Why Silver will be a Better Investment than Gold
(And Both are Better than Dollars)
Silver Stock Report
by Jason Hommel, November 17th, 2009
Recently many of my readers have been asking, "Why is silver
After all, in March, 2008, gold hit $1020, and silver exceeded $20, yet
here we are now, with gold now above $1145, and silver at $18.33, not even
The really funny thing is the way the popular media spin the price
When silver underperforms gold, they say, "Silver is not confirming
gold's rise, therefore, gold prices are due for a fall."
And when silver outperforms gold, they say, "Silver is exceeding gold's
rise, therefore, this bull run is overdone, and thus, gold prices are due
for a fall."
In other words, we have a manipulated market. Not only is the
price manipulated, but so is the news coverage!
course, the media could give opinions the other way, and say,
"With silver lagging gold, it shows that gold has much further to run, and
also silver is due to catch up and exceed gold's pace, thus making silver
the much better buy now." Or, after silver outperforms,
they could say, "Silver's outperformance has confirmed everything the
silver bulls have been saying for the last ten years." But they
never do that, do they?!
As it is, the price ratio changed
from 64 on Friday to 62 on Monday, so silver far outperformed
gold on Nov. 16th.
Gold moved from $1118.50 on Friday to $1139.80,
a rise of $21.3/oz., or a 1.9% increase.
from $17.42 on Friday to $18.40, a rise of $.98/oz., or
Silver sure didn't lag behind gold
on that day!
So, is all news that is bearish on silver evidence
of "manipulation?" Of course not. Some commentators
are not colluding on purpose, they are simply willfully
For example, here is an independent Christian newsletter writer named
Gary North who writes:
Why Silver Is a Poorer Investment Than Gold
You'd think he could have timed his article better. He published
on Nov. 14th, and was proven wrong in less than 48
Nearly everything Gary writes in that
article is not really the whole truth. I'm shocked to
read his take on silver. After all, he has written perhaps the most
thorough economic commentary on the Bible that exists (very long,
quite good, but could use a bit of improvement).
I don't think he's an agent of the banks, so I think it must be ignorance
that is distorting his judgment, or perhaps his age. I've
tried to answer his questions on silver over the years, but he has
not replied with reason, but rather with emotion, so there must be
something more at work here, but I don't know what it could be. He
wrote last year:
Jason Hommel Tells Me Off: I Do Not Understand
Commodities, Silver, and Especially the Bible. He Demands That I Answer
this and his other essays go to show he is not unfamiliar with my work,
but rather, he has some sort of emotional rage against it. This
is why I cannot excuse Gary as simply being ignorant of the statistics
that he mocks, but rather, he is willingly
But that's in the past. I want to
refute his recent article, and get to the recent ten year relative
performance of silver vs. gold. All we need is a gold/silver ratio
A quick search on google reveals a source. I
trust gold-eagle.com: Here it is:
Chart became a broken link!!!
The silver to gold ratio is the red line. You can see it topped
out at 100 in 1990, when it took 100 oz. of silver to buy 1 oz. of
gold. This ratio dropped to nearly 50 in 1997. It went back up
to 80 both in 2003, and 2009, and now has gone back down to about 64, and
now 62 today.
So, depending on the time frame, silver has
out paced gold, or gold has out paced silver. As the red line goes
down, silver is better. As the red line goes up, gold is
But if you use a selective time frame, only 10 years, you
can see that the silver to gold ratio was about 60 ten years ago, and is
62 today, showing that gold slightly outperformed during that selective
time period in question. But what is the main thrust of Gary's
argument? That the future must be like the past? And that
the past only consists of the last ten years? Clearly, neither
premise is not even remotely true, and the entire argument would
deny the reality of economic cycles. Clearly, Gary is not ignorant
of the economic cycle, so why did he forget that his argument would not be
valid? Did emotionalism get the best of Gary?
As we can
see from the big picture, Gold would have been a better investment than
silver until 1990, the key turning point. Gary's claim to
the foundation of his "correctness" is being good at making
interim market calls, and that he is old. Did he tell his
subscribers to load up on silver in 1990? I have no idea. Did
Gary tell his subscribers to load up on silver when it hit $8.50/oz. in
the last year? No. I know. I've been
a paying subscriber of his since he tried to discredit me.
In his own words, "His "market calls" were utterly useless when it
Furthermore, the dollar/gold price
charts, and dollar/silver price charts do not "tell all" as he
claims. Such charts contain zero information about
how many dollars have been printed up in the past, and have yet to show up
in futures prices of the metals. Such charts contain zero
information about how much silver has been consumed and lost in
the age of electronics that have ended up in landfills at
concentrations too low to economically recover. It is only
bad theory that the price charts contain "all the
information" you need to know to make a future prediction on
The charts Gary chose to present are not
even "objective facts". All gold/dollar and silver/dollar price
charts are misleading, as the dollar is not a constant measuring
tool, but a varying one. What if I showed you a growth
chart of my 15 month old boy, but used a ruler made out of silly putty and
stretched it at different rates at varying intervals?
