Purchasing Power of Precious Metals — Silver has played an important role in exchange and wealth generation and even predates written history. The metal has held intrinsic value in many cultures from the B.C. era to present day. While silver is no longer common as fiat currency, its importance in other applications is growing ever-quickly with the emergence of electric vehicles, solar panels, P.V., technology, and medical devices. Historically, people saw silver’s value in jewellery and silverware. However, as society moves toward a tech-first future, silver uses have also evolved. This article will take a closer look at the history of purchasing power when it comes to silver.
The Coinage Act of 1793 made the U.S. dollar the fundamental currency unit. It also set the gold and silver prices at 15 pounds of pure silver to one pound of pure gold. Gold eagles, half eagles, and quarter eagles had set values worth $10, $5, and $2.50, respectively. Dollars (or units), half dollars, quarter dollars, dismes (the first version of the dime), and half dismes were all made of silver and were valued $1, $0.50, $0.25, $0.10, and $0.05, respectively. Copper pennies and half cents were struck and were worth $0.01 and $0.005.
When the U.S. mint stopped using silver in its coinage in the 1960s, it impacted the silver and gold ratio. As a result, demand for silver in coinage declined, which led to a decrease in silver’s value. At the time, however, inflation was rampant. People began shifting their purchasing power away from dollars and toward precious metals to solve the issues with the dollar currency in the 1970s.
Investing in precious physical metals that held purchasing power outside a banking system was considered risky. In the late 1970s, banks issued several loans. Unfortunately, many borrowers could not keep up with payments, which put banks in jeopardy of failure and their clients’ savings at risk, leading to the Savings and Loans (S.L.) Crisis.
The Savings and Loans Crisis promoted investors to start flocking to gold, understanding that one ounce of the precious metal did the same as 40 ounces of silver. Despite both metals’ prices increasing, silver was discounted compared to gold, as industries such as tech were still in the infancy stages, and supply was higher than demand.
Silver and Gold Geology
Some geologists estimated that there is 10-times more silver on the earth’s surface than gold. In 2021, the world produced roughly 3,000 and 24,000 metric tonnes of gold and silver, respectively, according to the U.S. Geographical Survey. The survey also estimated that eight times as much silver was mined as gold, which is less than one might anticipate given the abundance of their respective unmined ore. However, the rise of new technology and the need for solutions to climate change will spike demand in the near future.
Sustainable innovations such as electric vehicles, solar panels, and A.I. technology have risen. Over the past 40 years, we have seen new uses for silver in fields ranging from medicine to “green” energy, while its value in coinage is primarly driven by collectors.
With growing demand, silver and other precious metals have the potential to increase significantly in response to the precarious value of fiat currency, increased global debt loads, unchecked currency creation, and numerous other financial issues. According to recent trends, the dollar’s purchasing could further depreciate, driving the value of silver and gold up.
Precious metals such as silver and gold not only maintain purchasing power — but increases it with time. Historical data shows us that diversifying portfolios with precious metals is one of the best ways to protect against financial crises and help prepare for a brighter financial future.