Silver and Gold

Once, when defining gold over silver, Jim Sinclair once referred to silver very delicately as 'not money', but rather as 'The Great Game'. It is an 'insightful' description, sure to raise eyebrows on individuals on both sides of the debate as to whether silver is truly money or not, because the question cuts to the emotional heart of the silver discussion. One side of the debate might say, "If silver isn't money, then why does it follow the gold market and price action like two birds on the wing?" The other side of the debate might counter, "Well, at the end of the day, if there were two piles of coinage in front of you representing equal values of fiat, and you could only take one, which would you take, silver or gold?"

If gold is substance, then silver is shadow. If gold is the king, silver the queen, gold sun, silver moon, gold ace, silver joker... if gold is money, then silver... the great game.  It is the great game because silver shadows gold in all but the final analysis, where it falls just short at the end of the run. It is the great game because it will emphasize and exaggerate all the movement in the gold market, like a derivative of gold, without actually being the monetary measure of choice at the end of the day. That boxing day is left to only two fighters, gold and those treasured bonds, in the middle of a currency crisis, where all the 'money' is on the table, the bets are placed, the big boys are in town and nobody's happy.

It is the quality of being both a commodity and a currency that is the nature of the white metal that creates the game.  Gold is never truly a commodity, but only a hidden monetary value masquerading as commodity, in the form of jewelry, or watches or figurines, or any other thing someone can figure out to do with it, but where when needed, can still be got. However can the reverse be said, that silver is never truly money, but rather simply commodity at the same masquerade ball with a different mask? How about copper?

The whole argument about a 'gold' based currency comes down to simply a 'commodity' based currency, where someone actually has something of intrinsic value that can be used, eaten or bartered that is tangible. History has refined this practice down to first gold, second silver, third copper, fourth platinum and so on down into oil, corn and pigs. And the reason gold has held the primary position representing all the commodities is due to the relatively limited amount available, it's divisibility, and it's density, all of which insure a fair accounting for all parties involved.  By density I simply mean it's compactness, in that it is a lot easier to pocket a few coins than drag some pigs home. And when the big boys, read bankers, finally show up in town to deal, they don't want to deal with pigs or lead either, just gold - remember, these guys got no sense of humor.

But before then, the market has to work all this stuff out before the 'boys' show up, in that the market has to try out every commodity as an accounting system (even though everybody knows it all comes down to gold; it's just the way it is) and so we see, as we have been watching the last number of years, individual commodity markets like wheat and copper and oil each and individually explore price extremes and eventually give way to the next commodity up the line. So in reverse we go from pigs, to corn, to lead, to oil, to copper, silver and finally gold. Silver is the second to last, so it gets to play the game a lot longer than anything else, but will eventually give way to the king, the king of metals.

This is the relationship between gold and silver, inseparable and unequal. The two markets spin around each other dipping, turning in a dance.  The similarities are obvious, and the differences are subtle but significant. When silver does not confirm the price action of gold; that is it does not follow the price movement of the gold market, either up or down, there is a change about to happen in the commodity market, gold market. It's greater sensitivity to capital flow usually causes the silver market to move a few days or weeks before the gold market, depending on what time frame one is looking at. Silver is like a bird dog to gold, out in front, behind, to the side, capable of covering four times the ground in price volatility percentage wise. It is a much smaller overall market that gold, and more sensitive to the introduction or withdrawal of capital infusion than gold, quicker to move, and will reflect speculative gain or loss in exaggerated terms. Generally it leads the way first, and when it does not, pause is warranted. There is a day in the future where silver will reach it's final price and let gold fly alone, but that's a ways away, and in the meantime, the night is early, the masquerade goes on, the game continues.

Finally, yes, silver is money, an accountable reference for all involved, just not the purest form of money, not the most convenient, not quite as definable in terms of quantity, availability. And no, it's not... not when the hardest values are demanded. But a word of advice... just don't underestimate brother gold's little sister silver - she's a wild one.

All charts courtesy of Stockcharts.com