VN:F [1.9.16_1159]
Rating: 0.0/5 (0 votes cast)

Here is one important topic every person should know, keep and pass to the next generation!

From before the 1900’s to 1940’s, Gold prices were standardized in the USA at around US$18-20 per oz.  Salaries from 1920 to 1940 were around $1200 to $1400 per year.  In Gold terms that is US$24,000 ($1200 x $20).  With Gold prices today May 2010 at $1,500 per oz, that average salary is $90,000 ($1200 x $1,500 div $20 – in the 1900’s payment was mostly by gold coin).  So measured in Gold, there has not been any major inflation.  So in new terms, inflation is an effect of having fiat currency.  The message is to start and never stop thinking in Gold and Silver terms.

Here is a chart of Silver and Gold from the 1300’s (600 years ago).  The Ratio of Gold to Silver has been recorded in ancient books including the Bible as 1:15.  (It is said that The King James Bible mentions gold 417 times, silver 320 times.  Reportedly, by today’s prices, the gold in Solomon’s Temple would probably be valued at $50 billion.).

Here is more recent gold historical chart by National Geographics from 1714 to 2012.

Different than Gold, Silver is an industrial metal which has larger demand and usage than Gold.  However, different than Gold where world reserves are not abundant, Silver is more abundant but also expendable where Gold being a noble element does not oxidizes, tarnish like Silver, it does not degrade and is not naturally expend.

In summary, Gold as a financial instrument has been tested since time immemorial.  Silver has always been subservient to Gold.  Silver is said to be more speculative and used in more aggressive manner while Gold is stable.  Thus when Countries and government need to inflate value, Gold is a determent while Silver can be expanded.  It is common for coinage in Gold or Silver over time be mixed with other cheaper metals and alloys and the ultimate inflation becomes issuing the currency in paper rather than coinage.

Gold -> Silver -> Copper -> Nickel -> Alloys  => Paper currency (backed by Gold) => Paper Currency (by Silver) => Paper Currency (Fiat).

As of this writing (5/14/2011), the top ten largest owners of gold in the world are reported to control a total of 24,258.3 tonnes, or over 855 million ounces. At current spot prices, this gold would be worth approximately $804.35 billion and represents about 15.4% of all the gold ever mined.  USA holds 8,133.5 Tons, Germany 3,412 Tons and the International Monetary Fund (IMF) holds 3,217.

Some interesting facts about Gold are:

  1. The annual worldwide production of gold is about 50 million troy ounces per year. (Not a lot).
  2. Gold has a specific gravity of 19.3, meaning that it is 19.3 times heavier than water.
  3. Gold weighs 19.3 kilograms per liter. A liter is a cube that measures 10 centimeters (about 4 inches) on a side.
  4. There are 32.15 troy ounces in a kilogram. The world produces a cube of gold that is about 4.3 meters (about 14 feet) on each side every year.

In other words, all of the gold produced worldwide in one year could well fit in a living room!

Silver is a lot more plentiful and does not make sense to discuss.  Platinum on the other hand is even more scarce than Gold.  Only 3.6 million troy ounces of Platinum are produced per year.  Platinum was recently discovered for use only in the 18th Century.  You can imagine that all the production of Platinum in the world could fit into an average house.

Here is one interesting chart showing how in Gold terms, there has not been much inflation in the price of Oil.

Notice that the price of oil has performed mostly under Gold prices since 1972.  That only means that in terms of Gold prices there has not been any price inflation.  You can even say that modern inflation is a function of a depreciating currency (in the case the US Dollar).  Taking one step further, currencies that can be printed at liberty depreciate by design.

Silver

Silver is viewed as a monetary asset in the same way as gold. From this perspective, both gold and silver are monetary relics thru time immemorial. But for silver unlike gold, silver has much more industrial use.

In ancient times til know Silver to Gold Ratio in China was 4:1 in Egypt 12:1 and in the Bible 15:1.  Gold and Silver has been used in time immemorial as coin and as form of monetary asset.  Different than Gold, Silver is used up because it has uses beyond monetary and jewelry purposes.

