My First Affair - silver an unfaithful and psychotic
In The Beginning - let there be money - gold, silver, and copper coinage
Gold or Silver Money - "black fridays" - numerous banks and brokerage houses close
Plundering the United States Dollar - a history and an evil omen?
Political Answers for Economic Problems - attacking the result and not the cause.
Silver A Monetary & Industrial Metal - inflation & real prosperity for higher silver prices
Silver Prices - recent and historical
Silver Bullion - Bars and Coins - which ones, where to buy, and how much
Leverage - Silver Options & Commodities - the good and the ugly
Collecting Old and Rare U.S. Silver Dollars - start for less than $50
Bullish or Bearish? - supplies, consumption, and economic concerns
Silver Mining Properties - identifying and comparing
Silver Mines & Silver Riches - where is the silver, where should the investor go?
For current market updates call Platinum Guilds Toll-Free 1-800-95PLATINUM
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My first silver affair was with Thomas Consolidated, a Spokane Penny Silver Stock and my first stock investment. The year was 1960. I was introduced by Sam Parks, a young Spokane stockbroker. Now, I'm not blaming him for the affair. I was already a hard-money advocate and vulnerable. So, I willingly became involved in the affair. And he became one of the most knowledgeable precious metal mining stockbrokers in North America.
Buying $80 dollars worth of the stock, and selling my shares a few months later for $120. I realized a 50 per cent return, and silver had risen only a few cents. For the next twenty years the price of silver shook the metal's market.
From an average low of $0.91 in the 1960s, silver reached a high of almost $50.00 in 1980. Then, month after month prices declined. And many more months of little price change sent silver investors into a deep if not catatonic sleep. But, does that mean silver has had its day?
For most of recorded history gold has been the monetary storehouse of value, silver, however, has had its moments. During the mid-1800s immense amounts of gold from new-world California began to flow into the treasuries of many old-world governments. And even more gold was expected to come from the growing number of new Australian gold discoveries. European bankers began to sell their gold and store silver. From 1859 to 1873 the major European countries were essentially on a silver standard - the gold-backed monetary systems of Great Britain and France being the exception. Then Germany adopted the gold standard.
Receiving a large amount of gold from France as a war reparation, Germany went on the gold standard in 1871. Two years later the United States demonetized silver. Other countries quickly followed, switching from silver currency to the gold standard. Governments and private banks dumped their silver reserves on the market - the price of silver tumbled.
At the turn of the century only China, India, and a scattering of small countries were still on the silver standard. In the United States, government purchases artificially kept the price of silver up during the late 1800s, the depression years, and at the end of World War Two.
By the early 1960s, the U.S. Treasury held three billion ounces of silver. The metal, however, no longer needed government support. During the 1960s and 1970s inflationary concerns drove precious metal prices up. Silver coins vanished into investors' safety deposit boxes. The value of many silver mining stocks increased more than 1,000 percent. Then 1980 and the peak. Silver hit $48.70 per ounce. Within ten years silver dropped below $4 per ounce.
Silver, however, is both a monetary and an industrial metal. Silver investments are like bonds, stocks or real estate - profits taken and losses written off. But, economic conditions that can send bonds, stocks or real estate into a tailspin can send silver prices soaring - or crashing. Silver has proven to be more than an unfaithful mistress. Silver is also psychotic.
I frequently find the information on silver investments and silver mining stocks self serving. There are also the straight forward academic dissertations. But they are time consuming, frustrating, complicated, and boring. And every time the price of silver starts to move up, there is always the get-rich-beyond-your-wildest-dreams sales pitch.
So, we present the following material for the layman - layperson for the politically correct - interested in solid ideas and practical hype-free information.
_____________________________________________________ Michael E. Odell
return to silver investments
Today's flood of U.S. paper currency started from a trickle of gold, silver, and copper coinage. Although Virginia was the first colony to attempt the construction of a mint and the coinage of money, Massachusetts was the first one to successfully do so. In 1652, Massachusetts started minting coins and continued to mint small coins for some thirty years. The King was not amused. He did not allow his colonies to mint coins. In 1684, the King of England ordered the Massachusetts mint shut down.
Less than 100 years later the King was out and a new country needing its own currency was in. To finance the Revolutionary War, the new-world colonies used an old-world financing method. The American colonies issued a paper currency, the Continental. Then inflated the Continental until it lost all value. The economic law, "bad money drives out good money," prevailed. The prudent held on to coins with value, circulation of gold and silver coins in the colonies all but vanished.
"Not worth a Continental" became a popular postwar similar for worthlessness. America needed a new national currency, a currency stable in value and universally accepted. Congress in 1792 established the Philadelphia Mint and authorized the minting of gold and silver coins. Demand for coinage grew and several branch mints started production in the early 1800s.
The first Pacific coast mint at San Francisco opened in 1854. A new and larger San Francisco Mint opened the summer of 1874. Also during the 1870s, Nevada's Carson City Mint began producing gold and silver dollars - coins minted from precious metals mined at Nevada's famous Comstock Lode.
The average American demanded a money backed by gold and silver. They got it. Then, over time, political shenanigans and monetary debasement robbed today's American citizen of their gold and silver coinage. Today, few can remember using gold coins in day to day transactions. A few of us forty years of age or more (particularly those of us living in the West) do remember the solid feel and ringing sound of real silver dollars.
But no more. The U.S. dollar is no longer backed by gold. Gold and silver coinage is out of circulation, the metal content worth far more than the face value. All replaced by a paper currency that has decreased in value by more than 90 percent in just the last 30 years.
In the past, Americans accepted paper money only as a convenience. Americans expected their paper money to be backed by gold or silver. They expected their coins to have the intrinsic value of gold and silver. Before the United State's "Free Coinage" Act of 1792, the principal money in use was foreign silver coinage. The Spanish milled silver dollar was the Colonists' favorite. As an independent nation, however, America needed its own currency. The new Nation needed to choose a single or a bimetallic monetary standard. If a bimetallic monetary system was to be used, the ratio between gold and silver coins needed to be officially established and coins minted accordingly.
The choice divided political leaders. Thomas Jefferson originally favored a single unit the silver dollar. Others, like Alexander Hamilton head of the Treasury Department under George Washington, favored both gold and silver units.
After heated debate, Congress passed the bimetallic coinage Act of 1792. The act established: a mint, units of weights, denominations of coinage, and established a silver to gold ratio of 15-to-1 (15 ounces of silver were equal to 1 ounce of gold). The so-called "Free Coinage" Bill, also authorized anyone to bring gold or silver to the mint. Pieces coined were legal tender, verified to purity and minted free.
Using the 15 to 1 ratio, minting of gold and silver coins continued until 1834. New legislation was enacted in 1834, bringing the official silver to gold ratio closer to 16-to-1. Legislation limiting silver coinage was proposed in 1853.
"The idea of Congress fixing the value of currency is an absurdity, not withstanding the Constitution...They alone have discovered that they can make money - that they can make one hundred and seven dollars out of one hundred dollars. If they can increase it to that extent they can go on and increase it to infinity; and thus, by the operation of the Mint, can the Governmentsupply its own revenues"
Congressman Andrew Johnson, Congressional Globe, vol. 26, 1853.
In response to the proposed Coinage Act of 1853 (reducing by government edict silver's value in relation to gold) Congressman Andrew Johnson contended that under the Constitution, Congress did not have the power to put less than one hundred cents' worth of bullion into a dollar and force it upon the public as a dollar. And if Congress did have the power to do so, it should not.
Andrew Johnson also served as President Lincoln's vice-president and succeed the assassinated Lincoln to the Presidency. Congressman Johnson believed a dollar should be worth a dollar. Considering today's financial shenanigans and monetary debasement, America desperately needs men of Andrew Johnson's caliber in Congress today.
Andrew Johnson and others favoring a silver or bimetallic monetary standard strongly opposed the new coinage act. The new legislation was designed to make silver coinage subservient to gold coinage. The supply of new silver coins introduced by the act (half-dollars, quarter-dollars, dimes, and half-dimes) would only be applicable to small daily transactions. Legislators passed the act, but the silver-gold monetary dispute continued.
The financial needs created by the Civil War added to the debate. Although the actual fighting only took place from 1861 to 1865, the war brought great social and economic changes: Rival stock exchanges opened. Successful Wall Street plungers became America's new rich. Stocks and commodities traded twenty-four hours a day. And a commodities exchange for gold and greenback speculators was established.
To finance the Union war machine, the North printed millions of greenbacks. The greenbacks, a paper currency not backed with gold, fluctuated in value with the Union army's fortunes. If the South were to win the war the new greenbacks would be worthless. Foreigners unsure of the war's outcome would not accept greenbacks for payment, they demanded "payment in gold." Americans quickly exchanged the new paper dollars for gold. During the seventeen years 1862 to 1879, however, the greenback was the monetary unit - prices and wages fluctuated widely.
When the Civil War began, the money in circulation consisted of gold and silver coins, one-cent copper pieces, and notes circulated by state banks. During the war years paper money issued by the North increased more than 250 percent. The economic law, "bad money drives out good money," went into effect. Greenback value fell so low during the war, gold and silver coins vanished - their bullion value exceeded their face value. The government put coins containing small amounts of silver into circulation. But, even these coins were melted down for their bullion content.
