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Daddy, What Was Silver?
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(June 18, 2008) Driving back from a Saturday jaunt down to old Tombstone, the rich pearl of the Arizona Territory during its silver mining boom circa 1879-1886, silver was definitely on my mind.
This past weekend I visited Tombstone, taking in the sights, sounds and smells of this historic little town down in southeast Arizona. It’s an unusual experience. The dirt streets and most of the buildings of the town circa 1886 are still in place, and with a little imagination, you are there.

I strolled the streets of old Tombstone on that hot Saturday afternoon, amidst the adobe buildings, which now house more souvenir shops, and fewer saloons and ‘disorderly’ houses than would have been found in 1886. If you have an interest in the mining history of the Old West, or the infamous Shootout at the OK Corral, an enjoyable and enlightening day can be spent in what was, when the mines were disgorging their geologic share of silver ore, the most prosperous city west of St. Louis and east of San Francisco.

I even shelled out $3, and took a tour of the old Cochise County courthouse in Tombstone, which now serves as the local museum of mining artifacts. For me, it was really quite a rare treat because, for some reason, I cannot get my family interested in displays of miners’ lamps, ore carts, or even the chance to see an assayer’s setup complete with chemicals, instruments, and lab equipment.

Back in Tombstone’s day, silver traded for an average of about 90c per troy ounce. Miners’ wages were four dollars a day. After the initial discovery of its riches by Henry Shieffelin and a handful of others in 1879, Tombstone was not the prospector’s paradise that California was in 1849, but a scene of capital-intensive deep-mining enterprises funded by ‘back-East” and European money.

Therefore, in Tombstone during its brief shining boom, the miners themselves were not entrepreneurs, but wage-slaves. The work was hard and dangerous, but for several years, steady. For the brave and resourceful individual who wanted to try his luck at more than just a game of faro after hours, another option was always available. In the 19th century, that part of the world was open country, and if you got tired of working for wages, you could always light out over the next ridge, seeking the hint of color in the rocks that might lead to the next big strike in silver, gold, or copper in the Arizona Territory, the discovery that would allow you to become the capitalist hiring out others to dig your treasure.

Driving back from the rolling high desert hills of Cochise County, I thought about the fortune in silver that brought thousands to Tombstone back in its heyday. Significant as they were, in the end, the treasures of the mines named Toughnut, Contention, Lucky Cuss, Rattlesnake, and Way-Up didn’t in total hold a candle to Nevada’s Comstock Lode, which although the largest silver strike in the US, was in turn a fraction of the size of the mountain of silver found at Potosi down in Peru. First discovered around 1550, the silver of Potosi essentially built the Spanish Empire, as for 200 years floating caravans sailed to Spain with what seemed to be a never-ending trove of silver.

Despite all that productive and colorful silver-mining history, there is much talk today in cyberspace that silver is disappearing. Shortages are happening already, we are told, and soon the stuff will trade for thousands of dollars per ounce – more than gold! – as supplies dwindle down to nothing. Why? Because, we are told, it’s all being used up.

Now, we love a good shortage-and-conspiracy story as much as anyone. And, as my grandfather used to say, "You can learn a lot on the Internet - some of it's even true!" In truth, silver has not disappeared - however, most of the time-honored uses for it have. Although dribs and drabs of it are used in industrial, electronic, and medical applications, consider that:

- Circulating money is no longer made of silver.

- Modern homes no longer contain the sterling silver flatware and decorative objects that were once common, and

- Even silver-film photography has now been superseded by digital cameras.

Although the general impression is sometimes given that silver supplies are tiny and shrinking, that it’s all being used up, that demand can only grow while supply can only shrink, that powerful institutions have short positions in silver which have artificially held prices down (true enough, if by ‘held down’ you mean its price has merely tripled in just a few years), this bundle of basically circularly self-referential Internet-propagated hokum simply ignores every truth about markets and the laws of supply and demand.

Prices, such as that of silver or any other commodity, are determined every day by markets of buyer and sellers. That process is called price discovery, and there’s really no use in screeching about what will happen in any given open market when this minute’s truth is so forcefully revealed - half the world is buying, and the other half selling, at a constantly changing price, a price which takes into account all known information about that commodity, on an instantaneous basis. As Thomas Donlan wrote about markets in his Barrons editorial commentary on 6/16/08:

“From minute to minute, we know exactly how many dollars, pounds, yen, rubles or dong the most active traders will exchange for an ounce of gold, or for specific quantities of oil, corn, wheat, rice and a couple of dozen other actively traded commodities. Hour by hour we find the value of money by observing changes in its time value expressed in market-driven interest rates. Or day by day we measure the value of money by the groceries and cars it buys.“

Anecdotally, I can attest that there is a pretty gold supply of silver out there. It may be in short supply in approved warehouses, but the general public in the US, for instance, owns quite a bit of it. Our local coin and bullion store in Phoenix sees a constant stream of bullion, coins, and old sterling come through its doors, and we are only one of many such establishments.

This influx of silver is called recycling. Just as photographic silver from camera and x-ray film has been recycled for decades, so today is old sterling flatware, tea-sets, commemorative items, obsolete coins, and sterling jewelry being remelted and returned to the floating supply of silver on the market. And the higher the price, the more we see coming in.

Our biggest business in silver is buying and selling old US coins from the pre-1965 era. Over the decades, the US mints struck billions of 90% silver coins to meet the needs of commerce. In 1964 alone, some 546 million ounces of silver was made into dimes, quarters, and half dollars – that’s about $9.28 billion worth at today’s silver price of $17/oz.

To put that into perspective, all the silver used to produce US Mint silver Eagles since the program began in 1986 isn’t even a third as much silver as was made into pocket change in the year 1964.

Significant melting of these coins has occurred over the years, but despite what you may heard about an alleged ‘silver shortage,’ none of that silver was dumped into the oceans, or blasted off into space – it has simply been recycled as part of the world’s fairly constant overall silver supply.

Now I must admit to some bias here. Our website is trademarked as Only Gold, and not Only Silver, or Only Copper, for good reasons. We believe that if you want to hold a scarce metal as an inflation hedge, monetary substitute, and general economic insurance, it is most practical to buy something which is compact, portable, and rare. Simply put, $20,000 worth of gold at today’s prices would fit into the pockets of your jeans. In contrast, $20,000 worth of silver would require a handtruck just to move across the room, and $20,000 of copper weighs more than a couple of average size cars.

That said, there is certainly no reason that silver can’t continue to rise in price. A few years ago, I couldn't imagine that we would see $20 silver again. For that matter, I didn't think that it would take $8 to buy a plastic bag of apples at the grocery story, or that a new car would cost more than my parents paid for a new house. But that’s inflation, folks, a rising tide that lifts the price of everything.

Will silver prices someday climb to previously unseen heights? Will a bag of apples cost $100 at some time in the future? Will we see the day when a new Chevrolet has an MSRP in six figures? Any of these events is about equally likely.

-Richard Smith

 

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