In Ted Butler's Archive


Relative valuation is something widely followed with the silver/gold price ratio. One thing that makes this ratio special is that it goes back to the dawn of civilization, some 5,000 years ago. Gold and silver have witnessed the birth and death of every currency in history. Gold and silver have always been embedded in the fabric of human existence. For most of the past 5,000 years, gold and silver were valued as money and objects of value. Up until the past 125 years the amount of gold and silver in existence above ground matched the amount extracted each year from mining. The ratio of each metal found in the earth’s crust and mined was 10 ounces of silver for every ounce of gold.

Up until a hundred years ago, there was ten times as much silver above ground as there was gold. Starting around 1900, something occurred to dramatically alter the relative amounts of gold and silver in the world. Remarkable new industrial and chemical usages were found for silver. The discovery that silver was the best conductor of electricity meant that silver began to be consumed for reasons other than as money or jewelry. So intense was the growing industrial use of silver that over the past 100 years the demand for silver exceeded its annual mine production. Eventually, 90% of all the silver accumulated over 5,000 years was used up and gone. The surge of silver demand was so great there is now less silver bullion in the world than there is gold. We went from there being 10 times as much silver in the world as gold to there being less silver in the world than gold. t\There were new industrial applications discovered for gold as well, but since gold was so much more expensive than silver industrial demand for gold was kept in check. Consequently, gold has been added to world inventories every year throughout history.

A reasonable person would likely conclude that the price ratio between the two precious metals would reflect that radical physical inventory adjustment. Such a reasonable person would be dead wrong. The price of silver has not become more expensive relative to gold as would be expected, it has actually gotten cheaper relative to gold. In fact the silver to gold ratio hit 120 to 1 recently, which is higher than at any time in history. The same reasonable person would wonder why the price of silver would be cheaper relative to gold in light of it being less plentiful and more rare.  He would likely ask if there was some sudden new supply of silver, but would discover there was no such increase in silver supply. He would ask if there was some sudden surge in demand for gold relative to silver, but would uncover that public data showed the opposite. Ten times as much physical silver than gold has gone into silver and gold ETFs over the past few months.

The current facts would call for silver being more expensive relative to gold than ever before. I don’t know if there could be a greater disparity – something being the cheapest in history when it should be the most expensive. The price of silver has been artificially depressed on the world’s leading precious metal exchange, the COMEX. This manipulation has been long-running (for more than 35 years) and is evidenced by the fact that silver has the largest concentrated short position of any commodity in terms of real world production and consumption. No commodity has a larger concentrated and uneconomic paper short position, held by an incredibly small number of traders, and banks than does COMEX silver futures.

As regular readers know, I have not half-stepped in my efforts to get the regulators to end the obvious manipulation that causes silver’s super-depressed price. Those regulators ignore the blatant manipulation in silver and have allowed the leading silver manipulator for the past decade, JPMorgan, to manipulate at will.

Why is silver currently the cheapest it has ever been in 5,000 years relative to gold when there is less silver bullion above ground compared to gold than ever before? I’m not throwing my hands up in disgust and concluding that all hope is gone and that the silver manipulators on the COMEX will always prevail or even prevail for much longer. My second prime intent is to urge everyone who is capable of buying silver (or buying more) to do so forthwith. When God gives you lemons, you make lemonade. When the crooks give you cheap silver, you buy it. It should be at least five to ten times its current price and inevitably it will be.

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