The war ended with the Confederacy economically devastated and the North economically stronger than ever. Monetary problems, however, would escalate. Financial panics and economic depression would follow, even the stockmarket would close. The silver-gold monetary dispute continued.______________________
"A disordered currency is one of the greatest political evils."
__ Daniel Webster
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Financial, social, and political changes following the Civil War of 1861-1865, were many. Most major Northern cities experienced modernization. In the Nation's Capitol, parks and gaslights replaced mud streets and oil lamps. Not all changes were for the best. The prewar relaxation of moral standards escalated, particularly in politics and finance.
The elections immediately following the Civil War centered not on issues, but loyalty. The Democrats were responsible for the succession. Loyalty to the Union became the criteria and political patronage the pay-off. Greed became the criteria and financial disaster the result.
The most infamous of our Nation's "Black Fridays" followed the Civil War. Jay Gould and James Fisk's attempt to corner the gold market brought on the September 24, 1869 market crash. The market made a few rallies, but monetary problems escalated - and then the financial panic of 1873. The stock market closed. Six hard years of depression followed.
The Crash of 1873 -With bank failures increasing and Wall Street bankruptcies shaking the financial markets, investors sold their stocks. Even quality stocks seemed to lack value - the Stock market was on the verge of collapse. On Friday, September 20, 1873, the New York Stock Exchange Board of Governors stopped trading and closed the Exchange "for an indefinite period". Within hours of the closing, President Grant arrived in New York to take charge. Grant was met by businessmen, brokers, and bankers. All demanded the President increase the money supply. President Grant vowed to do all he could both legally and constitutionally.
The U.S. Treasury soon increased liquidity by purchasing government bonds on the open market. The Treasury's action showed the financial markets and the voting public the government's willingness to act in times of financial crises. The Exchange reopened for trading with stocks well above their previous price. But, business conditions remained poor and the depression continued into 1879.
The Civil War fathered new forces seeking political answers for the social problems and the chronic economic depression that followed.
"In the physical world, one cannot increase the size or quantity of anything without changing its quality." _______ Paul Valery
Paul Valery may be right. But congress keeps trying. The United States demonetized silver in 1873, ending 100 years of a bimetallic monetary standard. The silver coinage advocates and other supporters of a more plentiful money supply were handed a defeat. They soon regrouped. And in 1878, passed legislation to reestablish the minting of silver coinage.
The "Bland-Allison Act" of 1878 directed the Treasury Secretary to make monthly bullion purchases, resume coinage of silver dollars, and issue silver certificates. Although not to be used as legal tender, they could be used to pay such public debts as taxes. The act also called for an international monetary conference to establish a fixed ratio for international bimetallic monies. Pro-gold advocates, however, were not to be outdone. A year later the pro-gold "hard money" forces passed legislation to fully convert greenbacks to gold.
Business failures, bank closures, and declining farm prices continued well into 1879. The year also ushered in Europe's worst grain harvest in a decade and one of America's best.
Europe's curse was America's blessing. Increased grain exports allowed the American businessman and farmer to bask in the glow of prosperity well into 1882. A year later the stock market took a dip on heavy volume. Some financial institutions failed and money became tight. But the panic of 1883 appeared to end quickly and without serious consequences. Major brokerage houses proclaimed stocks "under priced" and encouraged the public to buy. A year later the panic was real, numerous banks and brokerage houses closed. Firms misusing funds to speculate in the stock market became insolvent and failed. The economy's chronic downward drift escalated, and so did the activities of forces with political answers for economic problems.
A coalition of farmers and labor sought a policy of easier credit and money. Some industries pursued protective legislation to curb foreign imports. Seeking the political support of these special interest groups, Congress passed two major bills: The McKinley Tariff Act of 1890 to increase import duties to protect U.S. industrial goods and the Sherman Silver Purchase Act to appease the advocates of unlimited silver coinage.
America was again on a double metal standard. The Silver Purchase Act directed the U.S. Treasury to purchase and to coin into silver dollars, two million ounces of silver bullion each month; and to issue legal tender Treasure notes of $1.00 to $1,000.00 denominations to pay for the silver purchased. These silver certificates would be redeemable in either gold or silver. With a ratio of 16 ounces of silver equal to 1 ounce of gold, silver quickly rose from .93 cents to $1.21.
Easy money, a good wheat harvest, and the promise of industrial expansion brought on bullish market expectations. Circulation of silver certificates expanded, soon replacing gold as America's domestic legal tender. Foreigners, however, took only gold in payment.
Within three years of the Silver Purchase Act, foreign financial institutions were selling their U.S. holdings and buying gold. Americans, worried about the future ability to redeem certificates for gold, also began to redeem their silver certificates for gold. The monetary situation was serious, but not threatening - yet.
Then India announced they would no longer purchase U.S. silver for coinage. India being on a silver standard bought one-third of the world's newly mined silver. With India's announcement, the U.S. silver price quickly dropped to 65 cents and no one any longer wanted silver certificates. A flight from the U.S. dollar to gold followed. The dollar crises escalated. The stock market fell. Some railroads went into receivership. Less solvent banks closed. The dollar's survival was uncertain.
By President Grover Cleveland's second term, the country was in a deep depression. In a move to save the dollar and plug the drain on U.S. gold reserves, President Cleveland called on his forces in Congress to repeal both the Sherman Silver Purchases Act and the McKinley Tariff Act.
The effort to repeal the Silver Purchases Act was successful. However, the effort to open American industry to competition from abroad was not as successful. Cleveland's attempt to fully repeal the McKinley Tariff Act failed. The Sherman Silver Purchases Act, however, was repealed. Holders of silver certificates were still allowed to turn in their certificates for gold. They did. And the Treasury continued to put the redeemed notes back into circulation, creating an endless round robin of redemptions.
Declining faith in the U.S. dollar at home and abroad persevered and the gold drain persisted.
"No nation can be strong except in the strength of God, or safe except in His defense. The trust of our people in God should be declared on our national coins."
___________ S.P. Chase, Treasury Department 11-20-1861
Hung on a Cross of Gold: The election year of 1896 brought on a farm-labor coalition led by Democrat and "silverite" William Jennings Bryan. Bryan's famous "cross-of-gold" convention speech led to his party's nomination. His Republican opponent, former congressman and governor of Ohio, "protectionist" William McKinley, became a gold standard supporter. Backed with a huge campaign fund, McKinley achieved a conclusive victory, and resolved the currency question in favor of gold. But, both the silverites and the gold standard backers were to get their way.
The silverites wanted an end to tight money. They wanted unlimited silver coinage. But not everyone would accept silver as currency. The "hard-money" advocates wanted a sound gold- backed currency. They both got their way. Newer and more sophisticated gold recovery methods and new gold discoveries in Alaska, Australia, and South Africa, significantly increased world gold production. Money was more plentiful for the advocates of easy money and backed with gold for the "hard-money" people. Nevertheless, America's economic hard times lingered.
Again the failure of overseas grain crops and a bumper U.S. wheat crop would reverse America's unfavorable financial condition. The crop of 1897 provided the U.S. with one of her most exceptional wheat export opportunities in years. Exports increased and grain prices rose, gold began to flow from Europe back to America. With new export opportunities and new capital, prosperity was on the way. America's period of protracted financial disaster was over.
McKinley's presidential victory lead to the Gold Standard Act of 1900. The act declared the U.S. gold dollar weighing 25.8 grains as "the Standard Unit of Value." America was declaring its determination to maintain the gold standard.
Unwholesome speculation brought on the 1907 financial panic. America's railroads and Wall Street's gigantic investment trusts, however, flourished.
"To rob all creditors, public and private, is bad enough, in all conscience; but, for the sake of robbing existing creditors, to give a set of bankers the power of taxing the community to an unlimited amount at their sole pleasure, by pouring forth paper which could only get into circulation by lowering the value of all the paper already issued, - what would this be but to erect a company of public plunders, and place all our fortunes in their hands, merely because they offer to lend us our own money,..."
___________ John Stuart Mill, Dissertations and Discussions
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In 1913, under President Wilson, the United States instituted the graduated income tax and the Federal Reserve Central Banking System. This new legislation unlocked the door for the Federal Government to create unlimited amounts of paper money, accumulate massive federal deficits, and burden the middle class with confiscatory taxation. Only a gold-backed dollar kept the closed door of economic restraint from being flung open. That was to change.
A world war loomed, gloom and doom saturated the American financial scene. Economists predicted the United States would be drawn into a worldwide depression and the U.S. stock market would be devastated. The war arrived. Austria declared war on Serbia in 1914 and European stock exchanges started closing down. Selling panics soon struck the remaining European exchanges still open. America's financial institutions feared the world's securities selling would end up in New York, resulting in a run on U.S. banks. Friday, July 31, 1914, London closed its stock exchange. New York Stock Exchange Board of Governors closed the New York Exchange the same day.
The New York Exchange reopened five months later, and Europe did sell heavily into the market. Yet, less than two years later, stocks and bonds were higher than when the war broke out. Also, as British and French troops retreated, money and gold flowed into the New York market in such substantial amounts that low money rates existed for many years.
