Throughout the past 5000 years of history, gold & silver has never been destroyed, it’s always recycled and reused because it never loses its stored or intrinsic value.
Centuries of experience has shown that gold & silver has proven its capacity to store its value and to protect against inflation. A simple example of this, 1400 years ago in the time of the Prophet Mohamad S.A.W., the cost of a chicken was a 1 dirham coin (2.9645 grams of silver), and today the cost of a chicken is still the same value in silver. When it was founded 323 years ago, the British pound Sterling was defined as 12 ounces of silver, so today it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.
2000 years ago, money was only coins made of gold & silver and gradually the worlds governments slowly moved away from gold & silver coins, to gold & silver backed banknotes and then to fiat currency (paper money or banknotes that is not backed by an equivalent value of gold & silver). Throughout history humans have always shifted between gold & silver money and fiat currency and the average life span of a fiat currency is 27 years, every 30 to 40 years the reigning monetary system fails and the cycle begins again. In 1971, President Nixon completely ended the Gold Exchange Standard and since then we have been operating global monetary systems completely based on fiat currency. This cycle of worldwide monetary policy based on the US dollar fiat currency has far exceeded its expected time frame, and once again gold & silver, or gold & silver backed currency will become the only accepted form of money again.
Gold & silver today is significantly undervalued. As most world governments, including the United States Government’s politicians tend to manipulate their statistic reporting in order to win public support and artificially boost stock market performance, the actual global rate of inflation is significantly higher than what we believe it to be, and sooner or later the natural market forces will have to adjust the gold & silver prices to compensate for its undervaluation.
Silver is even more undervalued than gold. Throughout history, one ounce of gold used to buy 15 ounces of silver (1:15). Today you can buy around 80 ounces of silver with one ounce of gold (1:80), based on the historical valuation of silver against gold, silver is extremely undervalued. Many world experts estimate that the actual gold price should be much higher at around 10,000 dollars, to take into account the trillions of dollars of fiat currency that has been printed since the last financial crisis of 2008. The Dow/Gold ratio is a good indicator of the fact that gold is undervalued.
The complete end of the US Dollar as the worlds reserve currency is fast approaching. In view of the constant emergency monetary policies of quantitative easing (excessive printing of money to cover national debt), the purchasing power and reputation of the US dollar has reached a point of irreparable damage. This also effects all the worlds governments, as in response to the United States quantitative easing, other countries have to do the same in order to keep up. Countries with historically big US dollar reserves like China, Japan & Russia know the dollar is heading towards a major collapse, and are literally fleeing the dollar and investing in tangible assets such as gold & silver to protect themselves.
From August to January 2016 China added 101 tonnes of gold to its reserves. In January, 2016, the latest data available, the Russian Central Bank again bought 22 tons of gold. It was the eleventh month in a row they bought large gold volumes. For 2015 Russia added a record 208 tons of gold to her reserves compared with 172 tons for 2014. Russia now has 1,437 tonnes of gold in reserve, the sixth largest of any nation according to the World Gold Council in London. Only USA, Germany, Italy, France and China central banks hold a larger tonnage of gold reserves.
Central banks of the world are no longer selling gold, and many Eastern and Middle Eastern central banks are actively buying gold in order to limit their exposure to the devaluation of their dollar and euros reserves.
There are no other international currencies (Euro, Yen, Swiss Franc) that are viable alternatives to the Dollar as all the worlds currencies are fiat currencies or “paper money” and will follow the same long-term fate as the US dollar, which will eventually regress to its intrinsic value of zero.
The true impact of the derivatives markets has not yet been experienced. Warren Buffet called the derivatives “weapons of mass destruction” and, in the coming years, this market will implode, triggering a domino effect that in turn will destroy the worlds monetary system which is based on fiat currency.
Investors are realising that Gold ETFs (Paper Gold) are not the safe haven they’re supposed to be. Gold ETFs are not backed by 100% physical gold. Owning Gold ETF shares doesn’t necessarily mean investors own physical gold. Only physical gold & silver investments are safe investments, as if the monetary system collapses, so will all the financial institutions that are guaranteeing the ETF’s.
Investment demand from investors in physical gold & silver is just starting to rise. Few people own gold & silver today so it’s impossible to speak of a gold “bubble” when this asset is under-owned.
Also as gold is becoming more and more expensive to buy, the world market is turning to silver to protect themselves against inflation. In Asia for instance, as nations move out of poverty and are developing vibrant economies, there is a massive number of people that are investing for the first time, and only have the option to buy silver in line with their lower disposable income. This huge Asian demand didn’t exist during the last bull market in the late 70’s.
In the event of a global financial catastrophe, money as we know it, stocks, bonds, real estate and even gold & silver ETFs will become worthless overnight, including government backed public mutual funds leaving only those who own physical gold & silver to be financially protected from the disaster. In the Silver ETF market (Paper Silver), huge short positions will have to be covered one way or another by the bullion banks. This short covering will send the price of silver to very high levels. It’s said that for each ounce of physical silver in existence, bullion banks have sold 100 times more silver in the form of paper certificates. In times of financial emergency, when all the silver investors try to convert their silver certificates into physical silver, ETFs will go bust and the price of physical silver will skyrocket.
This huge offer of “paper” silver has driven the silver price down for many years by creating a fake supply in the market, and eventually the natural market forces will have to adjust to correct this and investors are now realising this fact and are returning to investing more in physical silver.
The production of gold & silver by mining companies have stagnated and are becoming increasingly difficult to expand. The credit crunch has made new structural investments nearly impossible and gold & silver is becoming increasingly harder to mine. So physical gold & silver will always be relatively stable and there will be no sudden price decrease which is not the case with the stock market and other derivative markets.
The gold market is very small. All the gold ever produced throughout the whole human history represents only a 30 square kilometers. The price of silver is also driven by monetary and industrial demand. Silver is used in many common, everyday products as well as used in the manufacturing industry for multiple applications. When silver is used, it’s likely lost as it’s hardly recycled, thus slowly reducing its availability in the market. A typical smart phone for example holds about 0.35 grams of silver, and used mobile phones are almost always discarded and never recycled, especially for its silver. In 2015 an estimated 1.4239 billion smart phones were sold, can you imagine how much silver is lost every year?