No Shine in Silver

Since ancient times--indeed since long before Judas Iscariot betrayed Jesus --silver has been regarded as a precious metal, often playing a crucial role in the rise and fall of nations. In recent years, silver has gradually ceased to be used as a base for currencies. For this and other reasons, the price of silver has plunged--from an alltime high of $2.57 per oz. in June 1968 to as low as $1.29 early last month. Victims of the fall include Wall Street metals speculators, small-time investors who had bought silver as a hedge against inflation, silver miners in the U.S. and Canada, and even coin collectors. The price of a bag containing $1,000 in silver coins has dropped from $1,400 in October 1969 to $1,030 now.

The precipitous fall had been pre ceded by an equally dramatic climb. For more than 30 years, the U.S. Treasury had fixed the official ceiling price of silver at $1.29 per oz. In July 1967, with its silver stockpile declining and the price of silver at $1.70 on the London free market, the U.S. removed the ceiling on silver--and the domestic price shot up. Big-time commodity speculators and small-time investors began to gamble on silver futures. That seemed a minimal risk because the world produces far less silver than it uses.

Sure enough, the price of silver scaled an alltime peak in mid-1968, and heavily leveraged speculators earned as much as $11,000 on contracts for which they had put down as little as $1,000. Many brokers airily predicted that the price would hit $5 or even $10 an ounce.

Instead, the price began to tumble. Last August, when Richard Nixon unfurled his new economic policy, commodity analysts expected that investors would end the fall by rushing to buy silver as a hedge against monetary instability. The fact that they did not reflects the degree to which silver had been demonetized; it had become simply another commodity, whose future value depends entirely on industrial demand for it in making film, electronic gear, silverware and jewelry.

The Crucial Overhang. Last year global demand for silver amounted to 397 million oz., but production in the non-Communist world was only 247 million oz. What speculators grossly underestimated, however, was the size and importance of the "overhang"--the hoard of silver being held aboveground by corporations and private investors. There is an estimated 450 million oz. in bullion stored in the U.S. and Europe, plus 500 million oz. more in private U.S. coin collections. Moreover, millions of people in India are believed to own several billion oz. of silver jewelry and other heirlooms. Such huge hoards guarantee that the world will not run out of the metal for years to come.

Eventually, as stockpiles of silver begin to decline, the price of silver seems certain to rise. And yet, as so many speculators have learned to their sorrow, the inscrutable silver market is a law unto itself. Right now, researchers are avidly seeking substitutes for silver in the manufacture of film, which accounts for 25% of its industrial demand. If they are successful, the silver market will shudder through still another convulsion.

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