver would seem to be overvalued right now relative to gold.

PS Around Dec 2010 Platinum cost right under 1700 an ounce to produce, and its current market price is just a bit less than gold. Thus, unless we get a big correction in silver or gold, my future PM purchases will be platinum in that (to me) it looks like a better bargain.

Jim

thats some good input about silver costing 10 bucks to produce.. But in the ratio actually the coinage act of 1873 the goverment embraced Gold to be monetized and demonitized silver...and even back in the late 1890's till now the ratio has been from around 30-40ish... heres a video I dont really know about platnium becuase its more of a key industrial metal and right now our industries across the world are more or less hurting...

 

[Marchas45]

Re: Ok... here's what I dont get about gold and silver

Great video blows the conceived notion of the 16-1 ratio out the door. Now I'm undersanding it more.

 

[jim4silver]

Re: Ok... here's what I dont get about gold and silver

I dont really know about platnium becuase its more of a key industrial metal and right now our industries across the world are more or less hurting...

You're right about the industrial aspect of platinum. It is more like silver than gold in that sense. For a couple of years one of my coin dealers kept bugging me to buy platinum instead of gold and I thought he was crazy. But recently as gold and platinum became equal in price I started doing research. From a "logical" point of view Pt. is a far better deal now than any other PM in my opinion (with silver at $40+). That doesn't mean it will produce the best results in the real world though.

What I think makes it a "safer" bet short and long term than silver and gold is that it is extremely scarce and it has many essential industrial uses. Many of the "expert" pundits talk about its use in catalytic converters, which is the primary use for Pt. However, it is also used in oil production, LED screens, the medical industry, etc. It also has a wide use as jewelry especially in Japan and China. Further, its current spot price is only about $100 above its cost of production, unlike gold and silver which are selling for far more than their costs of production. There are no really large above ground stockpiles of Pt. like there are for gold and silver. If there was ever a supply disruption due to mining problems like strikes, political turmoil, etc, it could affect price really quick. Most of the world's Pt comes from South Africa, then Russia. Gold and silver mines exist virtually all over the world.

I am holding my Pt for longer term and not short term gains, in that I don't think they will ever stop making cars in the future, and in foreign countries they are making more diesel engine cars than gas. That is good for Pt. because in diesel engines the catalytic converters need far more Pt. than a regular gas engine, which can use catalytic converters that only have a small percentage of Pt. and a larger percentage of cheaper Palladium. The amount of Pt. in a catalytic converter is measured in grams, so I don't think any increase in the Pt. price will stop people from buying new cars, which now cost well over $25K average in the US. If the different world countries keep increasing their demand for more "green" vehicle laws, it will further increase Pt usage as the growing and prospering BRIC countries implement regulations requiring appropriate catalytic converters on their cars.

Also, I believe that someday in the future as the big money is looking for safer alternatives like PMs, Pt. will catch on as a money storage vehicle like gold is today, but because it is more rare and has many good uses, it might seem more attractive for future appreciation than gold, which for the most part has no other economical uses than as money storage and jewelry.

If a Pt. substitute could ever be somehow manufactured though, it would negatively affect any future appreciation, but I don't think that is going to happen or it would have by now. And even if it could be done it would probably cost more to produce said substitute so it would negate any reason to make it in the first place.

If gold starts to drop in price relative to Pt. or if Pt. rises relative to gold, I am done buying Pt. and will go back to gold or silver. But for now I am only buying Pt. as I can afford. Not that it matters, but to me it really lacks eye appeal compared to a nice MS St. Gaudens or Liberty, etc.

Just for fun contact some of your local coin dealers and see how much Pt. they have in stock at any given time. My local shops have lots of gold and silver in different forms pretty much all the time, but usually don't have more than 1 to 5 ounces TOTAL of Pt. bullion in stock at any one time. And sometimes they have none (at least since I have been into Pt for the past few months or so.)

Jim

 

[homefires]

Re: Ok... here's what I dont get about gold and silver

It's called Inflation!

One Silver Quarter can buy you One Gal of Gas today just like it did back when.

 

[Tuberale]

Re: Ok... here's what I dont get about gold and silver

Gold, silver and platinum historically have had wide fluxuations in value.

Price varies with demand.

None are edible.

In 1920, platinum was worth $30/ounce, and was difficult to work with. The extremely high melting temperature made working in platinum difficult, and it's hardness made polishing difficult as well.

The same thing applies to most of the platinum-group metals: osmium, iridium, palladium, platinum, indium, etc. You might be surprised how many college-educated people still don't know what these elements are, or what they are or can be used for.

Prices for any metal are dependant on what people *think* the material is worth, and what they can *get* for it.

 

[Mackaydon]

Re: Ok... here's what I dont get about gold and silver

My 2 cents: Gold is scarcer and in higher demand (than silver) when economic and financial conditions around the world exist as they are today; therefore, a greater price differential between silver and gold.
Don....

