Paper money is fraud, and paper money growth has been tremendous. In the Spring of 2006, the Fed stopped publishing numbers for M3 (M3 is the best measure of money in the banks) when M3 was about $10.3 trillion.
The dollar, which is said to be a "unit of account", no longer has any accounting!
But a private company is keeping track of M3, and M3 is soaring past $14 trillion, over a 20% increase per year.
True inflation, which is the rate of money creation, is over 25% per year!
The Federal Reserve is accountable to you, but only if you do something about it, such as buy silver and gold!
Central banks are running short on gold, and are starting to buy gold again. Currently, the U.S. "officially" has 261 million ounces of gold. (If they have the gold!)
If U.S. money - $14 trillion in M3 - were backed by "U.S. gold", there would be over $53,639 dollars for every one ounce of gold!
The total value of all the paper money and bonds in the world is about $100 trillion, and all the gold ever mined in all of human history is just under about 5 billion ounces. So, world money, divided by world gold, gives a figure of $20,000 per ounce!
World central banks are running out of gold, and some are starting to buy gold, such as Russia, China, South Africa, South Korea, and more! The central banks claim to have about 30,000 tonnes of gold, but they may have less than half of that, as most has been lent or leased into the market over the past ten years.
In sum, at $1000/oz., there is about $5 trillion dollars worth of gold in the world, but there is: $500 trillion in derivatives, $100 trillion worth of bonds and $40 trillion worth of paper money! Therefore, bonds and paper money must go down, and gold must go up!
Why does gold matter? Especially if we are no longer on a gold standard?
Even though the U.S. dollar is no longer backed by gold, any holder of dollars could wise up at any time and start buying silver or gold. China, for example, could spend their $1.9 trillion U.S. dollars in bonds and buy gold anywhere in the world, such as Switzerland, Dubai, Tokyo. They could even send agents to buy gold at any of the 4,000 or more coin shops in the U.S. The dollar could drop 50% or more overnight, and there's not a single thing the U.S. government, you or I could do about it.
Annual gold supply from mining is about 2500 tonnes, or 80 million ounces. With 32,151 troy ounces per metric tonne, that's 80,377,500 ounces of gold. I estimate that if China bought that much gold, the price of gold would jump up to about $2,000/oz. At $2000/oz., that would cost about $160 billion, which is just under 10% of China's U.S. dollar bond holdings. A prudent diversification into Gold on China's part could cause the dollar to lose 50% of its value overnight.
When France redeemed U.S. dollars for gold in 1971, it ended the gold standard. This was not the fault of France, it was the fault of the U.S. for printing too much paper money, and the U.S. general public and politicians have not yet learned our lesson.
Gold is money, because of its fundamental nature
Gold is the perfect commodity for exchange for the following reasons:
Gold is liquid and easily traded, with a narrow spread between the prices to buy and sell (about 3-5%).
Gold is easily transportable, because it has a high value for its weight.
Gold is money because it is divisible, you can divide it into coins, or re-melt it into bars, without destroying it.
Also, gold is interchangeable. It can be substituted for another piece of gold with no hassle.
Gold is also nearly impossible to counterfeit, as genuine gold is easily recognizable.
When measured by weight, gold is easily countable, and verifiable.
Gold is money because it is a great store of value. It is not subject to decay, rot, or rust.
Gold has an intrinsic value, because it is rare, highly desired by the world over, and is a luxury item.
There is not a single other commodity with those attributes, except, perhaps, for silver. Since gold is too valuable to be used for small transactions, there is potentially more monetary demand for silver. When gold becomes money again, silver will be desperately needed to make change.
About 10 years ago, M3 was about $4 trillion, and silver was at $5/oz. By the spring of 2009, M3 is exceeding $14 trillion, and silver is at $13/oz. Relative to the recent increase in money supply, silver is cheaper now than it was at $5/oz.!
Here's why silver is a better investment than gold:
Silver has all the same monetary properties of gold, and more!
