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Today a gold bug told me silver was undervalued because it comes out of the ground at a ratio of 15/1 with gold.

Based on his logic silver should be close to $300 per oz.

This is like saying that some shitcoin should be priced at it's issuance ratio with Bitcoin regardless of the premine.

I told him to look at the market cap, which was at a ratio of about 4/1.

Which means silver is terribly overvalued and in order to maintain the current ratio, gold would need to 3X with silver staying the same price.

Obviously the same logic applies to bitcoin vs gold, but this guy could not follow what I was saying on the first step.

Nothing makes me more bullish than talking with someone like this.

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Discussion

Sourcenode 2mo ago

It turns out his figures were not accurate to begin with.

Silver is mined at between 7 to 8 times gold, not 15.

However, it is apparently 17-20 times more abundant in the earths crust.

BottleTeams 2mo ago

Shouldnt values reflect the natural state of the world and not man-made archetypes?

I'd trust 15/1 over any market cap measure. Market cap is an ambiguous fiat measure.

Sourcenode 2mo ago

Math is not an archetype. Measure it in Bitcoin, dollars, or dill pickles. The issue remains the same.

BottleTeams 2mo ago

Market cap is literally price x shares outstanding.

Don't we understand that price is manipulated? Isn't that what this is all about? Dollars obfuscate the true value?

Sourcenode 2mo ago

It's all relative to purchasing power. You can use silver to measure dollars instead of using dollars to measure silver if you want. I could measure silver in gold or either in bitcoin and avoid the dollar completely.

Perhaps there is a ton of paper silver outstanding or perhaps estimates of the amount of silver in circulation are incorrect.

Neither is inherently a fiat created problem.

At the end of the day if I go to the precious metals store in town I'll pay about $53 to get an oz of silver today. If the merchant accepted ammunition instead I could pay him in that.

These are all just market assets being compared to one another.

BottleTeams 2mo ago

Except you would pay $5 over spot to get an actual Oz of silver. If you think you can buy any silver for spot you're out of your mind.

Sourcenode 2mo ago

You understand my point

Scrotus 2mo ago

Silver is a hard asset though. I can't think of any shitcoin that can claim that (with the possible exception of the Bitcoin hardforks)

Sourcenode 2mo ago

It's certainly better than any shitcoin, but in comparison to gold I don't see much value beyond making change for smaller denomination exchanges.

Those can also be handled using gold infused bills. I've seen a few in circulation, but they are ugly

Parallel Structures 2mo ago

Silver is surely not over valued. Not saying his logic is correct, but... Silver will moon here.

Sourcenode 2mo ago

There's a difference between market action and fair valuation. I agree it will go up, but in comparison to gold it's overvalued and won't hold

Parallel Structures 2mo ago

I think the opposite. Industrial metal with thousands of uses. And growing. Gold is just a store of value. Bitcoin can do that

Sourcenode 2mo ago

It would be very interesting to see silver flip gold in value. I don't think that will ever happen though.

My guess is that as gold loses it's monetary premium many technological use cases will become more economical. For example, for power transmission lines.

Parallel Structures 2mo ago

I don't think it will flip gold, nor is there any reason to use it in power transmission, but yeah, there will be surprising shifts.

Tommy "The Purchase" 2mo ago

Well, there is a bit more to the price of silver (and gold) than there is to bitcoin and lesser cryptocurrencies. Silver especially is an actual resource in industrial production, used in all kinds of electronics, including electric cars and solar panels.

The historical 15/1 ratio applied in a time when silver was pretty much only decorative, used for cutlery, mirrors, and jewelry and I believe it was more of a function of society and of specie-backed currencies.

Now that large industries can't go without it, different factors need to be considered, I think.

Sourcenode 2mo ago

In order to consider this I'd like to know percentage of extracted silver is currently used for industrial applications and what percentage of newly mined silver is used for industrial applications.

Tommy "The Purchase" 2mo ago

As did I so I dug around a little and found the following Forbes article according to which industrial application made up about 56% of demand in 2021, I guess the percentage still serves as a ballpark number:

https://www.forbes.com/sites/greatspeculations/2019/10/25/silver-prices-10-year-price-analysis-and-production-demand-gdp-dynamics/

Sourcenode 2mo ago

Interesting. Similar to bitcoin in that sense, the price will tend to react the strongest to what the whales do.

My guess is that most people holding silver are holding it for a trade rather than some kind of end game, but who knows.

More power to them I suppose. I have enough to pay for groceries during an extended power outage, but naturally I expect Bitcoin to outperform both gold and silver in the long run.

Tommy "The Purchase" 2mo ago

Haha, I agree, the whales might be different people in that sector but money and more specifically demand naturally shapes prices there as well.

Yeah, I think at least most private people hold silver as jewelry, cutlery, or as an investment.

I also have a little to weather a storm of the lights-out kind but with the sales tax imposed on it, I won't go buying large quantities any time soon 😄

Himanshu 2mo ago

No silver got erode over time his logic is right buts it's not a noble element like gold don't react with air but silver do and form silver oxide which don't make silver and premium metal