 

[Silver Surfer]

Re: Ok... here's what I dont get about gold and silver

From what I read, gold is NOT more scarce than silver.... And when it comes to the cost of production issues, I can't help but think that simply producing gold or platinum is relative to the "wow" factor of producing a PM, and silver is still though of as an industrial metal by the masses, no "glam" associated with it like gold and pt... So maybe those people who help produce gold and pt demand more money, thereby increasing the cost?
Kind of like Govt contracts vs civilian? They pay people and themselves more, which means the product they sell the Govt can "cost" more to produce, so they can charge crazy high prices to produce the same product to the Govt than what civilians pay?
Lastly, oil is used to strengthen my argument, they would not (as we see in this country's oil production) even produce a product with such a small profit margin?
But admittedly, I am always suspicious when it comes to the justification numbers that the market puts out there...
Silver is undervalued if demand and supply is truly what factors the market.... China citizens being finally allowed to own silver should have alone caused a spike and higher sustained price than we see at this time. Even if only 3% of them invested in silver, with billions of them it should have impacted the market a lot, and it really didn't have that much effect... Of course, that is only my opinion, and I am often wrong.. ;-)

 

[blai745]

Re: Ok... here's what I dont get about gold and silver

It's called Inflation!

One Silver Quarter can buy you One Gal of Gas today just like it did back when.


http://www.youtube.com/watch?v=z6NfXk7Bvc8

I dont think you read my entire post...I already know that..hence The average working man made about 20 peace dollars back then...And I now make that same amount..."20 peace dollars"

 

[Silver Surfer]

Re: Ok... here's what I dont get about gold and silver

I got that point, and it is spot on.... Things havent changed much when it comes to silver, I think Gold is simply more "desirable" than silver by the masses.. No one is impressed when you say "I have 30 oz of silver", compared to "I have 3 oz of gold".... Yellow is prettier... LOL..

 

[jim4silver]

Re: Ok... here's what I dont get about gold and silver

From what I read, gold is NOT more scarce than silver.... And when it comes to the cost of production issues, I can't help but think that simply producing gold or platinum is relative to the "wow" factor of producing a PM, and silver is still though of as an industrial metal by the masses, no "glam" associated with it like gold and pt... So maybe those people who help produce gold and pt demand more money, thereby increasing the cost?

Generally the "costs" to produce gold, silver, platinum, palladium, etc, are reported by the mining companies in their corporate statements. It is probably not possible to come up with a "one size fits all" cost for any particular asset, since different companies in different locales may have different costs/rates they pay for labor, electricity, etc.

Also, many PMs are not mined specifically but are found incidental to other primary metals being mined at the time at the location. That would seem to make it even harder to define costs.

Different PMs are found in different types of configurations in the earth and in different climates/zones, etc. I don't know as much about gold and silver in this sense, but I have been doing much reading on platinum. Around 79% of the earth's supply of platinum comes from South Africa. The way the ore is found there generally is in a giant, bowl shaped formation in the earth (roughly 350 kilometers wide- picture a bowl that big buried into the ground). The edges or rims of the "bowl" are mined at a diameter of only 1 meter thick.

From what I have read they now pretty much are mining in the lower part of the bowl (deeper into the earth) because the rim parts have been extensively mined. Some mines are digging 2000 meters deep
and due to the great heat that far down it takes much electricity and fuel to cool the mines enough for miners to enter. The miners there demand large pay increases yearly and it is not uncommon for strikes to take place which shut down production.

With the rising fuel, energy and labor costs it is getting much more costly to mine platinum and one of the larger mines reported in late 2010 it cost over $1700 to produce just one ounce of platinum. I believe that as costs of everything go up and the metal gets harder to get to for mining, the cost to produce an ounce will keep going up.

If the spot price gets too low for the mining companies to make sufficient profits, they will stop working most likely. This is what happened to many silver mines in the late 80s through the 90s. But with silver there were still large amounts above ground for industry needs, from centuries of mining and all the bullion, flatware and coinage, etc being recycled. Platinum was not mined for thousands of years like silver and gold, and really didn't get noticed in the scientific world until the 1700s, even though indigenous people were making artifacts and such out of it for centuries.

I am not recommending anyone to put their investment cash into platinum, but I find the facts surrounding it very interesting when trying to determine the best place to put one's long term PM money. Short term it could get hit but the cost of production should create a bit of support in the price if it goes lower. I think short term silver will still be best for profits, but at some point as the price continues to rise more and more silver mines will get online. From what I have read there is still lots of silver in the ground in many places, and if it only costs $10 or so an ounce now to mine it, $50 or $100 silver is going to bring out the bulldozers (or whatever they use to mine it) in large numbers. Even the harder to get silver will be worth going after with such a high profit margin. So while the price may rise greatly in silver, I personally don't think the high price will be sustainable for a long period if supply increases at a dramatic rate.

