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Old 11-19-2011, 05:11 PM   #1
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Question Gold to Silver Ratio - what should it be?

Curious what you guys think on the Silver vs Gold debate. Any good debates about that here? What ratio of silver to gold holdings makes sense. Been reading some interesting stuff from Sprott about supply / demand of silver looks very compelling.

May main concern is central banks own gold, not silver so wonder in the future if that will play a role. I am sure if gold goes much higher silver will follow as well but wonder of the ratio could possibly go back up from he current 50s to 100 again. could go down also. Just curious how you guys are thinking about this issue.

This article was very interesting i thought. was written in 2004 and obviously proven correct but thought his comments about silver scarcity were very compelling.

http://www.gold-eagle.com/editorials...mel080104.html

His pt about people buying gold because its more valuable and therefore easier to store and therefore has more value thought was a very interesting pt. pointing out the circular aspect of the logic.

here is sprott's bullish take on silver:

http://www.sprott.com/main3.aspx?id=54

Its called Follow the Money.

Thanks for all the insight!
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Old 11-19-2011, 05:44 PM   #2
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The gold/silver ratio dating back many years into the pre 1900's was historically about 16:1. I believe this was because of the relative abundance of gold to silver in the earth's crust, and thus the relative cost to mine the metals.

Gold: 4 parts per billion, or 0.0000004% of earth's crust
Silver: 75 parts per billion, or 0.0000075% of earth's crust

However, with the onset of global banking, fiat money, and fractional reserve banking, the heavy market price manipulations began, and the ratio has swung wildly over the last century.

My opinion is anywhere from a 30:70 ratio to a 70:30 ratio of gold-to-silver for investment purposes is reasonable. It really depends on your tolerance for the large price swings in the price of silver, as gold tends to be more steady. Of course the hard-core gold bugs or hard-core silver bugs would argue 100% in gold or 100% in silver.

It is very hard to predict what is going to happen to the ratio due to the market dynamics (aka manipulation?), but it is my opinion that silver should be priced more per oz than it is now.

One line of reasoning is that it is actually a more rare metal than gold in the sense that a large portion of what is mined goes to industrial usage, leaving less silver available in tradable form (bullion) compared to gold. In other words, look at how much silver bullion is above ground as compared to gold.

According to the World Gold Council, there is approximately 2 billion ounces of gold bullion, while there is approximately 1 billion ounces of silver above ground in bullion form today.

This is a good question posted by escobar, having been widely debated over the years. See historic G/S ratio chart below:
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File Type: jpg GS ratio.jpg (36.7 KB, 10 views)
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Old 11-19-2011, 06:26 PM   #3
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Here is one person's view on what ratio of gold and silver to buy, depending on how much you have to spend.

http://the-moneychanger.com/commandments.phtml

Quote :
Ten Commandments For Buying Gold & Silver :

...
If you want to invest in gold and silver to protect your assets and have something easily divisible and spendable in the event to hedge currency depreciation or collapse, then:

v If you have $5,000 or less to spend
At least half in silver – either US 90% silver coin or 1oz. Silver Rounds

half in British Sovereigns, French 20 Francs, or 1/4 oz. American Eagles. (All references to “ounces” below mean troy ounces of 480 grains or 31.1034 grams).

v For $10,000 buy
two-thirds US 90% silver coin or 1oz. Silver Rounds

the balance divided between a fractional coin like British Sovereigns, French 20 Francs, or 1/4 oz. American Eagles AND Krugerrands, Austrian 100 Coronaes or Mexican 50 Pesos..

v For $25,000 buy
two-thirds US 90% silver coin or 1oz. Silver Rounds

half of the remaining third in Sovereigns, French 20 Francs, or 1/4 oz. American Eagles, and the balance in one oz. Krugerrands, Austrian 100 Coronas, Mexican 50 Pesos, or American Eagles.

v For $75,000 buy
two-thirds US 90% silver coin or 1oz. Silver Rounds

$5,000 worth of Sovereigns, 20 Francs, or 1/4 Eagles

the balance in Krugerrands, American Eagles or 100 Coronas. For over $75,000 simply do multiples of this portfolio.




