^^ Actually, Steven...due to industrial usage, the amount of physical, above ground silver is roughly 5 times LESS than physical gold.
I agree that the total above ground silver is less than the total above ground gold. We could be wrong, but I believe that's true.
Above ground silver is MUCH more scare than above ground gold.
That goes to the core of what is meant by "scarce". In economics, scarcity is not a function of a total quantity, above ground or in existence, but only the total quantity
supplied. So even though there may be a fifth of the total above ground silver relative to total above ground gold, gold still may be much more economically scarce than silver, in terms of actual quantity
supplied to the market.
It's a big reason why if/when PM's become circulated as currency, silver will actually appreciate much faster than gold - that's with gold appreciating rapidly itself.
Appreciation is a function of buying/saving/demand that outpaces selling/spending/demand. That's a two-edged sword, and the cause of my questioning.
Gold is king of what is hoarded, but that's ironically what has created the conditions for silver to appreciate even more than gold, in relation to each other.
I agree. Silver is undervalued more than gold, I believe, because the derivatives exist in far greater numbers relative to the amount in existence. And that is precisely, I believe, because most people ignore the destruction fundamental, and think of silver as if it, too, is being recycled. So if the prohibition against PM's as currency are abolished, the market correction for silver SHOULD outpace gold by a country mile.
Except for one thing.
If paper derivatives are destroyed (through runs on both physical PM's, which would make them worthless), the true market value of PM's will be revealed as massive corrections, once it is realized exactly how much of each PM is
actually made available to the market to satisfy existing currency demands. We automatically think that silver will be more scarce in that regard, but only because of what we think is the glaring disparity in above ground totals -- as if that was the supply. But that's not the economic supply.
Silver is what is being circulated in the market (industrial use) and then lost (economically unviable to retrieve, until near 1000$ an ounce prices for silver)...as a result, silver is more scarce than gold.
The key phrase is "what is being circulated in the market". That brings me to two points. There is a massive amount of above ground silver that is not in bullion or coin, but rather jewelry and flatware. If silver shot up anywhere near gold, there would be incentive for those things to enter circulation. But that's not the biggest problem I see...
When this bull run is over, 1 gold ounce will likely be equivalent to 5-10 ounces of silver. A 5-10 times appreciation of silver in relation to gold.
A bull run is an economic consequence of more buyers than suppliers of a given thing. If silver and gold competed as currency commodities, and everyone was on a massive bull run for both, people as well as governments will have incentive NOT to sell -- not to make their stores available to the market. And that's where the difference - the potential check mate by governments - kicks in.
Bull runs don't last forever. Not everyone has staying power, and most silver is already in people's hands. Thus, the silver market will correct much faster than gold, as silver becomes the more common medium in circulation. The vast majority of gold, on the other hand, is in far fewer hands, mostly owned by governments. Those same governments can tax and spend the silver already, causing it to artificially circulate even more (suppressing its value), even while holding back the gold, as reserves, making it even more artificially scarce, causing its value to skyrocket. Not because they have more, but because they will be loathe to let go of it, and see it circulate.
So if 10 tons of gold and 2 tons of silver were the hypothetical total in existence, we could fully expect that the silver would be worth much more. However, if all two tons of silver circulates, and only 1 ton of that 10 tons of gold makes it into circulation, the gold will still be twice as valuable as the silver, even though the total amount in existence is five times that of silver. That is because, economically speaking, the gold will still be twice as scarce.
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