World government printing presses went to work. France increased its paper currency more than 100 percent. To meet war expenses, Germany and Russia increased their paper currencies more than 300 percent.
In America, the forecasters of gloom and doom were wrong. The war did not destroy America's economy. Instead, the war enabled American business to become a worldwide economic force, and Wall Street the world financial center. Europe would now come to the U.S. for capital needs. Gold would flow into America. The America of 1914 was a leading debtor nation. The America of 1919 was its largest creditor. At the end of World War l, America's economic base was broad and solid.
Paper Bank Notes Replace Gold & Silver: Under the Pittman Act of 1918 the United States sold more than 200,000,000 ounces of silver to the British government - silver needed to cover British war expenses in India. The act also required the United State's government to purchase silver from American producers to back silver certificates in circulation. At first, silver producers prospered from the increase in silver prices. Then circulation of silver and gold certificates (yellowbacks) decreased as member banks transferred the certificates to the Federal Reserve Banks for Federal Reserve Bank notes.
From 1917 to 1920, the amount of silver certificates in circulation dropped 80 percent and Federal Reserve Bank notes in circulation increased significantly. The financial recession following the war diminished any concern about inflation the increase in Federal Reserve Bank notes might have caused.
Prices of goods and services that had started to increase at the outbreak of war, began to decrease at war's end. Prices dropped more than 40 percent during the recession of 1920-21. Yet prices were still 50 percent above their prewar level. Business expansion and prosperity followed the 1920-21 recession.
America's postwar leaders rejected laissez-faire, choice of free trade, and sound money. America sought to keep the world prosperous by deliberately inflating the money supply, at the same time keeping interest rates artificially low.
Pre-war creation of the Federal Reserve Bank system allowed monetary inflation without the printing of money.
U.S. currency in circulation at the beginning of the 1920s boom was 3.68 billion dollars. At the boom's end in 1929 U.S. currency in circulation was 3.64 billion. But expansion of the total money supply in money substitutes and credits was 45.3 billion dollars in the summer of 1921 and 73 billion dollars in the summer of 1929. An increase of 61.8 percent in only eight years.
Easy money and expansion of credit feed the 1920s' prosperity. At the end of 1928, credit- inflation prosperity petered out and the economy went into decline. Then October 22, 1929 - "Black Tuesday". Waves of panic selling swept the Exchange. Within two days the Dow Index dropped nearly 25 per cent. Near year's end the tide turned. Wave after wave of optimism swept across the investing public, the DJIA returned within a few percentage points of its recent high and the declining Bond Market recovered. All seemed well.
A year later worldwide financial markets were on the verge of a major breakdown. At home, the Federal Reserve reversed its policy of easy money and credit - the U.S. Bond Market collapsed. Bank failures increased and depositors no longer wanted Federal Reserve Bank notes or any other paper money.
To pump-up the economy and resume prosperity, President Hoover moved to cut taxes, resume credit inflation, and increase government spending. And in doing so ran up a huge federal deficit. But Hoover lost control of Congress. Congress demanded the budget be brought into balance. In the greatest peacetime tax increase, Congress passed the 1932 Revenue Act.
Hoover the "Great Engineer" proceeded with massive government interference in trade, banking, business, and the stock market. But the economic slowdown continued.
The country's financial well-being decreased and unemployment increased. The electorate believing political change would bring financial stability, voted out President Hoover and voted in President Roosevelt.
In more of a move to grab power than correct the economic recession, President Roosevelt closed the banks, revoked the American citizen's right to own gold, and devalued the American dollar. The recession developed into a full-blown depression.
Monetary Pillage: With the country in a state of anguish and the stock market devastated, special interest groups pushed for political answers to escalating economic problems. The Thomas Amendment to the Agricultural Adjustment Act of May 1933 gave the President the unprecedented power to reduce the dollar's gold content by 50 percent and to allow the unlimited coinage of silver. Two months later Congress passed a joint resolution declaring gold clauses void. Lenders were outraged.
American lenders preferred financial agreements and federal government bonds with protective clauses obligating debtors to pay in gold coins. Now, however, debtors could pay holders of debt obligations in paper dollars.
Creditors claimed the Congressional resolution voiding gold clauses' unconstitutional. In a five to four vote the U.S. Supreme Court said otherwise, establishing government protection of social fascism and nullifying constitutional protection. Not by soldiers with bayonets, but by the judicial system.
Silver nationalized: A "you scratch my back and I scratch yours" farm-mining coalition lobbied into law the Silver Purchases Act of 1934. The new legislation directed the U.S. Treasury to purchase silver and issue silver certificates. The government put a 50 percent tax on all profits earned from silver transactions. For all practical purposes, the governement nationalized silver. Within a few short years the U.S. Treasury held more than two billion ounces of silver. That amount continued to increase.
The Great Gold Robbery: In 1933 the Roosevelt administration prohibited U.S citizens from holding gold. American citizens failing to turn in their gold faced a 10-year jail term, a $10,000 fine, plus a penalty twice the value of the gold confiscated. The government never returned the gold, despite Roosevelt's promise to do so. The government had the gold and the American citizen had the paper dollar. The Roosevelt Administration then officially devalued the dollar more than 50 per cent. Americans were forbidden from owning gold for the next 42 years.
President Eisenhower extended the prohibition of U.S. citizens from owning gold at home, to prohibiting U.S. citizens from owning and holding gold overseas. Nevertheless, the natural law of economics overruled political decree. Holding gold or silver would be preferred to holding paper dollars.
During the late 1950s, U.S. dollars overseas soon exceeded the total value of U.S. gold reserves. France, aware of the alarming situation, began exchanging U.S. dollars for gold. The free market price of gold rose above the U.S. official rate of $35 per ounce.
In the mid-1960s the U.S. Government repealed the 50 percent tax on silver profits and stopped issuing silver certificates - after a 29-year suspension, the silver market reopened. The Dow Jones Industrial Average approached 1,000 and precious metal prices came alive. Silver coins began to disappear. International gold markets started to show strength, a strength based more on future financial uncertainty than worldwide political changes.
In 1965, the Johnson administration abandoned the minting of 90 percent silver coinage. The silver content, due to inflation, was worth more than the coin's face value. New coins with a cheaper base metal and less silver were minted.
Investing in bags of pre-1965 U.S. silver coins became quite popular with silver investors during the early 1970s. Why coins? The coin's face value provided a bottom price, limiting the investor's potential loss. The silver content provided the profit potential. The legal tender coins could be used as collateral for leverage investing or to provide emergency funds. And during the complete collapse of a country's paper currency, silver coins can be used to sustain one's day-to-day survival.
The attack on gold continued under the Nixon administration. In 1970, the administration eliminated the U. S. dollar's required 25 percent gold backing. The Nixon administration declared the U.S. dollar abroad no longer redeemable in gold. The monetary fraud was complete and the bill for inflation was overdue.
A severe financial crises was in the making. The U.S. dollar's value at home and abroad plunged. Worldwide inflation accelerated. Major surgery was needed to restore faith in the dollar. Cosmetics, however, were used.
To halt the dollar's decline, the Nixon administration imposed wage and price controls. But the financial debacle intensified and the politicians got sillier. President Ford declared war on inflation and suggested everyone wear WIN buttons (Whip Inflation Now). Then President Carter's administration tried "tight money" talk.
Both the Ford and Carter administration's actions were ballyhooed at home and abroad. The world continued to be flooded with dollars. International banks were reluctant to accept more.
During 1979-80, the U.S. faced soaring interest rates and double digit inflation. The dollar, the world monetary standard, was on the brink of collapsing. The price of gold had increased more than 2,000 percent and silver more than 3,000 per cent. Bowing to worldwide pressure, President Carter decided to add action to his "tight money" talk. The President had the Federal Reserve raise the discount rate - the interest rate charged member banks. The higher interest rate discouraged further borrowing from the Federal Reserve Central Bank. Member banks borrowed from the private sector at lower interest rates to pay off loans owed to the Federal Reserve. Dollars started flowing out of the world financial system and into the Federal Reserve. But not in time for Jimmy Carter.
As President Reagan took office, the massive outflow of dollars overseas stopped and the dollar recovered. Foreign demand for the dollar increased as the need to pay off international loans grew. A stronger dollar abroad, lower oil prices at home, and massive importation of cheap foreign goods all helped to curb domestic price increases. But, by the summer of 1982, the U.S. economy was in a recession. Unemployment soared, the highest rate since the Great Depression.
Boom to bust and time to boom again. The Federal Reserve released the tight-money brake and stomped on the easy-credit gas pedal. By the end of 1982, financial institutions appeared strong and the stock market looked bullish. All was well, or was it?
The Great Bull Market Begins: America's "spend your way to prosperity" policy of the 1960s and the 1970s ended in double digit inflation and soaring precious metal prices in 1979-80. Two years later, 1982, the precious metals market collapsed Market lows showed gold $298, silver $4.98, platinum $244, and the Dow Jones Industrial Average of 776.42. But finally, the great bull market for stocks had started.
