Silver? Monetary, But Not Money

And the Gold/Silver Ratio is just what it is...

MICKEY FULP, analyst behind the Mercenary Geologist, speaks here to Maurice Jackson of Proven and Probable for Streetwise Reports, asking about the outlook for silver prices and mining stocks.

Maurice Jackson: First let's discuss silver bullion. There's a number of speculators in the space, and they're always optimistic about the value proposition. Currently the ratio of gold to silver prices is, what, in the 80s, mid-80s?

Mickey Fulp: 84 as of Friday.

Maurice Jackson: What are your thoughts on that? Does that surprise you? Should it be lower? Should it be higher or is it in the right place?

Mickey Fulp: Well, it is what it is. It's what the market says it is. So it's not my point to judge if it should be higher or lower. This is what the market says it is.

I can go on historical precedent and good reasoning and say since January of 1970 to the present month, the mean of the gold-silver ratio has been 57, the median has been 59 so that is a normal, or the most common ratios, but it is varied since January of 1970 from around 20 to as high as 93.5 which it reached a couple of months ago.

So it's skewed toward the higher higher-value right now and that's abnormal to say it in one word. It does not mean that it's not going to stay there. If you look at the price of the ratios since global economic crisis, it's moved almost continuously up and up with a couple of perturbations.

So it can be argued we're in a different paradigm. I've heard that argument. I don't necessarily subscribe to that argument. I expect that ratio to come back down at some point. So that means that, yes, silver bullion is a value proposition right now predicated on the fact that historically it's way high. But gold remains money and it's debatable if silver's money or not.

As far as the US government is concerned, it was no longer money. We came off the bimetallic monetary standard in 1900. It was briefly money with Federal Reserve notes when Roosevelt took us off the gold standard, so 1933 to 1944 with the Federal Reserve notes, which could be exchanged for bullion. Then we went on the gold standard from 1944 to 1971. There was a brief period of time in the late 1960s, 1965, with minting for the most part gold and silver coins. And then there was a period of time until, if memory serves, 1968, where you could still convert a Federal Silver Note into either bullion, or coins first and then they cut that window, and then into bullion.

Maurice Jackson: Thanks to Lyndon Johnson, right?

Mickey Fulp: Yeah. And so since then I would argue that silver is not money in the United States, but it remains somewhat a monetary metal. Even though it's used 60% for industrial purposes, mostly consumed in times of economic duress. It follows gold and is usually more volatile than gold. So we all own, or we should own, bags of junk silver and some silver bars, because at some point you'll want to convert that into real money and gold. If you're going to buy bullion right now, I'd say buy silver, buy platinum too.

Maurice Jackson: Let's switch the conversation now to junior mining and those in particular that are focused in silver.
 
Mickey Fulp: Right. I wrote something recently with a somewhat provocative title: Are These Silver CEOs Insane or Simply Buggy Brained? Because the silver miners that exist in North America, or mine in North America and or South America for the most part, they're not really silver companies. They're lead-zinc companies of which silver is a by-product. They could also be copper companies that lead-zinc companies that have by-product silver, copper companies that have by-product silver, or gold companies that by-product silver, but that is never the determining metal. You still need, if you're a lead-zinc silver company you'd need a lead-zinc smelter. So you're really dependent on lead and zinc prices for a lot of the economics of your production and in demand for those two metals, and silver even though it may contribute more of your cash flow, is really dependent on the primary metals.

Maurice Jackson: So they're not predominantly silver extractors, correct? Is that from marketing? Might the nomenclature of the company, with silver in the title, mean the lay investor or speculator is thinking this is a silver play, but it's really not?

Mickey Fulp: Correct. Well, they're partially silver plays, but yeah, it's a buzzword. It's still viewed as a monetary metal. And it can be argued that it is, because while it's not money, it does follow gold.

So yeah, it's a marketing tool. You're not going to call yourself First Majestic Lead and Zinc. That doesn't excite anybody. But you can't really find a pure silver play anywhere in the world. Pan American Silver, First Majestic Silver, Endeavour Silver. Those are really base metal companies that have significant revenues from silver and that varies according to the price of silver, but really if you've got no demand for lead and zinc at the smelter, then you're going to suffer as a silver company.

Maurice Jackson: Now, if silver extractors and their exploration companies don't have your attention, would you mind sharing what does have your attention?

Mickey Fulp: I can go back to the usual things and that's copper and gold. It's easy to find good gold plays I think, and I cover a couple of good gold plays. Copper companies are harder to find, but good copper companies cover one of those. And I'm always interested in maintaining my positions in uranium companies. That metal is still a flushed down the toilet and will be until we see what happens with the Section 232 National Security Interests of Uranium by the Trump administration. That decision or the actions on that decision...

Maurice Jackson: Pending. We'll...

Mickey Fulp: We're still waiting for. It's been punted first 90 days and now 30 days and we'll see if it happens in mid-November here. I'm not holding my breath on that. In fact I'm probably crossing as many fingers and toes as I can, so.

Maurice Jackson: Mickey Fulp, the Mercenary Geologist, thank you for joining us today.