The total estimated Silver mined in history since beginning of civilation is (source: Encyclopedia Britannica, Silver Institute):

In recent times, Silver stock pile peaked to 3.5 Billion ounces in 1950’s but different than Gold, Silver is used in many industrial application.  For that reason and starting from 1940 then 1960 and then 1980.  In 1980 there was 2.5 Billion ounces of Silver in stock piles.  By 1990, it reduced to 2.1 Billion ounces.  Reportedly, as of 2008, Silver worldwide stock inventory has reduced to around 200 million ounces.  That is all the silver for batteries, electronics, mirrors and optics, medical, catalyst, jewelry, cell phones, refrigerators, CD/DVD (silver for the reflection) etc…

Compared to Gold productions – The best estimates available suggest that the total volume of gold mined over history is approximately 153,000 tonnes (approx 4 Billion Ounces), of which around 63% has been mined since 1950.

Medical and health applications:

Silver ions and silver compounds show a toxic effect on some bacteria, viruses, algae and fungi, typical for heavy metals like lead or mercury, but without the high toxicity to humans normally associated with these other metals. Its germicidal effects kill many microbial organisms in vitro, but testing and standardization of silver products is difficult.[22]

Hippocrates, the “father of medicine”,[23] wrote that silver had beneficial healing and antidisease properties, and the Phoenicians stored water, wine, and vinegar in silver bottles to prevent spoiling. In the early 20th century, people[where?] would put silver coins in milk bottles to prolong the milk’s freshness.[24] Its germicidal effects increased its value in utensils and as jewelery. The exact process of silver’s germicidal effect is still not entirely understood, although theories exist. One of these is the oligodynamic effect, which explains the effect on microorganisms, but would not explain antiviral effects.

Silver is widely used in topical gels and impregnated into bandages because of its wide-spectrum antimicrobial activity. The antimicrobial properties of silver stem from the chemical properties of its ionized form, Ag+. This ion forms strong molecular bonds with other substances used by bacteria to respire, such as molecules containing sulfur, nitrogen, and oxygen.[25] When the Ag+ ion forms a complex with these molecules, they are rendered unusable by the bacteria, depriving them of necessary compounds and eventually leading to their death.

The Gold/Silver Ratio

The short-term correlation between gold and silver prices are due to the market’s view of  both of them as monetary asset. But the variations in their exchange ratio are probably due to the industrial demand for silver. This is most obvious in the second half of 2008. As the global economy fell off the cliff in that year, industrial demand collapsed, driving base metals and asset prices to the floor. At the same time, the gold-silver ratio shot up. Over the past couple of months, the ratio drifted downwards.

Silver Demand

Silver Demand Worldwide

Industrial 367.1 Moz
Photography 181 Moz
Jewelry & Silverware 247.5 Moz
Coins and Medals 41.1 Moz

Silver Demand in the United States

Industrial 94.2 Moz
Photography 55.2 Moz
Jewelry & Silverware 15.4 Moz
Coins and Medals 15.5 Moz

Silver Production 2010

Silver mine production rose by 2.5 percent to 735.9 Million Ounces (Moz) in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year. Mexico eclipsed Peru as the world’s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010.

