In an interview this week, researcher Lobo Tiggre (who also published under the name Louis James) expressed the opinion that silver could become obsolete as a financial and monetary asset. Instead, it could soon only be rated as an industrial metal like copper.
Its underlying data for this idea comes from a shift in the price trend of silver in tandem with gold. He explained that from 1975 through today, gold and silver prices have moved in the same direction nearly 89 percent of the time. Over the past 10 years, however, their prices have only gone up or down 75 percent of the days at a time. In the past year, that correlation has been thrown off the rails, with the prices of these two metals trending in the same direction for less than 20 percent of the days.
In addition to this decline in the correlation of daily price movements, Tiggre also predicted that cryptocurrencies have the potential to crowd out the use of silver in smaller financial transactions. So even if the US dollar collapsed, there wouldn’t necessarily be a reason to pay in silver.
On the surface, this dramatic decline in the correlation in which direction gold and silver prices are moving on a daily basis could support his thesis. However, correlation or lack of correlation does not automatically imply causality.
The concept of replacing silver in financial and monetary transactions parallels how technology has supplanted the use of coins and then currencies. For most of history, only coins were used for payment. The regular use of currency instead of coins is a relatively modern development – it wasn’t until around 1300 that the currency was widespread in China and the first continuous currency elsewhere appeared in Sweden in 1661.
As currency supplanted much of the use of coins for payments, the use of checks then supplanted much of the use of coins and currency in day-to-day trading. Even the use of checks has now declined as a higher percentage of transactions are made with credit and debit cards, as well as online transactions. In the United States today, less than 10 percent of all cash and coin trades are paid for.
However, this trend away from payment transactions with silver in everyday trading does not mean that silver will lose its status as a financial asset. A significant percentage of the world’s population today does not have access to the banking system or electronic payments. Many regions of India with a population of hundreds of millions are just one example. In these parts of the world, you can still find many transactions that are carried out by paying in gold or silver.
Another factor to consider is the tactics used by governments and central banks to push the gold price down. One tactic exploits the public perception that gold and silver are both monetary metals. So if the price of silver can be kept low, which is a market that is only a tiny fraction of the price of gold, it will be a signal that the price of gold may go down.
Over the past two years it seems clear to me that efforts to depress gold and silver prices – no doubt due to the increasingly shaky global financial system – have been taken to extremes than in previous years. Consequently, it would come as no surprise to me that simply putting pressure on the price of silver to hold gold could result in less correlation between recent price movements for the two metals.
Also, the correlation of daily price movements is not necessarily the most accurate indicator of the correlation. How about an analysis that correlates gold and silver price developments on a weekly, monthly, yearly or other basis?
Even such analyzes for alternative time periods would not necessarily be revealing. From the end of 1999 to September 2011, the gold price rose more than six times. The late researcher Adrian Douglas re-examined this increase. He found that the changes in the price of gold from the London AM fix to the London PM fix on the same day actually accounted for a net decrease in the price of gold over that period. That meant trading from the London PM fix to the London AM gold price fix the next day accounted for more than 100 percent of the rise in gold in nearly 12 years of trading.
At the very least, more analysis would need to be done to see if Tiggre’s diminishing correlation in gold and silver price movements for different time periods proves to be consistent.
Additionally, his claim that people are stopping to think of silver as a financial and monetary metal may not come up anytime soon. Gold has been used as a financial and monetary asset for 6,000 years, while silver has a 4,000-year track record for this purpose. Such a track record would be hard to replace in a few years or decades. Would those who hold well over a billion ounces of physical silver for financial and monetary purposes likely change their thinking right away?
In my opinion, the chances are good that the use of physical means of payment will almost completely disappear in the future. But if the US dollar were to collapse in the next few years – long before physical currency became obsolete – I believe the public would initially turn to physical gold and silver as a reliable medium of exchange than they would trust any electronic or internet payment system.
Patrick A. Heller was honored as FUN Numismatic Ambassador 2019. He also received the American Numismatic Association’s 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. including twice in 2020), the Professional Numismatists Guild, the Industry Council for Tangible Assets and the Michigan State Numismatic Society. He is the communications officer for Liberty Coin Service in Lansing, Michigan, and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals. Past newsletter editions can be viewed at www.libertycoinservice.com. Some of his radio commentary, entitled “Things You ‘Know’ That Just Are Not So And Important News You Need To Know,” can be heard on Wednesday and Friday mornings at 8.45am at the WILS in Lansing at 8.45am (the broadcast live). and becomes part of the audio archive on www.1320wils.com).