Since then, wave after wave of optimism has swept over stockmarket investors. All is well, or is it? Most financial panics and market crashes occur during periods of optimism. Investors fed by illusions of unstoppable expansion ignore the flashing danger signals. Are signals flashing today?
"To live beyond our means today is to live below them tomorrow."_ Dr. Hans Sennholz, Debts and Deficits, 1987
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As we enter the 20th century's final decade, inflation is not perceived as a problem. The establishment's financial and political pundents assure us an inflation rate of 3 to 5 percent is acceptable - a little inflation might even be good. In the 1960s Americans new better.
When John Kennedy attained the office of president, inflation was virtually zero. Two years later inflation soared to 1.2 percent. Working-class America was not pleased. Things were already tight and higher prices didn't help. When the steel industry announced, they needed to raise the price of steel $6 per ton to meet increased costs, President Kennedy threatened to nationalize the steel industry. It made for better political rhetoric to attack the result of inflation than the cause.
In 1962, middle-America did not consider an inflation rate of 1.2 percent acceptable. But the vote-buying "tax and spend" continued, as did the resulting inflation. And presidents continued to meet economic challenge with political rhetoric.
During Richard Nixon's first term, a severe recession and runaway prices vexed the nation. Inflation was 5 percent. Swayed by public outcry, Richard Nixon did what Republicans are not supposed to do; he imposed wage and price controls. Inflation continued, the Nixon administration did not.
Nixon's successor, Gerald Ford, hit inflation head-on. Putting on the uniform of political rhetoric, the new Commander in Chief bravely declared war on inflation. In nationwide broadcasts President Ford encouraged every loyal American to wear W.I.N. Buttons, "Whip Inflation Now". Wearing a button did not whip inflation. At the next election Gerald Ford was.
During the last half of the 1970s, precious metal prices soared as double-digit inflation gripped the nation. At the end of Jimmy Carter's first term, inflation for the year was 13.5 percent (this meant prices would double every five years). For several months the rate of inflation approached an unbelievable 20 percent - middle-America voted President Jimmy Carter out and voted Ronald Reagan in. Reagan had promised to cut taxes, cut spending, decrease government, and balance the budget.
Inflation was temporarily brought under control during President Reagan's first term. America, however, suffered its worse recession since the 1930s' depression. This may have been America's last chance to let the economy clean itself without suffering a major economic collapse or the total destruction of America's shrinking middle-class. It was not to be.
A pork-barrel Congress and a growing number of private and public self-interest groups did not embrace the new President's proposed budget cuts. Special interests and their congressional toadies - of both political parties - reacted to the possible cuts with howls of outrage.
Doing a 180-degree turn, the new President surrendered to the vote buying programs favored by Congress. The Republican Reagan administration gave the Democrat party's old vote-buying deficit-spending scheme of Keynesian Economics a new name, "Supply-side Economics". We were nos told deficits did not matter. In fact, deficits were now good.
Republican and Democrat Congressmen acted like drunks let loose in a liquor store. Congress went on a binge - deficit spending to buy votes now and let someone else pay later.
In 1984, when President Reagan started his second term, the inflation rate had dropped to 1 percent. Four years later, President Bush was the new president and inflation had climbed to 4.4 percent. Threats to nationalize? Wage controls? Price controls? Not at all. Reassured by the financial community and jaded by past double-digit inflation, middle-America did not perceive inflation as a problem. The price of silver rose and fell with inflationary expectations. Silver went into the doldrums.
"A dollar saved today is 75 cents earned tomorrow." James
Reston, Stores, Dec. 1969
return to silver investments
In the 1960s and 1970s, as a monetary metal the price of silver soared. Silver's long term price prospect, however, is based on the metal's non-monetary use. Silver is plentiful yet unique, and has no competitor in 90 percent of its uses. The expanding range of industrial use continues to widen the production-consumption gap. Increasing population in areas favorable to silver, particularly Asia and Latin America, are putting added consumption pressure on available silver supplies.
The metal's unique industrial properties provide long-term bullish price prospects. If the world's economies continue to prosper. If not, it will be the metal's monetary characteristics attracting investors. Severe economic downturns bring with them political answers for economic problems. Governments rush to easy money to sustain their economies.
And it was inflationary fears that drove the metal's price during the 1960s and 1970s. In the mid- 1960s, the silver price averaged between $1.00 and $2.00 per ounce - more than double the average price of silver during the previous decade. And it would double and again and again.
Economic instability and the fear of worldwide hyper-inflation increased during the late 1970s. Volatility shook the silver market. The price of silver increased several thousand percent. Then the rate of inflation and the price of silver peaked. Silver hit an all-time high of $48.00 per ounce in 1980. Inflation waned and silver started a downward drift with long lackluster periods of little price change.
Today's investors believe silver lack's spectacular upside capability as an investment and avoid the metal. Will that change?
Silver's long term price prospect is based on the metal's non-monetary use. The metal's unique industrial properties provide long-term bullish prospects. Nonetheless, silver's short term price prospect will continue to be based on the metal's monetary characteristics. Both silver's monetary and industrial characteristics can prove bullish for the price of silver and profitable for the knowledgeable silver investor.
As a Monetary Metal: If the worldwide expansion of created purchasing power continues to out pace production, economic realities will over rule political edicts and wishful thinking. Worldwide prices will raise substantially, as more and more purchasing units chase the same amount of goods and services, proving bullish for silver as a monetary metal.
Who causes inflation and how? Only one entity can increase spending in one area without decreasing spending in another area. Only one entity can print its own money to pay its debts. Only one entity can continually expand the quantity of money, resulting in more and more purchasing units chasing the same amount of goods and services. Who causes inflation? Not the consumer buying on credit. Not business raising prices. Not labor raising wages. These actions are often the result of inflation, not the cause. Then who causes inflation? The state.
Creating money out of nothing to finance our massive Federal Debt is not only dishonest, but expensive and destructive as well. The ever increasing quantity of U.S. government purchasing units created during the 1970s resulted in double digit inflation and interest rates soaring more than 20 percent.
During this period, investors' seeking protection from the ravages of inflation sought refuge in gold and silver. Precious metal prices soared. The oil-billionaire Hunt brothers bungled attempt at cornering the silver market helped drive silver prices from $3 to $50 per ounce. Gold, no longer suppressed by government edict, increased from $70 to $840 per ounce.
Today, the U.S. exports hundreds of billions of debt. If foreign holders of U.S. debt continue to encounter further dollar devaluation, or a sever economic downturn, the results could be catastrophic. Purchasing of new U.S. debt instruments would stop and dumping of old U.S. debt instruments start. U.S. Treasury debt would flood the financial markets. The only available buyer the Federal Reserve. The result, the debt will be "monetized" and hundreds of billions of new dollars chasing the same amount of goods and services - inflation.
If, however, the purchasing power of the local currencies deteriorates faster than the dollar, foreign holders of U.S. debt will increase their holdings. And the U.S. will continue to support its economic growth on government debt while exporting the inflationary results.
Based on the continuing world wide debasement of paper currencies and silver's monetary characteristics during inflationary periods, silver investments have a chance to shine again during the next decade. Inflationary expectations may well polish silver's prospects.
As an Industrial Metal: Silver is plentiful yet unique. It has no competitor in 90 percent of its uses. And today the world is on fast forward. Although plentiful, the production-consumption gap continues to widen. The number of new industry uses growing at an increasing pace. Increasing affluence and population in areas favorable to silver - particularly Asia and Latin America - are putting added consumption pressure on available silver supplies.
Silver is plentiful. Consumption, however, is greater than production of newly mined silver, resulting in an increasing production gap. In the past government supplies made up this gap - hundreds of millions of ounces. But, during the last 30 years, the bulk of available domestic and foreign government supplies has been sold. And it takes a vast amount of capital and time to bring a major mine on-stream. This "time gap" precludes a rush of new mine production coming into the market - adding to silver's long-term bullish prospects.
As both a monetary and an industrial metal, silver is again becoming more than just a tease.
"The state as learned from the merchants and industrialists how to exploit credit; it defies the nation ever to let it go into bankruptcy. Alongside all swindlers the state now stands there as swindler-in-chief." __________ Jakob Burkhardt
return to silver investments
"The art of taxation consists in so plucking the goose as to get the
most feathers with the least hissing." __________ Jean Baptiste Colbert
return to silver investments
Legal tender silver coins offer the intangible benefits of owning an attractive
article and the tangible benefits of a legal tender coin. The coin's precious
metal content increases in value with higher silver prices. The coin's face value
limits somewhat the amount of investment risk. The limited edition or age of some
coins adds a potential rare coin value.
If worse should happen - bank closures or the complete collapse of paper currency - silver coins can be used to sustain day-to-day survival. For those who travel or stay in countries whose monetary stability is questionable, take a few silver and gold coins with you. Do, however, be aware of local laws. Being jailed or shot for carrying a few illegal gold or silver coins in your pocket can take the fun out of any trip.
Investing in bags of pre-1965 U.S. silver coins became popular with silver investors during the early 1970s. The coin's face value provided a bottom price, thereby limiting the investors potential loss. The silver content provided the profit potential. The coins, being legal tender, could be used for collateral to provide funds for leverage or emergencies.
