Gold and silver have a 6000 year history for their use as a currency, and until the last century, the price of gold and silver maintained a healthy valuation ratio of 1 ounce of gold to every 15 ounces of silver. This purchasing power ratio is strengthened by the fact that there are 17 ounces of silver for every 1 ounce of gold in the earth's crust, although physical silver stocks have dwindled, as the metal is used in a wide variety of industrial applications.
Gold And Silver Prices: Historic Purchasing Power
It has long been said that an ounce of gold will buy a custom tailored man's suit. In the 1930s, an ounce of gold cost $35, and a suit was nearly the same price. When you look at gold prices today, gold trades for $1150 and a custom suit does as well. Even thousands of years ago, the best clothing cost one ounce of gold, or 15 ounces of silver. Gold and silver prices are intrinsically tied together; however, manipulation in the price has made silver trade at an artificially low ratio to gold.
Market Manipulation
The gold and silver spot prices are highly manipulated by the trading of “paper metals.” Paper metals are any instrument that is not physical metals, such as options, futures contracts, exchange-traded funds or even precious metals “accounts” which hold gold and silver for their clients. (Most precious metals accounts hold futures, not physical metals.)Paper metals increase the amount of silver derivatives while diluting the amount of demand for gold and silver, ultimately depressing prices. If an investor wishes to buy silver as an investment, he or she can do so through a variety of vehicles. However, there is only one way to own silver: by buying physical metals.
Manipulation of silver and gold prices isn't just perpetrated among small investors, however. When gold and silver prices increase, central banks around the world “lease” gold to investment banks, temporarily increasing the supply and pushing down prices in an effort to mask the value of precious metals as a store of wealth and as a currency. Of course, it is in the central bank's interest for consumers to use paper currency to buy and sell products instead of physical metals. Therefore, discounting the uses of precious metals and their value is the best way to keep consumer's eye on paper currency. The involvement of the central banks goes beyond metal leasing and into money supply as well.