Just my opinion.

Jim

 

[Silver Surfer]

Re: Ok... here's what I dont get about gold and silver

I never doubt what you say Jim, you are much more learned than I when it comes to these issues.... But I seem to remember reading several articles, when I was trying to decide between gold or silver to invest it, that they stated that all silver had been pretty much mined, and that what we have is simply billions of ounces that have already been used, and recycled and used again.. All the articles were in agreement that silver was much "rarer" than gold due to that...
They seem to be finding a lot of new gold in the world (Australia, Alaska, etc.) but I have yet to read of any new silver streaks found, and with it's price of the last 6 months, I would sure think they would be looking...

 

[jim4silver]

Re: Ok... here's what I dont get about gold and silver

I never doubt what you say Jim, you are much more learned than I when it comes to these issues.... But I seem to remember reading several articles, when I was trying to decide between gold or silver to invest it, that they stated that all silver had been pretty much mined, and that what we have is simply billions of ounces that have already been used, and recycled and used again.. All the articles were in agreement that silver was much "rarer" than gold due to that...
They seem to be finding a lot of new gold in the world (Australia, Alaska, etc.) but I have yet to read of any new silver streaks found, and with it's price of the last 6 months, I would sure think they would be looking...

I may be wrong on it SilverSurfer and am just giving my opinion. I too have read many articles that claim that all the silver is disappearing and I believed those claims for a long time. However, I have since come to the conclusion that the silver deficits often mentioned are overstated (again just my opinion).

First, while it is true that silver is now used up in many applications (in small amounts that are not recycled), back just 30 or so years ago most of those types of applications didn't really exist. Much of the silver used in the "olden days" such as in X rays, etc, was recycled. Remember too all the silver coins being made for hundreds of years plus all the sterling items created. Those don't get thrown away or used up. Just melted to make .999 bars perhaps.

I don't know how anyone in the world could possibly know the exact or even close estimates of above ground gold and silver. Since much is probably hoarded away by governments and wealthy people, how can a fair accounting be done? As far as future supplies I try to rely on reports from mining companies regarding how much silver they produced in any given year vs. how much gold produced, etc. I don't mean preliminary estimates at the early stages but real ounces pulled out of the ground. I don't have any cites to share but with google searches they can be found fairly easily.

As far as retail outlets if you go the the Tulving website, they have over 550,000 ounces of silver for sale right now. That is just one (albeit large) coin company here in the US. Plus, there are new mines being developed in many countries like Mexico, Peru, and others all over the world. Old mines once thought to be not worth mining are being reopened as the high price of silver makes it a profitable venture even though the silver might be harder to get to.

PS The one thing that could be true in my opinion that is often talked about by many online pundits is that if enough people demanded delivery on the Comex there could be a "default" in that there is not enough silver in the warehouses to fulfill all the contracts. But that would not necessarily mean that there is not silver located in other places around the world, either in vaults or underground. There was much talk a few months ago about how the Comex was going to default on silver but I don't believe I saw where that happened, but maybe it will happen someday?

Over time with more and more silver being used in everyday applications it could one day result in a situation where there is more above ground gold than silver, since gold doesn't really get used up. But my personal feeling is that we are not near that yet as much as I would like to believe it since I am a silver bug. We will know the answer probably in 5 years or less if PM demand keeps going up.

I hope this correction keeps going and I can get some sub-$30 silver.

Jim

 

[blai745]

Re: Ok... here's what I dont get about gold and silver

Gold, silver and platinum historically have had wide fluxuations in value.

Price varies with demand.

None are edible.

In 1920, platinum was worth $30/ounce, and was difficult to work with. The extremely high melting temperature made working in platinum difficult, and it's hardness made polishing difficult as well.

The same thing applies to most of the platinum-group metals: osmium, iridium, palladium, platinum, indium, etc. You might be surprised how many college-educated people still don't know what these elements are, or what they are or can be used for.

Prices for any metal are dependant on what people *think* the material is worth, and what they can *get* for it.

Im suprised how many college-educated people still dont know what MONEY really is... Our monetary system is purely a dream and that dream has always had a 30-45 year life span before going straight to zero.... and for the last 5000 years gold and silver have been money... you cant argue that.. people can manipulate the price either up or down...BUT THE VALUE always stays true...

you look at any economic catastrophe in agentina...zimbawea...germany and they use there gold jewelry or panning for gold and used as a currency...and you see just about every country use silver as there monetary coinage up until fiat came the easy big bucks for banksters.....
It be thee Gold and Silver Im after!!! Welcome to Treasure Net.. Drink Up Me Hearties Yo HO