Tag Archives: exchange rates

Perfect Storm for silver

14 Sep

Usually this blog is a platform for my vexation at the Japanese government and the flaws within the system. However I thought I would turn to a subject that is near and dear to my heart which is that of precious metals and specifically silver

There are most certainly a lot of moving numbers in the calculations and quite a few relatively tweaked assumptions to work off including but certainly not limited to the GSR in the neighborhood of 16. I am unconvinced that we see anything close to that kind of ratio going forward or at least within our lifetimes but I will be happy to be wrong about that. Also one must remember that in addition to the somewhat murky total overall AG recycle numbers there is also the highly significant aspect of alternative methods of production or various alloys that can increase or decrease the industrial demand on silver. Its a bear of a calculation but I believe it worth at least a few minutes of careful consideration per day.

I too have preferred silver to gold mostly because I adore the color of it. Gold has a wonderful allure but silver is just so much more appealing to this stacker. Further I have heard the argument made that “since banks are collecting gold it is therefore the preferred method of maintaining buying power”. I think there are a number of positions one can take to this conclusion but lets stick to the topic at hand shall we ?

I try to keep everything within the perspective of history since it is a subject I enjoy doing in my spare time. It is also convenient for the GSR and precious metals discussions on boards such as this and so I present to you the historic Perfect Storm for silver. I would be prepared to argue that if such an instance occurred in the past there is a distinct possibility of it happening again in the future.

Silver production spiked after the “discovery” and mining of Potosi by the Spanish. There was also an interestingly comparative need for it in China at about the same time due a set of issues that were mostly political in nature. The Chinese were suffering from a series of paper fiat issuances which forced those who used the currency into a “spend it or lose it” situation every time the government changed hands. Chinese copper coins were being used as a measure of value but it was worth more as a medium of exchange than its base metal weight or value so there wasn’t much incentive in continuing the practice. Further the influx of silver into the European continent in such large amounts was causing a drop in its relative value. It was essentially a perfect convergence for silver further magnified by a lack of demand in the Chinese domestic market for European exports while there was a high demand for Chinese exports in European domestic markets which the Spanish had ample access to.

So at the risk of repeating myself, the Chinese wanted silver as a store of value in addition to needing an underlying metal with a relatively fixed rate of exchange to help alleviate their currency concerns. The Spanish in turn had an abundance of Potosi mined AG with a diminishing value going forward and a correspondingly high European markets demand for silk, porcelain and other Chinese goods. A market was established in Manila and the rest is history.