Certainly, nobody would call such a chart an "objective
fact". Charts are also not "objective facts" when you can produce
them over select time frames to distort the overall picture. Gary's
price charts from the year 2000 are not as useful as the long term ratio
chart above, if you want to try to use a chart to make long term
Is anyone here planning on living for longer
than a time frame of the next ten years? (Well, Gary might not,
he's old, remember.) If you plan to live longer, you might want
to consider longer time frames. I know I want to. After all,
I'm only 39, and if I live to be 90, I can use an investment that might
not pay off in 10 years, or even 20, but should come to fruition within my
time frame of up to the next 50 years. For me, silver is
After Gary claims that non-facts are facts, he then tells his
readers to beware of statistics, because the long term statistics that the
silver bulls have been presenting for the last 10 to 40 years have
not yet shown up in relative price performance (even though they
But the facts from the ratio chart prove that
silver has been outperforming gold for 19 years now, and
thus, perhaps Gary should have been paying attention to both the facts and
statistics for silver.
In fact, it might be considered somewhat of
a miracle that silver has outperformed gold for the last 19 years,
while no nation on earth has yet returned to using silver as
money! Think about that!
Since Gary seems to not
want to be bothered with either facts or statistics, I'll just
paint the broad picture, with limited numbers, so that maybe he can
wrap his mind around the major changes that have happened during his
Nearly 300 years ago, back in 1717, the Bank of
England started devaluing silver, in favor of a "gold standard".
was really a change to a paper standard, since gold was valued in terms of
paper money, no longer valued in terms of real silver, but only "token"
silver. This continued until Germany left silver in the late
1800's. This created a glut of silver, which continued to devalue
silver, until all nations on earth stopped using silver as money, and as
each one left silver, it created a glut of silver on the world
marketplace. This reduced monetary demand has continued to make
silver a bargain for the last 100 years. The last great mintage of
silver coins was in the US in 1964. After that, the US only made 40%
half dollars for a few years, (we have three $1000
face value bags of 40% silver for sale at 6% over
spot, that's 295 oz/bag x spot x 1.06).
You can see the declining value for
silver over a 600 year inflation adjusted silver chart:
Chart became a broken link!!!
You may note that this chart is in stark
contrast to the flatline chart showed by Gary North.
interesting happened towards the end of this multi hundred year long trend
of demonetizing silver.
At the end of World War II, the age
of electronics began. Prior to WWII, most families in the US did not
have many electrical devices. After the second great war, homes
began buying things like refrigerators, washing machines and dryers,
dishwashers, blenders, toaster ovens, electric can openers, TV sets, air
conditioners, and much more, of course.
If you look at the
"statistics" you can see that the per capita consumption of silver in the
USA increased by about ten times in about a 3 year period, and it has
stayed rather high at about 6 tenths of an ounce per person per year
Another funny thing happened. The age of
electronics was not limited to the USA, but went out to many nations, even
our former enemies in WWII, and even other nations around the world began
to industrialize, and they, too, began consuming silver in electronic
Gary has written a lot of crazy things like "you can
safely ignore" arguments because it would show up in the price if
true. Well, it already has, and it probably continue to do so,
even more so, in the future! Trends well established for over 100
years that get hit by another major counter trend that began
over 60 years ago might take a bit of time to show up, and it appears it
began to, 19 years ago. It did show up rather spectacularly in the
1980 spike, where a tiny bit of money from one man who tried to buy
some silver on leverage was smashed by the paper money powers. That
was merely the foreshadow warning of what will happen when many
billionaires or tens of thousands of millionaires demand real money
But Gary ignores all that, saying that the only thing
that matters is recent price performance over 10 years as measured by
a bad measure, the dollar. Wow.
He also has the
gall to claim that men like myself issued no warnings about the
decline in the silver price. Again, another example of his
I have been warning that the gold and silver
markets are manipulated by the selling of paper futures contracts for at
least 8 years now.
In fact, I specifically warned about the
manipulation when silver hit $16/oz., on the way down from $20 from early
2008. The article is very easy to understand, even for an old man,
even though it does include a few numbers.
A Tribute to 7th Grade Math August
In that article, I pointed out that two banks
sold 40 times as much paper silver as physical investors buy
silver, in one month, which crashed the price. What
followed was other paper longs selling out of their positions that
continued to crash the price. This real world market action utterly
refutes the textbook lie that futures contracts are supposed to help
smooth out market prices. No, they do not. In actual fact, and
truth, futures markets manipulate prices to great exaggeration, in both
The manipulation of the markets by selling too much
"paper gold and silver" is one of my main themes as a writer.
