Price Manipulation, Industrial Use and Market Ignorance: The Story of an Undervalued Asset
By Richard Ravarino
Recently at Texas A & M, Presidential Candidate Ron Paul exclaimed, “We need to have a full audit of the Federal Reserve and get back to sound currency as the Constitution dictates – A gold standard!”
But is that a relevant concept in 2012, a full 41 years after we have last left the gold standard in 1971? It is definitely a way to inhibit the insane capacity that the Federal Reserve currently has, to print off $40-$50 Billion anytime any of the Fed’s politically connected friends need a bailout, but without such a system, could our monetary policy avert the kind of panics we’ve seen in monetary shortfalls, like the crisis of 2007-’08?
According to Matt Bishop, Associate Editor of the magazine The Economist, and author of the new book In Gold We Trust? Says, “It’s really the question, as we like to say, of the canary in the goldmine, isn’t it?
“I would really be against returning to any kind of a gold standard, because history shows any time you have a period with a gold standard, after a while, that really creates problems. Like you don’t have enough money to go around. The first major depression in America, in the late 19th century, was caused by the gold standard and the problems caused by lack of liquidity”, he concludes.
Well to this I would take exception and (I take exception to Dr. Paul’s conclusion, as well, but for different reasons). Mr. Bishop is right in that the banking panics of the late 1800’s were caused by a loss of liquidity, but the loss of liquidity did not come from the gold standard – They came from the loss of bi-metallism – The loss of the Silver Standard. And this is where I take exception with Dr. Paul. The constitution doesn’t say that only gold should be considered money, it says that only gold and silver should be money.
Silver was the money of the commoner. It was the money of the every-man, from the farmer to the merchant. Most everyday individuals in 19th century America had no use for a $20 gold piece, when a pound of steak was $.08 per pound. Carrying gold was a good way to get robbed and was thought as fool hearty as those that walk around today with stacks of $100 bills.
The silver dollar (literally worth a dollar per oz.) held more value than most Americans needed on a day-to-day basis. Possession of gold was an absurdity, to all but the wealthy banker class.
So that when the monetary tie to silver was severed (a fixed rate of 16/1) silver’s value plummeted and folks were left bartering with their silver coinage for its rate as a commodity, which unfortunately for the American people meant a tremendous loss in wealth. By the time silver bottomed out (at over 120/1 in 1890) one of the largest wealth transfers in American history was complete.
Now there are reasons that today, a return to silver “as currency” might not be a good idea. Mainly due to the fact that silver has become an industrial metal and there is no where near as much of it around today as their used to be.
If you consider every cell phone, laptop computer, iPad, and various other electronic items all use small quantities of silver (multiplied by the millions, if not billions of them in circulation) and it isn’t hard to see why silver is not as plentiful as it once was.
But according to author and financial historian Mike Maloney, “Not only is there not as much silver as there used to be, gold is now estimated to be up to five times more plentiful than silver”.
Yes silver still ranges at 50-60/1 vs. the price of gold. “That’s right”, Maloney continues, “There could come a day in the not too distant future when you see silver actually surpass the price of gold. The more likely scenario is that it comes back to historical valuations with gold of 10-15/1, but if the cat gets out of the bag and silver becomes to scarce. . . This could drive a revolution in the thinking of people worldwide and a windfall for silver investors.”
Add to the fact that J.P. Morgan has been caught in a short hedge since the 1990’s and has been targeted at the center of a price manipulation scandal to suppress the price of silver and you have the potential for a rocketing of silver’s current value.
London’s Financial Times writer Andrew Maguire exclaims, “JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses (on their short positions) by the Fed and/or the U.S. taxpayer.”
Maguire was even involved in a Freak Hit And Run Accident the day after his name was revealed at a CFTC hearing. Maguire believed it was an attempt on his life. It’s hard to argue especially when the authorities have refused to name the assailant and file charges against the assailant after having apprehended him and helicopter cameras watching the whole scene unfold from above!
So while people ask themselves, “How high can gold go?” as even JP Morgan themselves now conclude you could see $2000 gold by year’s end, maybe the better question to ask yourself is “Where is silver’s top” and “What is its current value vs. gold?”
It is in asking these two questions that you will find how much further the “people’s metal” has to go. If you count the cards in the stack, factoring in traditional values, current stockpiles, industrial use and suppressed prices, silver is set to give back all value lost in the 19th century, if you start investing now.
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