A full bag contains $1,000 face value of pre-1965 U.S. dimes, quarters or half-dollars. For investment purposes, each full bag is given a value of 715 troy ounces of silver. A $1,000 face bag of pre-1936 U.S. silver dollars is given a value of 770 troy ounces of silver. Comparing a bag of silver coins with other silver investments on a cost-per-ounce basis is simple. Divide the bag price by the amount of silver content, and you have the cost-per-ounce.
Other less popular Canadian and U.S. silver coins include: U.S. half-dollars dated 1965 through 1970 containing 40 percent silver. There also the Canadian 80 percent silver coins dated 1966 or earlier, and 1967 and some 1968 Canadian coins containing 50 percent silver.
New silver coins: Today, governments are back in the silver coin minting business. In 1985, President Reagan signed into public law the minting of legal tender gold and silver bullion coins. Starting in 1986, the Silver American Eagle would be minted at the San Francisco Assay Office in California. Presently, the new American Silver Eagle Coin sells at a moderate premium above its one ounce precious metal content and greatly above its one dollar face value.
In 1988 the Royal Canadian Mint announced the minting of the one ounce "Silver Maple Leaf." The new Canadian one ounce pure silver dollar would have a face value of five dollars Canadian. The number of coins minted the first year was limited, leading to a high premium over the coin's bullion content and five dollar face value.
The Australian government also announced the minting of a new silver coin in 1988, the Holey Dollar and the Dump - two coins in one. The coin was released as a limited commemorative issue. Although of more interest to the collector than the bullion coin investor, the coin and its history are of unusual interest.
The Holey Dollar is not the first Australian coin to have its center punched out. When Australia was first a British colony, the new land lacked the necessary monetary means of exchange. In 1813, the new colony's governor purchased Spanish eight real coins and had a hole punched in the center of each coin; making two coins from the original one. To distinguish the new coins and to keep them from being sent out of the colony, the governor had a convicted coin forger stamp each coin with "New South Wales".
Today's Holey Dollar contains one ounce of silver and has a face value of one dollar Australian. The Dump, fits into the coin's center and contains 1/4 ounce of silver and has a face value of twenty-five cents Australian. The Holey Dollar and the Dump are fascinating, but not the silver coin to be purchased in quantity by the bullion coin buyer.
Silver bars for the individual investor include the popular 1 troy ounce, 10 ounce, and 100 ounce silver bars. To avoid possible assay costs and loss of instant liquidity, stick with well-known brand names. Each bar is stamped with its own registration number, purity, and weight. Names such as A-Mark, Engelhard, and Johnson Matthey provide bars that are easier to buy and resell.
Precious metal dealers range from small local coin dealers and large well established precious- metal brokers, to a few fly-by-night scam artists. Patronizing a well-established precious-metal broker, or trading with your local dealer on a cash basis greatly diminishes your chances of having a negative experience.
Prices are constantly changing, and trading in precious metals continues twenty-four hours a day; following the sun westward around the world. Early morning and afternoon commodity prices in the U.S. are constantly updated by the New York and Chicago Commodity Exchanges. Most local dealer spot prices are provided throughout the day by major wholesalers. Prices respond to daily market conditions and each dealer's own supply and demand. Dealer retail prices for bullion bars and coins are based on the spot price, plus manufacturing and distribution costs, wholesalers risk, and retailers commission.
You will need storage for your precious metals, but where? Your options range from burying the metals in your back yard to a safety deposit box at your local bank; or an overseas Swiss bank account insured by Lloyd's of London.
If you don't trust your relatives or your memory, hiding your precious metals is not an option. For most of us, the practical place to store silver coins or silver bars is a safety deposit box. However, if your bag of silver coins is larger than your safety deposit box, or your local bank doesn't offer safety deposit boxes - and if they did you wouldn't trust them anyway - your local bank may not be an option. The alternative could be a fully secured depository with storage facilities in the U.S. or Switzerland.
return to silver investments
Leverage is the committing of as little cash as possible, to control an investment far greater in value than your initial cash outlay. Available programs consist of the highly-leveraged future markets requiring a small good-faith deposit, to the more conservative financing of your precious metals through a lending institution. Leverage can contribute to a large increase in your profit or loss. The higher the leverage, however, the greater the risk.
Leveraging With Financing
Financing your precious metals, refers to your ability to make a down payment on your purchase and borrow the rest. With this type of leverage you own the physical metal. If you believe precious metal prices are going up and you are more comfortable owning the physical metals, then a financing program may be a suitable investment alternative.
Financing program details should include the loan and collateral agreement documents. All costs clearly understood: the retailer's mark-up, lender's set-up fee, storage fee, shipping charges, and interest charged on outstanding loan balance.
Once you make the purchase, you should receive a purchase confirmation from your retail dealer clearly explaining what you purchased and at what cost. You should also receive a storage receipt or collateral receipt directly from the lending institution confirming delivery of your precious metals to the designated depository. Now, if the price of precious metals goes up, well and good. However, what happens if the price declines?
The "Margin Call" is what happens if you have guessed wrong, and the market value of your precious metals decline. The lending institution will call you for additional funds to restore the fair market value of your collateral in relation to your outstanding loan balance (the maintenance ratio). Your failure to provide additional funds could result in the lender selling all or part of your metals. Be a little more conservative, borrowing less than the maximum amount permitted lessens your possibility of a "call". Your leverage will be less, but so will your risk.
Leveraging With Futures and Options - for the very rich or very foolish
Commodities futures and option markets provide a highly leveraged, short-term investment vehicle for the precious metal's speculator. And that word is "speculator".
The futures contract provides for future delivery of a commodity at a specified date, time, and place. Less than 5 percent of all futures contracts traded result in actual commodity delivery. A speculator will sell-out or buy-back their contracts, then pocket the profits or eat the losses.
With high leverage futures trading you can invest $2,000 and make or lose $10,000. With futures trading you can lose far more than your original investment. The average investor who speculates in futures loses. So, if you're very rich or very foolish, commodities futures trading may be for you.
Precious metal option investments limit your losses to your original investment. You still control a large amount of silver with a small amount of capital; but, you limit your risk to the price you pay for the option.
The "call" gives you the option, but not the obligation to buy silver if you believe the price is going up. The "put" gives you the option, but not the obligation to sell if you believe the price is going down. Either way, you pay a premium. The premium paid depends on option size, metal price, and length of time the option is good for.
Commodity option and futures markets do offer you an investment vehicle with substantial profit potential - whether you believe precious metals may go up or down. The odds are greatly against you.
Besides guessing wrong, with a leveraged program your biggest enemy is time. You could be right, but your timing off. In a market where the price changes little during a long period, the interest charges and storage fees drain the investment. With the futures and option market your timing needs to be off only a day to lose your entire investment.
If just holding bullion bars and coins does not satisfy your desire for profit potential and you are willing to assume some additional risk, try gold and silver mining stocks. Carefully picked mining stocks can provide you the profit potential without the precise timing required by leveraged programs. Your risk is limited to your original stock investment with considerable profits still possible. During a bull market most gold and silver mining stocks increase substantially in value.
Better yet, you do not always need higher metal prices to receive rich rewards from a mining stock investment. If your company makes a new discovery, or a rich strike is made on a nearby mining property, you could realize profits of ten to twenty times your original investment. But you need to be patient. ______________
"Panics do not destroy capital: they merely reveal the extent to which
it has been previously destroyed
by its betrayal into hopelessly unproductive works." _______ writings of John Stuart Mill, 1867
return to silver investments
Not only the question of the coinís value is of interest, but the history also. When the coin was new, did Buffalo Bill or Teddy Roosevelt hold the same coin? The very same coin we are now holding. When passing a rare coin to a son or granddaughter, we can also pass on U.S. history, the self-discipline of saving, and the practice of patience - three commodities lacking in our society today.
U. S. history is short. When I was about seven years old, my great-grandmother was 92 years of age. She was a young girl during our Civil War. Although she did not, she could have known Abraham Lincoln. And, if she had a 92 years old great-grandmother when she was seven, my great-grandmother could have known someone who saw George Washington inaugurated.
While U.S. history may be short, we still have more than a two hundred-year history of gold and silver coinage. However, few people alive today, if any, ever used gold coins in day to day transactions. There are those of us forty years of age or older (particularly those of us living in the West) who do remember the solid feel and ringing sound of real silver dollars.
Written information on collecting or investing in old or rare coins saturates the market. In just my area, the libraries list more than 250 books and periodicals on coin collecting. These books and magazines cover hundreds of different coins from numerous countries. The amount of detailed information available overwhelms the mind.
I know, silver has not done well since 1980, but the silver dollar has a profit potential far above the coinís actual silver content. The U.S. silver dollar offers both the investor and collector tax advantages, potential for profit, and the ability to transfer wealth confidentially.
With silver dollars you do not have to be wealthy to start. People like silver dollars. They can enjoy its beauty. And the silver dollar is rich in history, the United Stateís minted silver dollars for almost 150 years.
The United States' story of silver is a story of government interference: First, government silver purchases kept the price up. Government purchases during the late 1800s, the depression years, and at the end of World War II filled the Treasury. The Silver Purchases Act of 1934 directed the U.S. Treasury to purchase silver and issue silver certificates. A 50 percent tax on the profit of all silver transactions was invoked - for all practical purposes, the silver had been nationalized.