Top 20 Silver Producing Countries in 2010
(millions of ounces)
1. Mexico 128.6
2. Peru 116.1
3. China 99.2
4. Australia 59.9
5. Chile 41.0
6. Bolivia 41.0
7. United States 38.6
8. Poland 37.7
9. Russia 36.8
10. Argentina 20.6
11. Canada 18.0
12. Kazakhstan 17.6
13. Turkey 12.3
14. Morocco 9.7
15. India 9.7
16. Sweden 9.2
17. Indonesia 6.9
18. Guatemala 6.3
19. Iran 3.4
20. South Africa 2.8
Top 20 Silver Producing Companies in 2010
(millions of ounces)
Company Country Output
1. BHP Billiton Australia 46.6
2. Fresnillo plc¹ Mexio 38.6
3. KGHM Polska Miedź Poland 37.3
4. Pan American Silver Corp.¹ Canada 24.3
5. Goldcorp Inc.³ Canada 23.0
6. Cia. Minera Volcan², ³ Peru 20.0
7. Hochschild Mining Peru 17.8
8. JSC Polymetal Russia 17.3
9. Coeur d’Alene Mines Corp.¹ USA 16.8
10. Sumitomo Corp.³ Bolivia 14.4
11. Kazakhmys plc. Kazakhstan 14.1
12. Cia. de Minas Buenaventura² Peru 13.5
13. Southern Copper Corp. USA 12.6
14. Xstrata Zinc4 Switzerland 11.6
15. Teck Resources Canada 11.5
16. Eti Gümüş A.Ş. Turkey 11.5
17. Kinross Gold5 Canada 11.3
18. Hecla Mining¹ USA 10.6
19. Yamana Gold Canada 10.0
20. Industrias Peñoles Mexico 9.2
¹ Primary silver producer
² Includes production from minority subsidiaries
³ Estimate
4 Reported silver in concentrate and lead bullion
5 Reported Sales
World’s Leading Primary Silver Mines in 2010
(millions of ounces)
Rank Mine/Country Operating Company Prod.
1. Cannington¹, Australia BHP Billiton 38.60
2. Fresnillo, Mexico Fresnillo plc. 35.91
3. Gümüsköy, Turkey Eti Gümüş A.Ş. 11.46
4. Dukat², Russia JSC Polymetal 11.10
5. Pallancata, Peru Hochschild Mining / International Minerals 10.14
6. Uchucchacua, Peru Compañia de Minas Buenaventura 9.27
7. Arcata, Peru Hochschild Mining 8.10
8. Greens Creek, U.S. Hecla Mining 7.21
9. Imiter³, Morocco Société Métallurgique d’Imiter 7.20
10. San Bartolomé, Bolivia Coeur d’Alene Mines 6.71
11. Alamo Dorado, Mexico Pan American Silver Corp. 6.68
12. Pirquitas, Argentina Silver Standard 6.30
13. Palmarejo, Mexico Coeur d’Alene Mines 5.89
14. San José, Argentina Hochschild Mining / Minera Andes 5.32
15. Ying4, China Silvercorp Metals 4.32
World Silver Supply and Demand
(in millions of ounces)
  2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Supply
Mine Production 606.2 593.9 596.6 613.0 637.3 641.7 665.4 681.9 718.3 735.9
Net Government Sales 63.0 59.2 88.7 61.9 65.9 78.5 42.5 28.9 15.5 44.8
Old Silver Scrap 189.0 196.3 194.0 195.2 198.6 203.3 199.0 193.7 188.4 215.0
Producer Hedging 18.9 9.6 27.6 61.1
Implied Net Disinvestment 18.9 1.6
Total Supply 877.1 868.3 881.0 879.7 929.5 923.5 907.0 904.5 922.2 1,056.8
 
Demand
Fabrication                    
Industrial Applications 349.7 355.3 368.4 387.4 431.8 454.2 491.1 492.7 403.8 487.4
Photography 213.1 204.3 192.9 178.8 160.3 142.2 117.6 101.3 79.3 72.7
Jewelry 174.3 168.9 179.2 174.8 173.8 166.3 163.5 158.3 158.9 167.0
Silverware 106.1 83.5 83.9 67.2 67.6 61.0 58.5 57.1 58.2 50.3
Coins & Medals 30.5 31.6 35.7 42.4 40.0 39.8 39.7 65.4 79.0 101.3
Total Fabrication 873.6 843.5 860.1 850.6 873.6 863.5 870.3 874.7 779.2 878.8
Producer De-Hedging 24.8 20.9 6.8 24.2 11.6 22.3
Implied Net Investment 3.6 29.1 55.9 53.2 12.5 18.2 120.7 178.0
Total Demand 877.1 868.3 881.0 879.7 929.5 923.5 907.0 904.5 922.2 1,056.8
 
Silver Price
(London US$/oz)
4.370 4.599 4.879 6.658 7.312 11.549 13.384 14.989 14.674 20.193

SOURCE: World Silver Survey 2011

Silver Buying and Selling (consider demand from monetary demand and industrial usage demand)

In 1960, The US government began selling silver from its then 3.5 billion ounces stockpile. The public became net buyers of silver in the 1960s.

In 1979, as silver price rose rapidly, the public became net buyers of silver for the second time in history, causing silver to explode to above US$50.

In 2006, the public became net buyers of silver again.

For more information on Silver go to http://www.silverinstitute.org