The historic price ratio of silver to gold shows that about 10 ounces of silver would buy one ounce of gold, a 10:1 ratio. Recently, the ratio is about a 70:1 ratio (with silver at $13/oz., and gold at $1000/oz.) As the silver to gold ratio returns to historic values, from 70:1 to 10:1, you may make over 7 times more money investing in silver, than gold!
Silver prices may rise to exceed the 10:1 ratio, for the following reasons:
More than all of the silver produced by the mines each year is consumed by industry, which leaves little to no room for substantial investment demand. Investment demand for silver is a tiny $1 billion per year. A small increase in investment demand will drive prices sky high.
Most silver is produced as a by-product of mining gold, copper, zinc, or lead. Higher silver prices might not substantially increase the amount of silver mined each year. Consider, in 1980, when silver prices went up to $50/oz., less silver was mined than in 1979!
Higher silver prices may not cause much reduced demand. Why? Because most silver consumed by industry is used in tiny quantities in each application, such as in film or electrical contacts, therefore, rising silver prices will not easily slow down growing industrial demand.
Additionally, as paper money continues to falter, people will buy silver and gold without regard to price, or they will buy simply because prices are going up! Because many investors today are momentum investors, and won't be able to ignore the gains!
Each year, silver mines produce about 650 million ounces of silver. 200 million ounces come from recycling and about 100 million ounces come from investor or government sales. That's a total of about 1000 million ounces. Of that total:
about 42% is consumed by industrial use
about 28% consumed by jewelry
about 20% consumed by photography
about 5% consumed in coins and medallions
That's 95% of total available silver each year! This implies either a "surplus", or "investment demand", of about 5% total. At $20/oz., that's only $1 billion per year of net investment demand.
Since the 1950's, silver use and consumption, has made silver more rare than gold, in above ground, refined and deliverable forms. Estimates suggest there are 200-300 million ounces of refined, above ground silver available to the market at the present time. There are about 125 million ounces of silver at the NYMEX, the big commodity exchange in New York. The ETF SLV has about 180 million ounces.
Each silver contract at the NYMEX is a promise. There are too many contracts, too many promises to deliver silver that may not exist. Each contract is for 5000 ounces. There are often over 200,000 contracts for 5000 ounces, that's a total of 1000 million ounces of silver promised to be delivered. With recent market trends of defaults and bankruptcies, these contracts are at risk of default. Yet the exchange has only about a third of that in real silver. How can they promise to deliver more silver than exists? If they fail to deliver silver, then confidence in the world's entire financial system may collapse. Industrial users of silver may have to shut down their factories. To prevent this, users will bid silver prices much higher.
Due to the risk of default in silver futures contracts, I suggest that you avoid buying futures contracts, avoid options, and avoid storing your silver with anyone else! Take delivery of your silver, and put your silver in your own safe!
Despite silver's intrinsic properties as money, silver began to lose its status as money starting in the late 1800's, as nations stopped using silver, and started using only gold as money. Over 100 years of this "demonetization" has caused a serious drop in silver's value, and this trend is about to be reversed as investors re-learn that silver is a great store of value because of its intrinsic properties.
As paper money continues to waver, the neglect of silver's use as money will end. Once again, silver will be valued based on other measures of value, such as a day's wage, or a ratio to gold. If silver exceeds its historic value - as I expect it will - due to the scarcity - from its importance in electronics and photography - then perhaps a silver dime, a silver quarter, or a silver dollar will be worth far more than a day's wage, as it once was.
How high will silver prices go? You do the math on what a day's wage should be, and you tell me!
Will you be hurt if silver and gold prices rise? Not if you own some! Remember, honest weights and measures in commerce produce prosperity.
But you must act to benefit from this information.
Don't wait for silver to rise before buying it. Silver prices could rise by over $20/day to exceed $100/ounce at any time if large funds or billionaires buy with desperation.