I recieved this in my in-box today. Most of it is a reiteration of what most “silver bugs” know and believe. (At least the ones I know). As it is a concise and pleasingly written piece of journalism I thought that I’d share it with you. As many of you know I hold a fairly large amount of silver in the form of long dated silver calls and bullion. And a smattering of silver miners… but these are pretty thin on the ground here in Australia.

HI HO SILVER!
Silver is often said to play “second fiddle” to gold, but history clearly points out during the secular bull markets for the precious metals, silver eventually catches up and outperforms gold dollar for dollar invested.
So far gold has already crossed its nominal high of $875 an ounce hit in 1980 during intra-day trading. But silver at $18.21 as I write this is nowhere near its nominal high hit in 1980 at $55.00 an ounce. This in my opinion is about to change in 2010. Silver has a lot of catching up to do and I think it’s time to highlight this so called ‘lesser metal”.
Silver is the Rodney Dangerfield of the precious metals complex; it gets very little respect and is often dubbed “Poor Man’s Gold”. But plenty of smart, rich guys have been interested in silver over the years including Warren Buffet, George Soros, and many others.
SILVER IS “MONEY” TOO
The investment community’s general neglect of silver has historical origins. For thousands of years, silver, not gold, was the coin of the civilized world. One of the most complete histories on silver can be found in the book “The Silver Bonanza” by Franklin Sanders and James Blanchard. The book begins with the following quote from Milton Friedman: “The major monetary metal in history is silver, not gold.”
Evidence of silver being used as money extends back to at least 4,500 years. According to “The Silver Bonanza”, the first mention of silver in the Bible is in the Old Testament in roughly 1850 BC. In King Charlemagne’s reign, silver was the only legal tender metal. Early colonial America preferred silver over gold and rigged the gold-silver ratio to encourage the flow of silver into the US. It took 15.5 to 16 ounces of silver to buy one ounce of gold in the rest of the world but, by decree, it took just 15 in early America.
Indeed, silver was the major monetary metal for the US until 1873 when it was demonetized and its richer cousin, gold, given the sole key to the currency kingdom.
Gold has received all the accolades and nearly all the ink ever since. Most “hard money” advocates will talk about gold as money for hours, as if it were religion. Lowly silver gets little or no time at all.
But don’t shy away from silver. Gold always moves first in a precious metals bull market, because it is seen more as money, yet silver posts better percentage returns nearly every time there is a sustained rally in gold. So why do people still ignore it, especially as it is priced so reasonably compared to gold right now?
There are five reasons that I see:
The 1873 demonetization of silver occurred roughly 100 years prior to the official end of the gold stan¬dard. Investors have short memories, so when they think of metal-backed currency they think of the modern era’s more recent experiences with gold, despite silver’s richer monetary history.
Silver is known as an industrial metal while gold and or gold stocks are considered an alternative to currency, an inflation hedge and a legitimate investment tool even by those not necessarily in the “hard money” camp. Yet silver functions often as a better inflation hedge ‘alternative currency” as well, but few investors believe it.
Even though there is far more silver on earth than gold, the silver market is much smaller than the gold market. This makes transactions much more visible and the market more susceptible to large fluctua¬tions. (Note there is approximately 17.5 times more silver than gold in the world which coincidently, is very close to the 16 to 1 monetary ratio of silver to gold that existed for thousands of years.
The discovery of the great Comstock Lode in 1859 caused the great decline in silver as a monetary metal. The supply of silver gushing out of Nevada simply overwhelmed its monetary usefulness with the result that silver became viewed as an unreliable standard for paper currency.
Lastly, as industrial economies of the world grew and photography was invented, a growing demand for silver began emerging for uses in these new areas. This industrial demand conflicted with silver’s mon¬etary demand, which also caused volatility to silver’s purchasing power.
While there is nothing to do about the tendency of investors to have short memories, there is a definite substitution effect between silver and gold. Silver may not be seen as a currency alternative right away but its monetary history eventually prevails and catches up and usually surpasses gold.
As problems with the dollar and other national currencies continue to worsen, some of the wealth flee¬ing national currencies will flow into silver, causing the ratio of the precious metals to decline as it has since the ratio was over 100 in the early 1990’s.
Eventually I see silver returning to its 16 to 1 ratio with gold before all is said and done with the secular bull market in the precious metals. What does that mean for how high silver could go?
Well, if gold is 1200 an ounce and you divide by 15 you would get $75 an ounce silver. If gold goes to make a true inflation adjusted new high, which would be roughly $6,500 an ounce, silver based on the 16 to 1 ratio would be $406.35 an ounce!
Right now the silver to gold ratio is 62 to 1 but with what I see happening in 2010 I think you will begin to see this ratio cut in half.
by Greg McCoach, Precious Metals Newsletter Writer, The Mining Speculator
Gold Investment Report
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