US Money Supply (M2) has grown by a factor of six since 1980, while global production of silver from mines has only managed to double in size over that same time frame (index 1980 = 100).
Since 1980 we have created 3x as many dollars (physical currency + checking + savings + retail money markets) as we have been able to mine from the ground ounces of silver bullion.
This does not include the other forms of money that have been created on the institutional side (M3, derivatives, excess reserves). This is just M2.
It also does not show the fact that almost all of the silver that has been mined has already been used for industrial purposes. It has not been saved.
There are no central bank reserves of silver bullion anywhere in the world, as with gold (Fort Knox, Switzerland, Fed Reserve Bank of New York). There is no mythical stockpile waiting to be handed out. It's gone.
Investor implications:
Since 1980 we have created 3x as many dollars (physical currency + checking + savings + retail money markets) as we have been able to mine from the ground ounces of silver bullion.
This does not include the other forms of money that have been created on the institutional side (M3, derivatives, excess reserves). This is just M2.
It also does not show the fact that almost all of the silver that has been mined has already been used for industrial purposes. It has not been saved.
There are no central bank reserves of silver bullion anywhere in the world, as with gold (Fort Knox, Switzerland, Fed Reserve Bank of New York). There is no mythical stockpile waiting to be handed out. It's gone.
Investor implications:
- Excessive growth in fiat money supply devalues the purchasing power of each dollar in circulation. This is not unlike a company that continues to recklessly issue new shares of stock, whereby the initial investors suffer from loss of proportional equity value.
- Items that cannot be grown at comparable rates to fiat growth will eventually require more dollars to acquire. This manifests itself as apparent price 'appreciation'.
- The greater the difference in growth rates, the sharper the eventual price correction as surplus fiat dollars flow into the less prevalent real asset. The transfer rates from fiat to real may be continuous and steady, or mostly dormant with short, sharp corrective moves.
This example is simplified, but shows one way to put relative asset classes into context with one another, especially when one is digital and the other is tangible.
Look at their relative prevalence. Look at their rates of production. Determine which is harder to produce. Then look at how much remains available for mass investment, should fiat supply see any imbalance and move to correct in a rapid fashion.
This approach will enable you to find ways to identify not just which asset class is undervalued, but when to trade out as it becomes fully valued so you can roll into the next opportunity.
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