sammysilver said:
Accepting that a 7:1 ratio correct, is gold ten time overvalued or silver ten times undervalued? Or are we comparing apples with oranges where the variables make it impossible to compare? That said, as they all have a dollar value as a point of reference, I strongly believe silver to be undervalued, and as such, it is a worthwhile metal to stack, more so than gold.
Gonna illustrate the story along a margin value.
Imagine a product X, whose year production and consumption quantities are both 100 units, price 10 each.
Imagine consumption drops to 80 units, BUT Mister Bank buys the surplus of 20 units, so that the price remains 10 each.
He does this for 5 years in a row, and has then built up a stock of 100 units.
Now, imagine that production cost doubles due to whatever (resources depletion / processing costs / machinery damage / whatever) but customers cannot or just don't want to pay more than 15.
The company that produces X thus loses and decides to suspend production until the problems / reasons eventually get solved).
And then Mister Bank re-enters the picture, that has built a stock of 100 units over the 5 years.
Mister Bank can thus supply the customers for an entire year, and decides the price of 15 that customers are still willing to pay.
So, the price of product X has increased to 15 for a year long, until the company eventually coped with the problem and is able again to produce it for 15 or even back to 10.
How does this explain the gold / silver price difference?
Well, the amounts stockpiled is just different than the production cost difference. That's all.
The bigger the stockpile, the longer the company is unneeded to make the product available to the customers.
The smaller it is, the more the customers rely on the company.
The bigger the stockpile of a product, the less the customers are dependent on the company / on the production cost.
In the gold versus silver case, the stockpile ratio differs alot from the price ratio. Golds price is much less dependent on production cost than silvers price.
Being one of the reasons I opted for silver rather than gold, since a higher reliance on a production cost means a closer tracking of general prices, being the hedge against inflation goal.
Of course, there are more elements in the picture. It's also important who is stockpiling and for which reason. Golds market has a much higher degree (figures suggest an overall double) of general-prices-increasings/inflation - causing lazybutts, while silvers market is more small fish that produce. On the other hand, those small fish tend to be less experienced / newbie and less informed / aware, so more prone to error, which in turn draws in lazybutts that wanna take advantage of this. That's why there is a (serious?) degree of prices ratio based swapping by the lazybutts. They milk silvers market to buy more gold, the metal that is also given advantages relative to silver (different tax treatments). Of course, with a worldwide cooperating central planning selling its stockpile low to bullion banks / institutionals and buying it high back from them, the small fish gold guys end up being milked too along less ounces due to higher price then less fiat due to lower price.
