Silver Coin Commerce™

Renminbi

Renminbi (RMB) is the official currency of the People’s Republic of China (PRC). It is the legal tender issued by the People’s Bank of China in the mainland of China.

The yuan is the Chinese base unit of a number of modern Chinese currencies. It get’s confusing but the distinction between yuan and renminbi is that a yuan is the unit of account while renminbi is the actual currency.

Think of “yuan” as being similar to the word “dollar”. We might refer to a U.S. dollar, a Canadian dollar, an Australian dollar and such. Yuan would need similar distinction between Taiwanese yuan, and Chinese yuan.

Importantly, Russia and China announced that they would forgo using the U.S. dollar and would instead use their own national currencies for future bilateral trade. Maybe the U.S. Fed should stop making/lending/borrowing greenbacks? This move is a pretty strong vote of non-confidence in the U.S. dollar.

China also effectively turned off their silver export spigot in 2010. It is believed that they were shifting strategies into hard assets and that’s why they stopped shipping the shiny metals out of their country. Another component is that China’s middle class is growing at a meteoric rate. It is estimated that roughly half of China’s urban population will be middle class by 2025.

Now for the important bit. According to the China Statistical Yearbook Chinese citizens currently save a whopping 25% of their post-tax income. That’s 25% of a lot of people that want secure savings. Is there a huge potential to keep demand up for silver. Silver has a long history of being “every day Joe’s” money. Maybe it’s also going to be “the peoples republic” savings.

Pete Skenandore

Sources:
Seeking Alpha
Wikipedia
Wikinvest
fx-rate.net

Silver/Gold Ratio

…and why you should care.

In 1840 the Gold/Silver Ratio was 15.5, or 1:15.5. As an example:If one ounce of silver cost $1.29 and an ounce of gold would cost $20.00, you would need 15.5 ounces of silver to exchange for one ounce of gold. Or, conversely, one ounce of gold could be traded for 15.5 ounces of silver.

It is interesting to note that a few decades earlier in 1792 the gold/silver ratio was fixed by law in the U.S. at 1:15. And then in 1837 it was re-established by U.S. Congress at 1:16. However, in 1873 silver was demonetized leaving gold as the sole standard of the nation’s currency.

Other historical records:

323 B.C. – The ratio stood at 12.5 upon the death of Alexander the Great.
Roman Empire – Set the ratio at 12.
1980 – Previous surge in gold and silver prices had the ratio at 17.
1991 – Silver hits lows, ratio peaked at 100.
2007 – Average for the entire year was 51.

You can see from the above graphic that since silver was demonetized, the gold/silver ratio has had some pretty wild fluctuations. One thing that overwhelmingly draws your attention is that silver never again hits the 15/16 to one (for gold) range.

As of this writing: Silver is 28.69 and gold is 1370.80 which would mean that today, the ratio would be 1:47.77, or one ounce of gold equals 48-ish ounces of silver.

Getting back to why you should care, and maybe why you shouldn’t.

If you’re interested in amassing more metal then you might care, because you can watch the spikes and trade accordingly. These types of trades, however, may not procure more dollar-value profits as this is not a primary reason for engaging in the practice. Quantity, over quality, so to speak, the relative value of the metal is considered unimportant.

An example: A trader watches the ratio spike to 1:75, gold is sold and silver purchased at this ratio and then the trader waits until the ratio comes back down and reverses the process selling his silver to buy more gold than he had previously.

Not a bad way to go, but you will have to exercise patience.

In today’s world, and as we’ve highlighted in many of our articles here at Silver Coin Commerce™, silver’s industrial use is trending upward, but as this demand increases, so shall mining and refining. Will this stabilize prices? Will this stabilize the gold/silver ratio? As you can see from the above illustration the silver/gold ratio is all over the place in the larger timeline creating prime opportunities for speculative [and patient] investing.

Sources:
Wikipedia – image
Investopedia
GoldAlert – image

Pete Skenandore