Controlling Gold with Paper June 10,
The Moral Failures of the Paper Longs Jan 22,
Major Frauds of the U.S. Monetary System Feb
Silverstockreport.com: Silver Users Fear Silver
Shortage Oct 27, 2005
The Silver ETF: What's the Deal? Feb 23,
The Money Chart: The Fundamentals of Gold &
Silver Feb 25, 2006
No Excitement by $800 gold November
Silver: There's Never Enough!
January 15, 2008
I Don't Trade Futures April 4, 2008
Here's another good one for Gary:
Silver Keeping Pace with Gold; Set to Outpace
Gold January 9, 2008
article, from Jan 2008, makes a good point:
The dollar, as a
measuring stick, is broken. Gold at $850 in 1980 is not a
valid price number as a reference, because a dollar in 1980 was
worth more than today. We must adjust for inflation. And there
are two ways to do that, first with lying government "consumer price
index" statistics, which would give a price of about $2500/oz., or you can
measure by money creation, which gives a price of about $7000 to
$14,000. The $14,000 figure is if you include the recent $11
trillion in government bail out promises. By the time those prices
are hit, adjusting for future inflation might give us even higher
numbers. and a higher level of public participation in the gold and silver
markets, and thus, higher relative silver prices to gold.
After all, let's remember that most Americans are trend investors,
and gold and silver are putting down a nice, safe, solid,
I'd also like to point out what I was saying in nearly every
article I wrote in 2003-4:
"Long before 1% of U.S. paper
dollars tries to buy gold, gold will be going up well over $1000/oz., and
silver will be headed up over $50/oz."
Now that we are
well over $1000/oz. for gold, we can easily measure how much US money is
flowing into gold, and, in fact, I just measured that in my recent
Grass Valley Buys 12 Times more Gold than National Average
November 9th, 2009
Historic Gold Mine Area Residents Know Gold Prices are Too
Low November 6th, 2009
00.013% of annual wealth (GDP) on less than 2% of the world's annual gold
America needs to buy about 77 times more
gold than at current rates, to exceed the spending of 1% of U.S.
paper dollars on gold!!!
"One percent of $14.4
trillion is $144 billion. In a gold market that sees annual
production of 80 million oz., such buying could double or quadruple the
price, depending on how tight the market gets from competition from other
Yes, I see, silver is not over $50/oz.!
neither has 1% of the money in the USA started to buy gold, we are not
even close! So just wait.
I did not buy silver to
wait for the day that 0.013% of USA money would be flowing into
gold. Did you?
No! I bought silver for the day when the
dollar would become like toilet paper, and this implies that well over 50%
of dollars will try to buy gold and silver at some point.
In actual fact, gold investors are buying silver. I
know. We sell silver for gold! Furthermore, no customers have
given us silver asking for gold. But we have had many customers
trade their gold for silver!
I suppose i should not have tried to "tell it to Gary North" as he
seems to suggest his retort will be to "tell it Jerome Smith".
I know, I know, Jerome Smith was a silver bull who died. Maybe Gary
is brain dead, too.
Gary is also such a fool that he has no idea that his own
recommendation to buy 80% gold, and 20% silver, would cause silver to move
up far more than gold. After all, the gold investment market is a
$92 billion market. (80 million oz. x $1145/oz.). The silver
market is 600 million oz. produced per year, which, at $18.50, is an $11
billion market. If you spent 1/4 of $92 billion on silver, (20/80),
that would be $23 billion.
Please Gary, please tell us all
how $23 billion will fit into the $11 billion silver market
without the price moving up far more than for gold? And let's
remember now, that the statistics show that most silver is consumed by
industry, so if investors bought $23 billion worth of silver and consumed
all new mining production, then no new mining production could go towards
any industrial consumption!
The silver investment market is a much
tinier $2 billion market (100 million oz. out of 600 million oz. produced
x $18.50/oz.). Gary is suggesting that more than ten
times as much money should go into silver as currently
does! If everyone followed Gary's advice, silver would
probably have to move up at least five to maybe ten times higher
than gold, just to accomodate the 80/20 investment that Gary
suggests! Of couse, that's mine production. But if we consider
above ground supplies, well, I'll let Gary try to research that. He
may well find that above ground supplies for silver are more rare than
gold, and I did say I was going to try to stay away from such
I'll leave out the numbers, and
I'll note that all the gold ever mined in all of human history would
fit into two Olympic sized swimming pools. And probably less silver
than that is remaining!
So ironic. Gary's analysis is so
poor. But if it were any better, would silver prices remain so
low? When men like him continually mock silver, while speaking out
of their own ignorance, is it any wonder the price remains low?
But since I'm a silver investor who has 3 times as much
silver as gold, I really can't complain. After all, if the world
knew what I knew, silver would already be several thousand dollars per
ounce, or much higher!
I strongly advise
you to get real gold and silver, at anywhere near today's
prices, while you still can.