Entering the 1960s, the U.S. Treasury held three billion ounces of silver. The natural law of economics overruled political decree. Eventually, gold or silver would be preferred to paper dollars. During the mid-1960s, precious metal prices came alive. International gold markets started to show strength; a strength based more on financial uncertainty than political upheaval. Although U.S. citizens still could not own gold, the government did repeal the 50 percent tax on silver profits; and, after a 29-year suspension, allowed the silver market to reopen.
The Johnson administration abandoned the minting of 90 percent silver coinage in 1965. The silver content, due to inflation, was worth more than the coinís face value. As could be expected, silver coins began to disappear. To replace the disappearing 90 percent silver coins, the government minted new coins with a cheaper base metal and less silver. Treasury silver sells and the threat of selling could not keep the metal's price down during the inflationary 1970s. Inflationary concerns drove precious metal prices up, and 90 percent silver coins vanished; the coins melted down or tucked away in safety deposit boxes.
Those holding gold and silver did not always do well during the 1980s and the 1990s. Investing in older U.S. silver dollars, however, presents a profit potential far above the coinís actual silver content. Well chosen older U.S. silver dollars provide an investment you can enjoy over the years and profit from as well. The older U.S. silver dollar offers the intangible benefits of owning an attractive article and the tangible benefits of a legal tender coin. And the limited edition or age of some add a potential rare coin value.
One person may be a coin collector, another a numismatic investor. The collector buys and keeps a coin, enjoying both the coinís beauty and history. Even in an active precious metal's market the collector remains the primary source of demand for rare coins. There are collectors who look only for the rarest issue; others may only collect complete coin sets. The collector does not worry about the price, the investor does. Investors seek profit potential. Both the collector and investor may be looking for capital gains and the ability to transfer wealth confidentially. Coin collections are often accumulated over time and passed from generation to generation.
But which silver dollar and when? Although the United States minted more than 800,000,000 silver dollars between 1878 and 1935, many have been lost, melted down, or worn out.
Silver dollars by the millions were melted in 1918. The bullion sold to our war ally Great Britain - the British needed the silver to pay their expenses in India. Silver dollars were again melted by the millions during World War ll, and the resulting silver bullion contributed to the United Stateís war effort. Growing monetary inflation during the 1960s and the bullish 1968 silver market again led to the melting of millions of Morgan and Peace dollars. The coinís .77 per ounce of silver bullion content was worth far more than the coins one dollar face value.
Although many silver dollars have been melted or lost, an estimated 500 million U.S. silver dollars exist in public hands and Federal vaults. The large supply of uncirculated silver dollars helps keep the market from having speculative explosions followed by market blow-offs.
But which silver dollar?
Buy only what you can afford to hold on a long-term basis, a minimum of five years or more. Buy quality not quantity, and pay a reasonable price. Look for:
A United States silver dollar
Graded MS-63 or better
With limited availability
Popular with dealers and investors - for liquidity
A coin that has performed well in the past
A coin with collector demand to offset investor speculation
Comparison shop and buy what you like - if you like it others probably will too.
Buy rarity. A coinís rarity often gives you a better chance at appreciation.
Buy a coinís long-term performance. An established buy and sell history will give you a better idea of the coinís price performance.
Buy a coin priced for liquidity. In a down or tight money market, it is easier to find someone to buy a $100 coin than a $10,000 coin.
Buy Diversification. Not only should one diversify their type of investment, they should diversify within each type of investment. You would not put all your funds into one stock. So no matter how much you might like a particular coin, diversify.
And Buy quality. Buy MS 63 graded coins or better - high quality coins increase in value faster. Pay a fair price for a properly graded coin. Remember, there are no bargains. Be patient.___________________________
return to silver investments
Three main factors motivate the silver investor: the amount of silver consumption, the amount of available silver supplies, economic or inflationary growth.
There were times in ancient Egypt when silver was considered more valuable than gold. Nevertheless, a ratio of thirteen ounces of silver to buy one ounce of gold was common during the Old Testament era. The last five hundred years the ratio has been as diverse as eight-to-one and ninety-to-one. During the 1700s up to the mid-1800s the ratio was slightly more than fifteen-to- one. The last one hundred years the ratio averaged more than thirty ounces of silver to buy one ounce of gold.
Many mistakenly thought the sixty-to-one ratio during the later part of the 1980s a sure-fire reason for investing in silver. But economic and political conditions, and investors' expectations affect the metal's price not silver's relationship to its historic highs and lows.
Mine output in the United States is well documented by the U.S. Bureau of Mines. Output figures from other countries lack reliability and have to be estimated. New recovery methods and potential new discoveries make figures for future new supplies far more unreliable.
Over fifty countries have producing silver mines. Excluding the old Soviet Union, the top five producers are Peru, Mexico, Canada, Australia, and the United States. North and South America alone produce about 75 percent of the non-Soviet world's newly mined silver.
Entering the 1990s, Mexico continued to be the largest silver producer. The U.S. was second and Peru was next. The Commonwealth of Independent States (old Soviet Union) was next followed closely by Canada and Australia.
Two-thirds of the world's annual silver output comes as a by-product from mining other industrial metals and one-third from primary silver mines. A substantial amount of primary silver mined comes from Mexico and the United States.
During an inflationary recession these primary mines would be the only silver mines economically feasible. A decrease in industrial consumption of base metals would push base metal prices down. Base metal mines would close. At the same time, fueled by fears of accelerating inflation, investor hoarding would push the price of silver up; giving the investor with correctly picked silver mining stocks sizable financial rewards.
Recovery and Above Ground Supplies:
Recovery of used silver is economically profitable and ecologically desirable. Each year processors recover varying amounts of silver from silver-bearing waste, old coins, and scrap. Reclaimed silver provides nearly half the total silver used.
Above ground supplies held by industry, world governments, and the world's commodity exchanges are immense. We can only guess the amount of silver bullion and coins held by the investing public. And a silver price of $15 to $20 would bring a substantial amount of silver out of investors' hands and into the market.
Usage and Consumption:
Total consumption of silver takes place when recovery is not technically possible or economically feasible. Official figures vary considerably. Everyone is guessing.
Industrial and decorative usage of silver covers an extensive area. Silver use includes everything from photography to electronics, and from jewelry to electroplated ware. Applications also range from medical-dental use to industrial brazing.
Investor use of silver includes buying rare coins for financial profit to buying silver bars for an inflation hedge. For the investor seeking some leverage with high profit potential, silver mining stocks are available. And for the very rich or the very foolish, the highly leveraged speculation of the commodities market is offered.
Bearish and Bullish Factors:
Bearish factors influencing the price of silver include formidable above ground stocks, economic stagnation, and investor indifference.
Additional selling of government stockpiles will haunt the market for some time to come, in particular, sales by the governments of the United States, Mexico and Peru.
Deep sea nodule mining may prove to be more bullish than bearish. Mining the sea floor is expected to be a reality within the next two decades. Nevertheless, compared to the major amount of copper extricated, the silver mined will be negligible. With a cheap and plentiful source of copper the low-grade and marginal onshore copper mines will close, ending production of their silver by-product.
During the 1980s and 1990s, the overriding bearish factor was the lack of interest in silver as an investment with spectacular upside capability. Potential silver investors believed available supplies were more than sufficient to meet monetary and industrial demand.
Bullish factors influencing the price of silver continue to be inflationary fears, positive investor interest in areas of growing individual incomes, booming industrial economies, the production-consumption gap.
Greater consumption than production of newly mined silver has resulted in a production gap. In the past government supplies made up this gap. The past 25 years, however, the bulk of available government supplies has been sold. And it takes a vast amount of capital and time to bring a major mine on-stream. This "time gap" precludes a rush of new mine production coming into the market.
What now - Bullish or Bearish?
Since the mid 1980s, except for a couple of false starts out of the starting gate, owning silver has been as profitable as a race horse with a broken leg - still a race horse but not going any where fast.
Silver, however, is plentiful yet unique, and has no competitor in 90 percent of its uses. The expanding range of industrial and military use continues to widen the production-consumption gap. Increasing population in areas favorable to silver, particularly Asia and Latin America, are putting added consumption pressure on available silver supplies. In the long-run, this will prove very bullish for silver and very profitable for the knowledgeable silver investor.
return to silver investments
More than fifty-five countries have producing silver mines. The top five producers
- excluding the old Soviet Union - are Peru, Mexico, Canada, Australia, and the United
North and South America alone produce about 75 percent of the non-Soviet world's newly mined silver. Entering the 1990s, Mexico continued to be the largest silver producer. The U.S. was second and Peru was next. The Commonwealth of Independent States (old Soviet Union) was next followed closely by Canada and Australia.
Two-thirds of the world's annual silver output comes as a by-product from mining other industrial metals and one-third from primary silver mines. The substantial amount of primary silver comes from Mexico and the United States; a point of interest to those investors interested in silver mining stocks.
During an inflationary recession only these primary silver mines would be economically feasible. A decrease in industrial consumption of base metals would push base metal prices down. Fueled by fears of accelerating inflation, investor hoarding would push the price of silver up.
