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The real price of silver: $2000 an ounce? | https://www.themorganreport.com
If their money was worthless, it would be silver.
The silver market, like other commodities such as soybeans and cotton, are all derivatives. The price adjustment mechanisms for these are a contract. For example, thousands of theoretical silver ounces are traded daily. While only one percent of physical silver is brought to market through the Comex settlement. This – 1% of deals apply across the commodity sector.
The other, 99% of the time the fiat currency (fiat fantasies) is settled on this contract, which is why silver doesn’t thrive in a fiat money system. Think about it, if 99% of the time silver was only in name and you only had to make a good one out of a hundred times, how much control would you have in the market?
So where is the real price discovery of derivative contracts like silver?
They can be determined as long as silver is available, and people are willing to pay large premiums on the spot price of some silver coins, such as the Silver Eagle.
The silver market consists of the silver derivatives price and the retail price. Derivatives price is based on 1000oz commercial bars while the retail price consists of government coins, medals and bars of different sizes.
Retail silver has a huge premium. In other words, if everyone buys through retail, and the 1,000-ounce bars are not sold and are instead converted into a retail product, the retail market will determine the price of silver. This is not currently the case, but the retail market is getting stronger. In fact, when The Silver Eagle started, they could barely sell 10 million ounces of silver a year, and now they’re selling over 40 million ounces of silver.
If silver eagles were available through the US banking system, demand could easily be up to ten times greater. Imagine being able to convert fiat currency into real money in the bank – what a concept.
Where does the public get their silver as more people are buying and hoarding?
First, the technology for mining has changed, making it possible to mine a much larger amount. In the 1970s and for decades prior, the maximum amount of silver mined was 350 million ounces per year. In 2000, this amount increased to 550 million ounces and today, that amount is set at 850 million ounces. This equates to a 300 million ounce increase year over year since the early 2000s.
After that, silver is always sold reluctantly. For example, some people simply lose their jobs and have no choice but to sell silver to make ends meet. Or the silver stacker dies and the family sells to settle the estate.
Finally, the Indian population saved silver for several centuries. The surplus money of citizens was not in banks, but silver, and primarily jewelry. Silver price in rupee was all-time high in 2020 due to tough conditions like COVID, job losses, crop failures and more. Indians were motivated by high price and/or economic conditions to sell their silver savings. There have been a lot of silver stripping in India which is very important but is not widely discussed.
How does money supply affect gold and silver?
You can determine the value of gold in paper dollars by dividing M0 the base money supply (the existing currency) by the amount of gold (dollars/ounce of gold). In the 1980s there was a huge spike in gold to $850 in order to meet the money supply, during which time silver also rose to $49 an ounce. When silver is valued as money, its price can be determined by calculating one-sixth of the price of gold. If the same mathematical formula is used with today’s basic money supply and 265 million ounces for the treasury, the price of gold is estimated at 15,000 an ounce. In addition, if the ratio of gold to silver is used in a ratio of 15:1, the price of silver is estimated at 1 kilo per ounce.
This shows how undervalued silver is based on how much money was printed. I’m not suggesting this should be the price of silver, but I think we’re headed in that direction because more people are buying silver every day.
The trend continues until it stops. This trend is the petrodollar.
50 years ago, Saudi Arabia agreed that all oil purchases should be made in US dollars. This drove the Saudis away from gold and also transferred the surplus to buying US bonds. In exchange for this arrangement, the Saudis were guaranteed military protection, which led to the rise of the petrodollar.
Saudi Arabia recently concluded a military agreement with a new superpower: Russia. What does this mean for the US dollar? If the original military contract was broken now, the petrodollar would no longer be valid as a world-famous currency. Therefore, there will be a shift to a new system. We don’t know what this will look like, although I believe that financial authorities should have a central bank digital currency in place. Moreover, this change will be minor and the dollar will remain strong compared to other currencies for some time. However, I’m sure the trend has changed and could be huge for the commodities and precious metals sector.
More potential evidence that silver is on the rise…
The data collected on silver trading trends over the past 40 years has resulted in an almost perfect cup and handle when charting. History has shown that the longer it takes to make a mug, the greater the potential.
For example, an athlete with a longer base (time spent training) will have a better race because they put in a lot of effort over time to build a foundation. Likewise, once the handle portion of the graph begins to rise, there is usually a turning point; The trend is known to either fail or continue. However, with a massive 40-year rule, what do you think will happen with silver?
The highest and best use of silver is money…
The use of silver as currency goes back to biblical times and has been used in this way for thousands of years. It was successfully used as exchange for labor because the value of silver was compatible with labour.
However, if it was used today to pay wages, more than the annual supply of silver would be exhausted in just one day. This was determined using data from the 2019 census and some basic math.
In the 2019 census, there were 157 million workers in the United States. The average work day was 8.8 hours and the median wage was $26. This adds up to 1.2 billion man-hours per day while the annual supply of silver is 1 billion ounces. This is significant because the average wage ($26) was roughly the price of one ounce of silver in October 2021), which explains why the silver supply would be lost if it was only used to pay wages.
This means that we would need roughly 8 ounces of silver to pay for a working day for everyone in the workforce. Conversely, 1/10 an ounce of silver was earned for a day’s work in ancient Rome. If silver had the same value now (not price), as it had in ancient Rome, then 8 ounces of silver would equal 80 working days. If we do the math with a factor of 80 days and the recent average price of silver, we are looking at $2,000 in silver.
I’m not suggesting that silver should cost $2000 an ounce now, but that’s what the value was when using only silver was money!
“Those who do not see the light will feel the heat.” Silver is not only known to be the best heat conductor and light reflector in the world, but it is always more appreciated when used as a currency. With a new monetary system on the horizon, we should take a closer look at the silver market.
I discussed all of these topics and more in my recent discussion with Bo Polny. You can watch the full video here.
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