If you want to invest in precious metals to simply protect your assets and don’t think you’ll ever need to actually barter with them, then
v If you have $5,000 or less to spend
half in US 90% silver coin or 1oz. Silver Rounds

half in one ounce Krugerrands or American Eagles, or in Austrian 100 Coronas or Mexican 50 Pesos.

v For $5,000 through $25,000
Put at least half of your money in US 90% silver coin or 1oz. Silver Rounds

Put the rest in one ounce Krugerrands or American Eagles, or in Austrian 100 Coronas or Mexican 50 Pesos.

v For $75,000

Get bags of US 90% silver or 1oz. Silver Rounds for 2/3 of your order

The balance in Krugerrands, American Eagles, 100 Coronas, or 50 Pesos. For over $75,000 simply do multiples of this portfolio.
...
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Old 11-19-2011, 06:33 PM   #4
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Unobtanium makes nothing but good and realistic points. As far as the ratio, I believe 16 - 13 to one is real. When it finally breaks loose, silver wiull most certainly overshoot and pass 6 to 1. That's when saavy stackers flip half the stack and buy back in at a realistic ratio.
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Old 11-19-2011, 07:46 PM   #5
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OK thank you. Good pts. Any case against a higher % of silver vs gold. Or just 50/50. split your bets sounds reasanable.
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Old 11-19-2011, 08:08 PM   #6
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I think silver has a greater chance of greater gains than gold in the coming future, and thus reasoning for a higher % in silver than gold.

However since silver may take some wild swings on the way there, this may not be a good choice for:
1) The person with weak knees, if it causes you to lose sleep at night.
2) The person that is in for the short haul only, unless you are really good at timing the market, of which most people are not.

For a stacker that simply desires peace of mind, then a greater % of gold might fit the bill.

For someone that is buying large $$ value and wants ease of portability, then higher % in gold makes more sense.

For the person in it for the long haul to preserve wealth against the eroding Federal Reserve Note, then you can't really go wrong with either.

So you can see there are a lot of factors at play here, of which I have listed only some. If it all seems a little overwhelming, then a good position would be 50:50 gold:silver.
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Old 11-19-2011, 08:59 PM   #7
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I split escobar's OP off from another thread and then didn't have time to answer it like I wanted to. I know that the common refrain is that the historical ratio since ancient times is 16:1, but when I tried to research this a while back, I was unable to find any hard evidence or numbers to back it up. I've seen the graphs like Unobtanium's sample and this one below (which was originally published in Forbes):



but I was unsuccessful in contacting anyone who put the numbers together to make them.

Regardless, the value ratio historically has represented the relative availability of the two metals for fulfulling their role as money. Should both metals realize remonetization, I think the ratio could easily hit parity given available above ground scarcity of silver these days (as Unobtanium mentioned above). Should only gold be remonetized, I'm not entirely sure how close silver will follow. I'm guessing it will be less than 40:1 though.
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Old 11-19-2011, 09:23 PM   #8
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Very nice graph PMBug; thank you.
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Old 11-19-2011, 10:23 PM   #9
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It would not surprise me at all to learn, in the event that paper derivatives are finally tested and obliterated, that the silver to gold ratio has actually reversed. Even substantially.

For me, gold is an incidental part of my portfolio - less than 10% and falling. Gold is what everyone, and especially governments who don't trust one another, and will want more of to maximize their (governmental only) advantages with, ALL have their eyes on. I find that more than a little disconcerting, and for what I believe are good reasons, given that I can learn from history, and may not be doomed to repeat as an individual.

I don't think gold is so much in a bubble, as physical silver is in a MASSIVE state of deflation and compression which is all belied by expanded paper shuffling. Meanwhile, silver is cheap at several times the price, even on paper, and being CONSUMED even more as a result.

