What Moves Gold and Silver?

I read an article yesterday suggesting silver just might be the new gold.  The author quoted an analyst who said that gold is the least industrial and most defensive of the metals.  He may be right.  Silver is used in industry much more than gold.  Some even say that modern life would cease without it, but gold has its place, too.  From electronics to glassmaking, gold gets around. Let none of this moonlighting fool you, however.  Industrial use of gold and silver does not determine their prices.

         Let me say that again – gold and silver prices are not determined by their industrial use.  They don’t rise or fall if Mac introduces a new laptop or tablet.  Think about it.  The price of silver did not drop during the major worldwide shift  away from photographic silver use in the early 2000s.  Look at the charts.  In 1999, 25% of silver in the world was used for photography.  Then, within 5 short years, everyone got smartphones.  Selfies were in, silver was out.  Strangely, silver climbed all the way through this enormous shift in use. 

         Then there’s jewelry.   Silver and gold prices are not determined by jewelry demand.  Jewelry demand is, conversely, determined by economic forces.  It is not a driving market force.

         Gold and silver prices are determined by one thing only – monetary demand.  Call it investment demand if you want.  Silver and gold values are driven by people buying them to protect their finances because they are losing confidence in the monetary and financial system.  That’s it.  Please understand what’s written here.  We aren’t talking about the prices of gold and silver stocks.  We are referring only to the spot prices of gold and silver – those prices that rose from 1999-2011 and have begun rising again – especially since May 2019.  Gold and silver prices are rising because people are scared.

Why?

Gold and silver are the last stop – the final safety net.  They are the ultimate financial security because they are the only self-validating asset in the world.  Of all the world’s assets, only gold and silver are not simultaneously someone else’s liability. 

  • Got cash – US Dollars?  Others must accept them for them to have value.
  • Got stocks?  Some company must perform or its stock is valueless.
  • Bonds? Refer to the two points above. The bond issuer must pay principal and interest.
  • And on and on and on

Not so with gold and silver.  They do not depend on anyone’s performance to be valuable.  They are rare.  Humans value rare.  We just do.

Because they are self-validating assets, silver and gold convey financial safety.  When times get scary, we all want safety.  We want security.  We want to be un-scared.  Gold and silver alone soothe our frightened wallets, our endangered investments, our anxious minds. 

That’s why they rise and that alone.

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