Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19
Is There a Stock Market Breakout Ahead? - 6th Nov 19
These Indicators Aren’t Putting to an Economic Resurgence - 6th Nov 19
Understanding the Different Types of Travel Insurance - 6th Nov 19
The Biggest Gold Story Of 2020 - 6th Nov 19
Best Money Saving FREE Bonfire Night Fire Works Show Sheffield 2019 - 5th Nov 19
Is the Run on the US Dollar Due to Panic or Greed? - 5th Nov 19
Reasons Why Madrid Attracts Young Professionals - 5th Nov 19
Larger Bullish Move in USD/JPY May Just Be Getting Started - 5th Nov 19
Constructive Action in Gold & Silver Stocks - 5th Nov 19
The Boring Industry That Hands +500% Gains - 5th Nov 19
Stock Market Chartology vs Fundamentals - 4th Nov 19
The Fed’s Policy Is Like Swatting Flies with Nuclear Weapons - 4th Nov 19
Stock Market Warning: US Credit Delinquencies To Skyrocket In Q4 - 4th Nov 19
Stock Market Intermediate Topping Process Continues - 4th Nov 19
Stock Market $SPY Expanded Flat, Déjà Vu All Over Again - 4th Nov 19
How To Buy Gold For $3 An Ounce - 4th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Silver: A Tier 1 Asset for All

Commodities / Gold and Silver 2012 Jun 05, 2012 - 06:17 AM GMT

By: Dr_Jeff_Lewis

Commodities

Best Financial Markets Analysis ArticleIn recent years, precious metals, most notably silver and gold, have played an unusual dual role as both monetary and non-monetary commodities. That may be in the process of changing for major financial institutions to favor holding metals as collateral as the Basel Committee ponders allowing banks to use gold as a Tier 1 capital asset.


Despite its well established and richly deserved safe haven status, gold is currently considered a Tier 3 asset. Ironically, this places the yellow metal lower on the asset totem pole than un-backed government bonds, which currently have low or even negative yields on an inflation-adjusted basis.

Furthermore, gold is generally misunderstood and ignored, while silver is largely viewed as a commodity among investors and central bankers. In fact, Fed Chairman Ben Bernanke, in response to the question of why central banks hold gold, simply answered "Tradition”.

Precious Metals Rule Exter’s Asset Class Pyramid

This perspective contrasts sharply with that of John Exter, whose classic asset class pyramid organizes assets with respect to their risk and issued amounts. In order from the widest point of the inverted pyramid to the narrowest, Exter places small businesses, real estate, gems, OTC stocks, commodities, municipal bonds, corporate bonds, listed stocks, government bonds, Treasury bills and paper money. Gold is placed squarely at the most narrow point of the inverted pyramid, just below paper money.

According to Exter’s model, when credit expands, money flows to the wide top of the pyramid as capital is placed in more speculative and less liquid investment vehicles. Nevertheless, when credit contracts and debts are difficult to repay, those assets near the broad end of the pyramid are sold and money flows to more secure assets situated near the pointed end where gold rules supreme.

Gold and Silver Hold Dual Roles

Like gold, silver holds a position in the center of Exter’s pyramid as a commodity, as well as at the narrow bottom of the pyramid as a hard currency to which safe haven funds flow in financially troubled times. In contrast to gold, silver is also an affordable monetary asset in the mind of the average individual. For the man on the street, it acts as Tier 1 capital and is valued as a savings asset with a price that can never go to zero.

Furthermore, silver is a good news metal since economic growth tends to increase industrial demand, but its price also benefits from bad news as it becomes the ultimate hard currency for the masses in case of a severe financial crisis.

Remonetizing Precious Metals

Many people concerned over the global trend toward the use of uncollateralized paper currency in commerce, have called for a return to a gold or silver standard in order to provide some hard currency backing for the ever growing supply of paper money being issued by governments.

Nevertheless, in order for precious metals like silver and gold to become "re-monetized", the price would need to rise exponentially relative to paper currency like the U.S. Dollar and the Euro to back all the money printed over the last 40 years since then-U.S. President Richard Nixon shocked the world by unilaterally removing the U.S. Dollar from the gold standard by ending its convertibility.

This traumatic move lead to the eventual demise of the post-WWII Bretton Woods fixed currency exchange rate system, of which the Dollar was the lynchpin, and ushered in the current era of floating exchange rates.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2012 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules