| If you’re like me, when you’re researching things online, you’ll often realize that you’ve just ingested extremely biased information. Unfortunately, there is no instant antidote for incorrect information, usually since you don’t know if it’s poison or not. I’ve read articles about life insurance, about how I can ensure my family’s safety in the event of my death & dismemberment for only $18 a month, only to reach the end and realize it was written by one of those Northwestern Mutual fellows who send me LinkedIn messages about whole term life nonsense. That’s like drinking a bottle of something and then seeing the skull-and-bones on the warning label. How much of what I just read was true, and how much was false? The same goes when I’m researching precious metals. One of the interesting things about PMs is that they’re always referred to in terms of everyday currency. That makes sense, since I get paid in everyday currency and that is also how I afford to buy beer. But when you’re talking about a physical resource framed around wealth, I think it’s a big mistake to focus on valuing a resource solely in terms of everyday currency. Everyday currency is so abstracted, so stratified, and so intangibly created that I think it’s good practice to remove fiat prices out of the equation. Anyway, back to research. Often when I’m reading a piece about silver, gold, or rhodium, I’ll realize that it’s written by some company called Argent Bullion Investments Inc or something, and they don’t even hide it. Usually there will be a coupon code like SILVER1776 or GOLDY2K or something. And yet, these clearly-not-conflict-of-interest articles still manage to reference gold and silver in terms of fiat currency. The problem is that these currencies can be endlessly abstracted, the M1 money supply can triple in a year, and at the end of the day you’re still valuing a physical resource in terms of fiat currency. So what is an ounce of gold really worth? And (to get to the subject of this newsletter) what is an ounce of silver really worth? Back to bias. I don’t put a lot of stock into anything silver-related that’s published by a company that sells silver bullion. I mean, they probably have an agenda. If I go to the Honda website looking at Honda Fit details, they’re not going to be totally honest. The tagline on the Honda Fit website is not going to be Dull and Spiritless™. Often silver bugs will attempt to arrive at the true value of silver based upon historical usage. But that doesn’t make sense either. I read one article that tried to justify the current price of a silver ounce by what it could have bought in 1800 (a pound of coffee). Their justification was that an ounce of silver still buys a pound of very good premium single-origin coffee today. That’s just ridiculous. A pound of coffee in 1800 was shipped thousands of miles via sail, for months, until it arrived in London and was promptly consumed by the elite. The common laborer was not drinking a few cups of coffee a day. They were drinking chicory root. Coffee was expensive. Our productivity, efficiency, and global trade makes historical comparisons meaningless, which is why in 2021 I can go down to the grocery store and buy a pound of cheap coffee for a few bucks. It’s hard to discuss silver without talking about it in terms of fiat currency, but I’d like to try. Here’s some facts. – For every 1 ounce of gold ever mined, there have been 8.8 ounces of silver mined. – For every 1 ounce of gold reserves identified within the earth’s crust, there are 18.75 ounces of silver (in other words, there is 1/19th as much gold in the world as silver). – Historically, when currencies were tied to a physical standard, governments fixed the price of silver at a certain percentage of gold. The United States set the price of silver at 1/15. France set it at 1/15.5. Considering that the available (mined) silver in the world outnumbers gold 8.8 to 1, and that actual elemental reserves in the crust is 18.75 to 1, that seems like an accurate compromise. “But,” you say, “as you just pointed out up above. Silver is archaic. New days, new dollars. That’s why silver is cheap, we don’t need it any more! The world changed.” Sure, it changed. We need silver even more. More silver facts. – Silver is the most thermally and electrically conductive of all metals – All the silver ever mined would fit in a 52 meter cube – Over 80% of all mined silver has been used or lost – Every solar panel and cell phone ever created required at least a little silver of .999% purity So you’re telling me we’re going to go full green, we’re going full renewable energy, and everyone’s getting a cell phone every year? Sounds like silver is pretty valuable. Why, then (and here I go, talking about silver in terms of fiat currency) is the spot price of silver currently $26/oz, and gold is $1823/oz? Silver, instead of trading at 1/15 or even 1/18.75, is now trading at 1/70th of gold’s spot price. I am not selling anybody silver – and I don’t have anything to prove. I just think the math doesn’t add up, and it’s probably worth a little research and speculation. Just be careful what you read. It’s hard to find information that isn’t completely biased. Even if it supports mybias, I’d rather be reading the truth rather than a falsehood that happens to support my thoughts. Because I’m not always right. But I am right about silver being undervalued. |