Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Why Central Banks Will Buy Silver

Commodities / Gold and Silver 2016 Feb 24, 2016 - 07:51 PM GMT

By: Hubert_Moolman

Commodities

Money is a store of value (or wealth), a medium of exchange as well as a unit of account. In order for money to be effective in the above it has to have the following properties:

  • divisible - should be divisible in smaller units
  • portable - able to carry it around therefore a high value should be able to be contained in a small space and weight
  • homogenous - one unit should be the same as any another unit
  • durable - should not be able to be easily destroyed or eroded
  • valuable - should have intrinsic value, normally because it is desirable. Should not be able to be created or discovered without reasonable effort (normally a commodity itself).

Gold has all the above properties. It is for this reason that gold has been used as money for centuries. It is for this reason that central banks hold gold as part of their reserves. In fact, it is through holding gold that they could get people to use and trust their fiat currencies.

Silver also has these monetary properties, and it has been used as money for centuries. Furthermore, central banks also used to hold silver as part of their reserves, as well as issue it in the form of coins.

Today, silver has basically been completely demonetized, with virtually no central banks holding silver as part of their reserves. This demonetization happened over a period starting in the 1870s and ran until about the late 60s. The fact that silver was being completely demonetized, while central banks were still holding gold as part of their reserves is a major contributor as to why some see gold as money but silver as a commodity.

The Bretton-Woods was virtually the final nail in the coffin for silver's use as money, when the nations agreed to structure their monetary system around gold and the US dollar (to the exclusion of silver). Today, we are basically in a post Bretton-Woods era, with the monetary landscape having been decimated by the effects (massive credit extension) of Bretton-Woods and that which followed.

Many would say that central banks hate gold , based on the majority of their actions over the last 100 years, at least. However, it is not that central banks hate gold per se, but they hate it when it is in their interest to do so, and they love it when they need it.

For example, they love it, when it gives their currencies credibility, during a time when fiat currencies are being questioned (like during most of the 70s). During this period until about 1976, the central banks were net buyers of gold.

During the 80s, there was still pressure on fiat currencies, which forced central banks to hold on to their gold. During this period, central bank gold reserves remained virtually constant.

By the 90s, the financial landscape had changed to a situation where it was in the interest of most countries to devalue their currencies (to contribute to the great credit bubble). During this period central banks were net sellers of gold and this continued until about 2008/2009.

The 2007/2008 financial crisis brought about a major change in the financial landscape, forcing central banks to become net buyers of gold (which they continue to be). Again, much like the 70s, it is in their interest to buy gold, to support their suspicious currencies.

Since, the 2007/2008 financial crisis, there have been big developments (like the BRICS bank) to replace the US dollar as the reserve currency of world trade. This is set to intensify as more and more currencies are being put under pressure by this continuing financial crisis.

In order for any development to be successful, something like gold has to be used, to provide the necessary credibility. This will (is already) cause a scramble among nations to get as much gold as possible (The US is the exception to this, since it is not in its interest to lose US dollar reserve status).

With this happening, it won't be long before central banks buy silver, especially given that silver has all the monetary properties that gold has. This might seem so unlikely to most, given their recent historical attitude towards silver. However, the only reason they were not interested in silver is because it was in their interest to hate it.

Now, however, it is fast becoming well aligned with their interest of surviving (as a monetary authority or country) and even superseding the current order. After all, it is not like having silver is new thing for them.

Fractal Analysis of the Gold/Silver ratio

Below, is a 100-year Gold/Silver ratio chart (from macrotrendsnet):

On the chart, I have marked the 70s (gold and silver) bull market with black points 1 to 5. (from the low in the ratio to the high in the ratio), and compared it to the latest bull market, which I have marked with blue points 1 to 5 (from the low in the ratio to the high in the ratio). If point 5 occurs lower than 15 (as illustrated), we will have a very accurate fractal (pattern), similar to the one of the 70s (but bigger).

Silver Chart 1900-2016

Both patterns started at the bottom of the 100-year range of this ratio, in fact, at a major bottom (1968 & 1980).

The current pattern has not completed yet, and it would suggest that it will only complete at a point much lower than a ratio of 15. Such a completion of the pattern is consistent with the bullish fundamentals of silver (and gold) in relation to paper money - understanding that a lower ratio will likely mean higher gold and silver prices. Note that there is a major battle for the 80 - level of the ratio.

For more of this kind of analysis on silver and gold, you are welcome to subscribe to my premium service. I have also recently completed a Long-term Silver Fractal Analysis Report .

Warm regards
Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

http://hubertmoolman.wordpress.com/

You can email any comments to hubert@hgmandassociates.co.za

© 2016 Copyright Hubert Moolman - 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