I could be wrong, of course, but I think that silver is the new gold - for private commerce. And I think that is deliberate, based on the rational (but seemingly irrational) art collector who publicly destroys all but a few of some more or less rare, but still relatively numerous pieces of art. Looks like a perfect plan for an end around sneak to me. If silver is not the "new gold", I cannot see how it will not be strong enough to give gold a serious run for its value. The relative value of the physical based on its scarcity will never lie or fail once it is finally known.

I don't even care that much about gold, to be honest. While China and others acquire as much gold as they can amass, and everyone is predicting a return to "gold backed currencies", many also delude themselves into thinking that this somehow means that fiat paper will be redeemable for gold by ordinary people. FAT CHANCE. In fact, I feel fairly certain that the chances of that happening are pretty much NIL. With history as my guide, I can EASILY envision a scenario where history repeats (for the sake of you-name-it) and gold is confiscated once again, shortly down the road - as the exclusive plaything of the gods - sovereign governments only, as they formulate a Bretton-Woods II, but retain the Rooseveltian attitude that gold should be "kept out of the hands of private hoarders who will only screw things up". Long after Roosevelt confiscated private wealth in the form of gold from Americans, silver was left in circulation and remained redeemable, even as gold was still maintained as a check on other governments, to manage their own fiat Ponzi schemes within their own sandboxes. That was a trial run that worked for a time, and the ONLY purpose of gold in their minds. They will all want a crack at that one again I am sure.

I do not see any of this happening with silver, although I could be wrong there as well - which could make silver the "plaything of commerce" - within each sandbox.
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Old 11-20-2011, 01:13 AM   #10
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Originally Posted by PMBug View Post:
I know that the common refrain is that the historical ratio since ancient times is 16:1, but when I tried to research this a while back, I was unable to find any hard evidence or numbers to back it up.
Quote :
Silver often tracks the gold price due to store of value demands, although the ratio can vary. The gold/silver ratio is often analyzed by traders, investors and buyers.[4] In Roman times, the ratio was set at one to 12 or 12.5.[5] In 1792, the gold/silver ratio was fixed by law in the United States at 1:15,[6] which meant that one troy ounce of gold would buy 15 troy ounces of silver; a ratio of 1:15.5 was enacted in France in 1803.[7] The average gold/silver ratio during the 20th century, however, was 1:47.[8] The lower the ratio/number, the more expensive silver is compared to gold. Conversely the higher the ratio/number, the cheaper silver is compared to gold.
Wikipedia

I know most folks don't consider Wikipedia the be all end all of references but I remembered reading this, and wanted to share it here.
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Old 11-20-2011, 02:15 AM   #11
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I absolutely believe in diversification of both silver and gold in your personal stash. As far as a ratio of what to own, are we talking in weight or $$ value? In weight I would say 80/20 silver to gold would be ideal for me, which as you know the $$ value if the gold would be substantially more at these prices. I always keep in mind not only ROI but if SHTF for real, barter with gold would be harder unless you are making a big purchase. Everyday barter would be easier with silver (at current market prices).

As far as the actual silver:gold ratio I would consider between 15:1 - 7:1 silver to be realistic value, which leaves us a lot of room to run. What I find to be a strong fundamental arguement for silver is consumption vs storage. With current consumption and current mining considered, many experts are predicting silver to be the first element on the periodic table to become extinct. Some are predicting within 25 years there will be no more silver to mine, if we continue at current production. Some of them even strongly believe someday silver will be worth more the gold. Take a look at this video I found a while back which explains some of these fundamentals.



P.S. - On a personal note, I find buying silver more gratifying then buying gold. Lets say you go to a bullion dealer today with 4k (Easier analogy with smaller $$ amounts). If you say "I want to buy gold," he would hand you 2 one oz gold coins and maybe a 1/10 oz coin (if he has fair premiums). He will probably put them in an envelope, similar to the ones they have at the bank when they give you cash back, which you can fit easily and discretely in your pocket. You won't be doing much stacking with that. But if you go to him and say "I want to buy silver," he would hand you 10 ten oz bars and 19 one oz coins (or 119 oz in whatever he has). For this pile of metal he will probably bust out a box, probably the size of a shoe box, to fit your purchase in. You won't be able to fit it in your pocket and you can do some stacking with that. Another example is take one of the 10 oz CS gold bars you purchased, you could trade that right now for five 100 oz bars of silver and four 10 oz bars of silver. Which do you think looks cooler in the safe?

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Old 11-20-2011, 06:18 AM   #12
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Originally Posted by white&yellow999 View Post:
are we talking in weight or $$ value
Nice point, as this is often assumed and not mentioned explicitly. Most people refer to $value when talking about investment percentage.

To see the disparity between the two, let's look at a brief example.

25 oz gold, 2500 oz silver, worth roughly
$42000 gold and $80000 silver at today's prices.

By weight, the gold/silver percentage split is 1:99 (1% gold by wt, 99% silver by wt).

By $$ value, the gold/silver percentage split is 35:65 (35% gold by $$, 65% silver by $$).

BTW, very, very interesting video. You and Steven surely seem to be thinking along the same lines.
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Old 11-20-2011, 07:03 AM   #13
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Very interesting comments. My main issue with silver is the weight. I guess you could argue thats like saying oh i didnt buy apple stock when it was at $5 because i had to buy too many shares to make a significant investment.

Like i said i travel a lot and I still havnt found a great storage facility. In the short term I am using safe boxes at small banks. Longer term I fully want a private storage facility. However, any significant dollar investment in silver weighs a lot! I dont know about you but i cant lift 100lbs easily and am actually concerned the boxes might not be able to take the weight.

One comment about the guy above saying all these central banks like china etc own gold. Well like it or not I still think the govts in the future will write the rules. I guess owning what central banks own and are buying gives me comfort because we are valuing the same thing. I mean Jim Rogers talk about commodities all the time. Talks about about how there hasn't been a new lead mine in like 25 yrs. guess that boads well for lead prices but are you gonna start stock piling lead? An extreme example but just to make a pt.

I do feel like when the masses catch on to gold silver should do well because the avg joe wont be able to afford much gold. to the pt above about getting more satisfaction buying silver. Based on historical ratios its possible gold goes to 3k in the intermediate term and the ratio expands to 100 which would keep silver where it is now. not saying that is likely just saying based on recent historical ratios it would not bizarre.
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Old 11-20-2011, 08:22 AM   #14
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Originally Posted by escobar View Post:
... but are you gonna start stock piling lead? ...
Oh hell yeah! Brass too...





I think the ratio of silver:gold that one should own depends a lot upon the amount of wealth one wants to store. It's the same dynamic with regards to copper or nickel. Unless you have the facilities to store 20 million nickels like Kyle Bass, lower valued metals don't scale well for storing a lot of wealth. I totally grok what you are saying escobar. I believe that both gold and silver are going to reward their owners with wealth preservation through the coming "fiat ponzi collapse".
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Old 11-20-2011, 02:49 PM   #15
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Great comment and photo about storing brass and lead, PMBug! Ha ha! It would do us all well to remember that lead is a PM when moving at a high enough velocity.

In my family's case, we have about two oz of silver for each of gold (so the $ value of our gold is much more). I have some platinum too, Pt is for optimists!

Re the GSR, I really would not care to offer a guess. The guy I listen to the most re gold is FOFOA, who predicts an astronomical price for gold when the "paper gold" system breaks. We are talking about numbers like $55,000 / oz (non-hyperinflated 2009 dollars). He has a graph of his price probability distributions in his late 2009 archives.

FOFOA does not much like silver, but concedes it will keep up with inflation or even beat it (I agree with that latter point), but the real action will be in gold.