It takes a vast amount of capital and time to bring a major mine on-stream. This precludes a rush of new mine production coming into the market. This "time gap" and higher prices will give the investor with correctly picked silver mining stocks sizable financial rewards during both economic times of inflationary uncertainties and booming times of industrial economic growth.
When it comes to the big mining companies there are no more pure silver plays. Most silver mining companies also mine gold or base metals. Some mining companies are involved in oil and gas, or production of other goods and services. Shares of these companies needed to be evaluated using criteria other than just their silver properties.
A company may have one property or a dozen. As a result of ongoing exploration and acquisition a mining company often develops an inventory of properties. Properties showing promise are explored and evaluated. A property may fall into the dormant category, awaiting higher metal prices or new and cheaper mining methods. A property may prove to be a dead property, buried and forgotten. Or a property may show potential and a developmental study is in order. A property may even move into production.
A basic formula can be used to compare a producing mine or a property in the developmental stage. When comparing, compare ton with ton and metric ton (tonne) with metric ton (tonne).
A Short ton = 2000 pounds A Metric tonne = 2204.6 pounds
Ore grade_____ x Percentage of silver recovered____ x Silver price____ minus Operating cost per ounce____ x Tonnes mined per year x Percentage of company's ownership____ divided by number of Shares outstanding____
= ____ The estimated gross earnings per share
Figures used for shares outstanding might also include options and insider or shares in escrow. The number of tonnes mined per year, if not known, can be based on 350 days. And make sure tons are compared with tons and tonnes with tonnes.
The figures used for analyzing a producing mine would come from the previous year. For the developmental property, estimated figures with a 30 per cent margin of error used. Also, there will be state and federal taxes at approximately 40 per cent. Possible royalty payments of 3 to 5 percent. The non-cash expenses: depreciation of equipment and property depletion also need to be considered.
Most silver mining companies also mine gold or base metals. They may also be involved in oil and gas, or production of other goods and services. Shares of these companies needed to be evaluated using additional criteria.
And no matter how good the mining property, lack of income or excessive debt can lead to disaster. A successful junior exploration company may not receive any substantial income from its discovery until the major company developing the property is paid back its investment. If this is the case, we need to know how long before payback. Also, what continuing remuneration, if any, the junior company will receive until payback.
Even a good producing company burdened with excessive debt may be heading towards disaster. During a long period of low metal prices the mine would produce little or no income. The banker could end up holding the mine and the shareholder holding worthless stock.
Avoid the company encumbered with excessive debt. Pick a company with experienced and professional management in the realm of mining, business, and finance. And pick a profitable producer. If not a producer, choose a developmental company having a promising property in a prolific silver-producing area. The developmental company must have the financial ability to take a project into production. The company -developmental or producing - must have the ability to meet any financial contingency. And the stock must be obtainable on a sensible price-to-earnings or potential-earnings basis. __________________
return to silver investments
Sizable financial rewards await the enduring investor with correctly picked silver mining stocks. But it will not be easy. Excluding the old Soviet Union, the top five silver producing nations are Peru, Mexico, Canada, Australia, and the United States. North and South America alone produce about 75 percent of the non-Commonwealth of Independent States (old Soviet Union) world's silver.
Two-thirds of the world's newly mined silver comes as a by-product, coming from companies mining other industrial metals. Only one-third of the world's annual silver output comes from primary silver mines, a substantial part of primary production coming from Mexico and the United States.
Mexico is a number one silver producer. Mexico is also both blessed and cursed. It is a beautiful country, blessed with natural resources and friendly people. It is also torn by inflation, crushing debt, and political instability.
This may, however, be a country on the mend. Mexico's vast silver and oil reserves could make this country a viable economic force in the world. In the mid-1980s the Mexican government issued the "Certificados de Plata," certificates backed by silver - similar to an earlier certificate backed by oil. Each new silver certificate is exchangeable for cash or 100 ounces of silver. And too further entice the investor, the certificates were granted a favored tax status. Meeting with favorable investor response, the initial offering of 40,000 certificates sold out the first day. Which of course showed more faith in purchasing units (money) backed by natural resources than purchasing units backed only by government decree.
Mexico has a long history of gold and silver exploration. Serious mining activity, however, ceased with the turbulent revolution of 1910. Political banditry and decades of economic envy discouraged foreign involvement. Mexico's mining law revisions of 1992 changed that. North American entrepreneurship is not only welcomed, but encouraged. Large underdeveloped and heavily mineralized properties are now open to foreign investment and development.
Mexico has the natural resources to provide a better life for their people. But, until then, economic and political instability add additional risk for the investor.
Peru is also blessed with mineral wealth and cursed with adverse economic and political problems. To help with its debt restructuring, Peru sold silver from its central reserves. The sales during the 1980s depressed the price of silver world-wide and left Peru with less than 10 percent of its former silver reserves. And Peru's ailing political and economic climate remained unchanged during the 1990s.
Peru was the heart of the Inca empire; a political and economic system stretching from Ecuador to central Chile. The Empire ended with the Spaniards' conquest of its heartland in 1531. As the nineteenth century came to an end, vast amounts of foreign capital brought economic development to Peru. Railways connecting the mining centers of the highlands with the shipping centers on the coast were built
In 1963, reforms to improve the social and economic conditions of the peasants were introduced. Five years later, under the new reigning junta, the major industries, mining companies, and public services were nationalized. In 1980, the same junta but different general, free elections were restored. Free elections have continued since, and foreign investments once again encouraged.
This South American country's ability to continue as a leading silver producer always remains questionable. The Communist controlled miners' union continually hampers production. In the past, union interference and political chaos helped keep mining costs high, often above the current free market price of silver. Inflation and debt- ridden, Peru needs the hard currency earned by its mining product exports, and can be expected to keep its mining industry operating.
Australia's States and Territories
The growth of silver mining in Australia has been slow. Nevertheless, exploration for gold and platinum continues at a high level, increasing the chance for new silver discoveries. Australia's known silver resources are predominantly contained in lead-zinc-silver sulphide deposits. There are some exceptions: the silver content of the Drake gold-silver deposits, the silver content of the Mount Lyell copper deposits, and the silver content of the massive Olympic Dam deposit.
New South Wales is Australia's oldest and most populous State, a State with a long history of gold mining. Early pioneers seeking gold and adventure first found silver at New South Wales in 1876. A few years later and not far from the first strike, prospectors struck it rich at Broken Hill. The mine became the world's largest known source of high-grade lead, zinc, and silver ore. The Broken Hill mine produced a third of the world's total silver production during the late 1800s.
Although New South Wales produces 38 percent of Australia's silver production, the area accounts for only 3 percent of the world's silver production. Numerous optimistic exploration projects are bringing new life to the historic mining centers.
"The Northern Territory has the world's biggest best uranium deposits, significant and substantial gold deposits and several large gold mines, the world's biggest silver, lead and zinc deposits... The key word in Northern Territory politics is development. That is our motivation."
______ Barry Coulter, Minister for Mines and Energy, Northern Territory Australia
Australia's Northern Territory contains one of the world's largest lead-zinc deposits. The deposit at McArthur River also contains a significant amount of silver. Although the deposit was discovered in 1955, the ore's extremely fine grained characteristics prevented conventional metallurgical treatment. And with metallurgical problems comes increased production cost. But, with time, new and cheaper metallurgical methods will also come.
Queensland is Australia's second-largest State, with the famous "Great Barrier Reef" forming the State's eastern boundary. And when it comes to mining, past exploration has shown Queensland to be abundantly endowed with natural resources, often responsible for half Australia's silver production.
South Australia's first metal mines were silver-lead mines, located near Adelaide at Glen Osmond. The year was 1841. The area consisted of several mines: the Glen Osmond Mine, the Wheal Watkins, and the Wheal Gawler - the first metal mine to export from Australia.
Cornish miners mainly worked the Glen Osmond lodes. The miners used methods developed in Cornwall; methods developed over several hundred years. The Cornish miners not only provided the methods. They also had to provide their own gunpowder, tools, and candles.
The work was hard. Once mined, the ore processed by hand. And the work was dangerous. Those working underground also took extra risks to increase production. Mine owners paid those who sank shafts and drove levels according to the volume of ground excavated. The other miners were paid a percentage of the value of ore mined. A week of hard work and low grade produced little in the way of financial rewards.
The successful discoveries at Glen Osmond led to exploration in the State's other areas. One of South Australia's larger producers of silver and lead was the Talisker, established near an early whaling base at Cape Jervis. At first they bagged the ore by hand and shipped it all the way to England. Later they sent the ore concentrate up the Australian coast to Port Adelaide. In 1865, three years after the mine's discovery, the company built a treatment works and smelting plant at the mine.
During the years, the area's mines and smelters closed and reopened and closed again. South Australia has produced an estimated forty-seven tonnes of silver. Although Southern Australia's silver-lead ores are widely distributed, none of the deposits are large and silver content is usually low.
Western Australia's gold mining industry grew substantially the in the last two decades. The State's silver production, however, is limited and comes as a by-product of gold and copper-lead-zinc mining.