"Silver is for spending during a SHTF, gold is for wealth preservation to the other side." (not a FOFOA quotation)

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Old 11-20-2011, 05:50 PM   #16
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Originally Posted by escobar View Post:
One comment about the guy above saying all these central banks like china etc own gold. Well like it or not I still think the govts in the future will write the rules. I guess owning what central banks own and are buying gives me comfort because we are valuing the same thing.
OK, one last plea: Look at how that has played out in an historical perspective. When Roosevelt confiscated gold, he forced everyone to accept $20 in Fed notes as compensation...shortly after which each ounce was revalued at $35 (for other governments, not people). That is no differently than how "Eminent Domain" laws work. You may be sitting on property worth millions to developers, including city planners - but the city forces you to sell at an historically prevailing price, and not necessarily speculative or "fair market" rates. Negotiate all you want, but ultimately the government controls the value you must accept in return.

With gold confiscation, a simple appeal to patriotism, whilst denigrating private owners who don't want to lose the value of their wealth as "hoarders and profiteers" is usually all that is needed. How dare you stand in the way of what is necessary to save us all? Why, you are the very greed that put us all in this position in the first place! Instant infamy for you and your cold, dead, freshly pried open fingers.

Of course, that same rationale doesn't wash so well between governments who know better and have the sovereign power to tell each other to kiss their asses. But people? We have already proved time and again that we are NOT the arbiters of value, and will roll over quite easily.

It all boils down to marginal utility - how governments value your property rights versus their power. No contest there, I think.
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Old 11-20-2011, 07:25 PM   #17
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I tend to think along the same lines as Steven, in that I like silver because it is less likely to be confiscated (at least in my opinion) or in some way mostly limited to central banks. In this case silver would be the default real money for regular people.

While I do keep the ratios in mind, I have mainly been letting the market dictate what I stack. Since both gold and silver should be going up in the future (making both a good store of wealth), I'll take what seem like the better deal now, and that has been silver. If gold takes another tumble like it did about 6 weeks ago (granted silver dropped too) then I'll shift back into it a bit more.
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Old 11-21-2011, 07:47 AM   #18
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I hear your concerns on confiscation etc. Believe I share those as well. However, I think this is issue is blown out of proportion. After some research I think my understanding is no one actually went Nazi style into homes taking away gold in the 30's. Yes they said it was illegal to own and was threat of huge fine and imprisenment. But there was no one standing guard in banks looking what people took out of safe boxes. It was more of a patriotic thing to do.

However, if we ever do get to the pt where there are roaming armed soldiers confiscating gold at home and banks why would they stop there? why would they not take all the oil from all oil companies, copper from copper mines, cars from everyone, cell phones so we can't communicate etc...

I think silver is a good investment as well. Just trying to understand better to get my weightings down. But I don't think threat of confiscation of gold over silver is a great one. If silver ever did become reletivley more valuable as people expect then why would the govt not just confiscate that? The idea that they would blindley focused on gold and nothing else doesn't make sense to me. Especially if there is is this ever growing industrial usage. actually u cold make the case they would have more reason to confiscate silver because it has more industrial uses and without it the country could not run.

The reason gold was confiscated in the 30s is because we were on the gold standard and we need to inflate the fx to get out of the recession. we are no longer on the gold standard. The fed inflates all it wants, there is nothing stopping it. So its motivation would have to be purely spiteful. In that case I can think of more important commodities to every day living that r more important for the govt to control: water, oil, copper, wood, etc..
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Old 11-21-2011, 07:58 AM   #19
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Originally Posted by escobar View Post:
... So its motivation would have to be purely spiteful. In that case I can think of more important commodities to every day living that r more important for the govt to control: water, oil, copper, wood, etc..
In that case, the most important one for the people to control are diebold machines and lead.
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Old 11-21-2011, 12:13 PM   #20
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Originally Posted by escobar View Post:
I hear your concerns on confiscation etc. Believe I share those as well. However, I think this is issue is blown out of proportion. After some research I think my understanding is no one actually went Nazi style into homes taking away gold in the 30's. Yes they said it was illegal to own and was threat of huge fine and imprisenment. But there was no one standing guard in banks looking what people took out of safe boxes. It was more of a patriotic thing to do.
That is true - actual convictions and forced confiscations so rare as to be non-existent. It really was unnecessary, and I see even the rationale behind that on the part of government, the first being a well-founded fear that a well-placed SCOTUS ruling that could overturn Roosevelt's Executive Order. Those who voluntarily turned in their gold could not be considered "injured" parties, and would thus not have any standing in court. Secondly, once the ownership of gold was declared illegal, the net effect on the remaining gold was upward pressure on its value, given that all the other gold that was effectively and permanently removed from circulation. The only way you could trade in gold (aside from black market bartering or getting the gold into a foreign country) was to turn it in and accept fiat notes.

In other words, they didn't have to confiscate your gold. Declaring it illegal had all the effect of physical confiscation, as simply making it illegal prevented it from publicly circulating. This stalemate meant that the value of your gold really was confiscated, rendered useless to you even if you retained possession.

Originally Posted by escobar View Post:
I think silver is a good investment as well. Just trying to understand better to get my weightings down. But I don't think threat of confiscation of gold over silver is a great one. If silver ever did become reletivley more valuable as people expect then why would the govt not just confiscate that? The idea that they would blindley focused on gold and nothing else doesn't make sense to me. Especially if there is is this ever growing industrial usage. actually u cold make the case they would have more reason to confiscate silver because it has more industrial uses and without it the country could not run.
That could happen (and does) with any commodity, of course, but it wouldn't be on the basis of silver's use as an international currency backing. Silver as an international currency is way too volatile.

Governments are NOT looking at silver OR gold as "investments". That's fiat-centric market speak, where value and price are conflated and confused, as we mentally confuse a "gain" in the price of gold as an "increase in its value", when gold was the constant, making the currency the variable.

Governments will all be forced into gold backing their currencies for the same reasons rational people want the same thing: for gold's reliable constancy as a STORE OF VALUE, and its ability to provide a check on value based on its natural scarcity. Governments absolutely need this as a check on the value of other governments, including determining the rate of free-fall of their currencies under their respective fiat Ponzi schemes.

Gold is far more valuable to governments in this regard given the fact that the supply really is stable. Most of the gold mined is still above ground. Silver would not be a reliable indicator at all, given its many uses, including its rate of destructive consumption, making it more like an exotic investment based on its continually increasing rate of scarcity - especially in the more developed countries.

Trying to make silver an official currency would also place governments in the position of having to artificially curtail its consumptive uses "for the public good" (which, as you stated correctly, could happen anyway).

Originally Posted by escobar View Post:
The reason gold was confiscated in the 30s is because we were on the gold standard and we need to inflate the fx to get out of the recession. we are no longer on the gold standard.
I think it's important to remember that the currency was inflated through fractional reserve lending, with multiple artificial claims to the same physical gold, long before it was confiscated, and even while we were on a gold standard. The Great Depression only happened as a result of a massive contraction of all the paper derivatives that had already inflated the currency, and should never have been circulated in the first place. In other words, the Fed put the entire banking system of the country on cold turkey withdrawals. Had those multiple contradictory claims not existed from that inflation (i.e., no fractional reserve banking tolerated), such a massive artificial contraction of the so-called "money supply" could not have taken place to begin with.

So "the need to inflate the currency to get out of the depression" was only saying that without adding more of the heroin that should never have been injected into the economy to begin with, the patient would die. And it's true. But an acknowledgment of the nature of the addiction, with a plan for getting off that addiction, was never part of anybody's plan - which turned Keynes' "temporary and selective methadone solution" into rationale for a "more is always better" full-scale heroin trafficking operation.
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