Canada's Provinces and Territories
The first commercial mineral development was salt for the fur trading posts - commercial salt operations in the Province of Manitoba continued into the late 1970s. But, it was gold mining that opened the Canadian north, silver and base metal mining followed.
Canada has been a top silver producer since 1968. The Western Province of British Columbia leads in silver production with the Province of Ontario following. The larger part of Canada's silver production comes as a by-product of other metal mining. Meaning, much of Canada's future silver production depends on industrial demand for copper, zinc, lead and nickel.
Canada's Ontario Province
By the mid-1840s, silver was being mined southwest of Lake Superior's Thunder Bay. Silver mining in the Thunder Bay area continued off and on until the turn of the century. Then in 1903, chunks of silver described "as big as cannonballs" were reported to have been found at Cobalt, an area near Ontario's southeast border. Prospectors spreading out from the Cobalt area discovered another rich silver deposit at Gowganda, 100 miles to the west of Cobalt.
The Cobalt and Gowganda silver mines have produced more than 20,000 tonnes of silver. At Cobalt's peak approximately 10,000 people lived there. They built Northern Ontario's first opera house and the first streetcar system north of Toronto. But, Cobalt was considered a temporary mining town, not an ongoing community. And, as the demand for silver and cobalt began to decline, local mines began to close and the population declined to less than 1,500.
Cobalt, however, remains one of the world's great silver camps. Today, more than 150 years later, silver production and exploration activities in the area continue.
Canada's Western Province
Before the gold seekers came, fur trappers and traders seeking beaver pelts were already exploring the Pacific Northwest. To accommodate the growing fur trade, the Hudson Bay Company built trading posts all across what is now Washington State and British Columbia. Later, as the riches of the California gold fields waned, prospectors flowed into the great Pacific Northwest.
Seeking the mother lode, prospectors flocked to what is now the Province of British Columbia. The determined prospectors followed the Fraser River into the wilderness area, then spread across Canada. Mining became an important part of British Columbia's economy. The five major metals - copper, gold, molybdenum, silver, and zinc - represented about 30 percent of the total value. During the later half of the 1980s, mineral production and exploration in British Columbia hit an all-time high.
British Columbia's Ministry of Energy, Mines and Petroleum Resources continues to support an atmosphere that provides a progressive course between environmental concern and mining opportunities. The Ministry updates laws protecting miners' health and safety. Also, laws providing protection and proper use of land and water resources are enacted. Yet, the Ministry recognizes the exploration, developmental, and financial needs of the large mining companies and the individual free miner.
Something hidden. Go and find it. Go and look behind the Ranges.
Something lost behind the Ranges. Lost and waiting for you. Go!
____________Rudyard Kipling, The Explorer
And go they did. The United States
Men pursuing hidden wealth spread from California to Alaska. Men on foot and snowshoe searched the rugged mountain ranges of the Northwest. Lonely prospectors with pack mule, wandered the parched desert areas of Utah and Arizona. Most found only discouragement. Some panned small amounts of gold. But there were those fortunate few who made major gold and silver strikes.
By the mid-1800s, the United States had already become a large silver producer. Entering the decade of the 1990s, some 150 mines produced silver. The 25 largest mines producing more than 90 percent of the total domestic mine output - 12 mines producing more than one million ounces of silver per year.
In 1987, the ever publicity seeking Sierra Club gut shot Alaska's small miners. The organization's lawsuit resulted in an injunction against the U.S. Bureau of Land Management. The legal action prohibited the Bureau from authorizing any mining operation that would disturb more than 5 acres of land on any of the four major interior Alaska drainages, until the Bureau completed an environmental impact study. The injunction would halt some placer mining for several years. A second shot was fired a year later. The U.S. Army Corps of Engineers entered the already burdensome regulatory process - with even more rules and regulations, adding further cost and frustration to future mining ventures.
Inspite of the regulatory and legal problems plaguing the industry, Alaska's mining and mineral industry expanded in the later part of the 1980s. The mining industry experienced increased expenditures in exploration and development. The increased activity resulted in a larger number of people being employed in mining and related business.
Small placer operations declined significantly, excessive governmental regulation all but bludgeoned the small operator into oblivion. Activity remained strong, however, during the 1990s. Mining jobs increased as larger operations expanded at all levels.
Alaska's silver production peaked during 1915-17. The State's silver production exceeded one million ounces a year during the early 1900s. By 1970, Alaska's silver production was less than 10,000 ounces per year. However, as gold mining activities increased during the later part of the 1980s, so did silver production. Although Alaska's silver production may be a by-product of other mining activities, the precious metals investor looking for a gold and silver investment opportunity should consider Alaska's possibilities.
Known to most Americans as the Grand Canyon State, Arizona is also rich in minerals. Arizona's silver production comes as a secondary by-product to copper mining. Depending on copper prices, the silver investor will be taking on the extra burden or blessing of the copper market.
In most silver producing areas, the deeper you go the less silver you find, not in Idaho. During the Pre-Cambrian Era (older geologic period containing only primitive life forms) the ocean washed across what is now the State of Idaho, piling up fine rock in many areas. Rocks containing silver- lead-zinc, piled up 5 miles deep in the rich silver mining area of the Coeur d' Alenes - giving Idaho the deepest silver mines in the world.
Although early prospectors successfully panned gold from the streams and rivers of Idaho, it was silver that drew attention to the area. The State's earlier silver activities took place in what is now Owyhee County. Idaho's Silver City became the nation's second largest silver-producing area. Nevada's Comstock Lode was the nation's largest. During the 1860s, the area around Silver City produced slabs of pure silver, some weighing 500 pounds or more. The area boomed until the silver gave out, leaving much of the area inhabited by ghost towns.
As Idaho's earlier silver activities peaked, a major gold rush hit the Coeur d'Alene Mountains. The principal activity took place in a mineralized area covering about 500 square miles, an area now known as Shoshone County. Gold mining operations in the Coeur d'Alene area centered around the town of Murray - until the gold petered out. That was then.
Idaho is still known as the silver-producing State - and with good reason. Idaho's Coeur d' Alene mining district evolved from a few gold prospects to one of our Nation's richest silver producing areas. Coeur d'Alene's mining district is located 75 miles east of Spokane, Washington. The silver belt runs 26 miles in length and is about 9 miles wide. The main silver mining activities take place between the towns of Mullan and Kellogg.
Many of Idaho's silver mines' are older, and silver is now mined at great depths - keeping mining costs high. And the later 1980s and 1990s may not have been good years for Idaho's silver mining industry, but the silver is still there, awaiting higher silver prices. Many of Idaho's publicly traded silver mines offer a good profit potential for the patient investor. For the adventurous speculator, the smaller properties adjoining one of the major mining company properties should definitely be considered.
Development of Montana's natural resources and protection of the environment, at times appears to be the proverbial irresistible force meeting the unmovable object. Between the two are the realists who are developing Montana's natural resources and striving to protect and preserve the State's wilderness areas.
One of Montana's more successful mining projects has been the Chevron-Manville Partnership's Stillwater Mine - a mining operation that works at protecting the environment.
Located about 80 miles southwest of Billings, the mine is in an area mined for gold, copper, silver, and chromium since the 1800s. Then in 1967, a platinum-palladium zone some 25 miles long and 5 to 10 feet thick was discovered at the Stillwater Complex. The discovery resulted in the Stillwater Mine, the first commercial source of platinum and palladium in the United States.
Providing jobs, paying taxes, and still able to protect the environment, the Stillwater Mining operation showed the wisdom in careful harvesting of mineral resources. A wisdom environmental extremists hold in contempt.
Montana is rich in minerals. Several of Montana's environmental sensitive areas hold the potential for the world's largest silver-copper deposits. Individuals and small companies have increased their prospecting activities. At the same time, political uncertainty over environmental regulation is killing exploration activities by the major companies.
During Nevada's pioneer mining days, gold was the moneymaking commodity, but silver provided plenty of mining action. Between the well-known towns of Reno and Carson City lies the Comstock Lode and the mining towns of Silver and Virginia City. During Nevada's pioneer days, Virginia City's rich and sometimes short-lived ore bodies yielded large fortunes for some, and heartbreak for many more. The smaller operators worked the mines at Silver City, where ore-shoots were numerous but small.
Gold is still the moneymaking metal. Nevada, however, is a number one silver producer and a promising area for those investors interested in silver mining opportunities.
South Dakota, Utah, and my home State of Washington also produce silver. Producing silver since the 1860s, Washington State has produced approximately 25 million ounces of silver during the last 130 years. If not a major producer, Washington has been a consistent producer - the bulk of the silver produced has been a by-product of gold, lead, and zinc mining.
Silver discoveries have been made in the northern part of the State from Puget Sound in the west to the Washington-Idaho border in the east. The northwestern part of Washington adjoins the mineral rich province of Canada's British Columbia. The northeastern part of Washington adjoins the prolific silver producing area of Idaho's Coeur d'Alene mining district. Still, Washington State is yet to provide a major silver discovery.
A giant Washington State silver discovery may be doubtful but possible. Large gold and silver discoveries are still made in the mining states of the west. The more adventurous silver investor should keep aware of the possibilities._____________________ M.E. Odell
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