Copper:Silver ratio to close up eventually?

[fonestar]

As many on this forum may know, the supply of physical silver is quite tight. With booming demand I don't see this situation lasting for long. The historic copper:silver ratio is around 60:1. Right now that ratio is around 120:1, which would mean copper is undervalued 50% in historical terms. Once silver breaks $50/oz it will break a psychological barrier and begin to get more attention from traders and the media. I can easily see a situation where if the supply of physical silver dries up or becomes unavailable, copper may be the next best thing for people. Just wondering what others see happening to copper prices in this type of situation (where copper is effectively re-monetized by the markets)?

[shinnosuke]

Check out this thread:
http://realcent.org/viewtopic.php?f=7&t=20286

[fonestar]

Looks like a great thread. Silverdoctors is another of my favorite sites.

[scyther]

Or it could mean silver is overvalued by 50%.

[creshka46]

Or it could mean silver is overvalued by 50%.

Then That would mean that gold is over valued by 86%

[scyther]

Or it could mean silver is overvalued by 50%.

Then That would mean that gold is over valued by 86%

Let's hope that's not the case...

[joemac]

So lets take this a step further and say silver is undervalued to gold. Historically 15:1 to use round numbers. This equates to about $115 an ounce silver or $1.9 ounce copper. I come to copper doubling about 8.5 times in this scenario. Anybody is welcome to check my math.

This should put copper cents at about .15.

Then my next question is what's more undervalued silver or copper? Copper because it needs to double 8.5 times, where silver only needs to double 3.5 times. Smartest thing to do is buy the most severely undervalued metal and when the ratios come closer sell one and buy the other. Like getting free metal.

[Engineer]

So lets take this a step further and say silver is undervalued to gold. Historically 15:1 to use round numbers. This equates to about $115 an ounce silver or $1.9 ounce copper. I come to copper doubling about 8.5 times in this scenario. Anybody is welcome to check my math.

This should put copper cents at about .15.

Then my next question is what's more undervalued silver or copper? Copper because it needs to double 8.5 times, where silver only needs to double 3.5 times. Smartest thing to do is buy the most severely undervalued metal and when the ratios come closer sell one and buy the other. Like getting free metal.

My money is on silver being fairly or somewhat overvalued in comparison to oil, houses, and other commodities. I think gold is overvalued at the moment, and copper undervalued...but that's just going from historical data such as the ratios between PMs and houses, food, gas, etc.

That's not saying that I'm short silver...I'm just saying its high by historical norms. Eventually it will come down for quite a while, but not until the financial insecurity subsides. Historically speaking, copper is a relative bargain at today's prices...but that's from a VERY long term viewpoint. I leave the short term stuff to the traders.

[creshka46]

If you read the silverdoctors article in the attached thread, I have a problem with his analysis. He compares the copper:silver ratio based on 100 copper cents to a silver dollar. Correct me if I'm wrong, but from 1865-1964 while we had silver dollars and small copper cents, weren't pennies really just tokens, even then? I mean, the gov was bound by law to fix the price of gold and silver but not copper, right? So I always believed that the copper value in a cent was never really related to its face value. Can anyone confirm or correct me?

[uthminsta]

Hmmm... this causes my brain to work. While I think, I'll just ask questions.

Which of those three do you see as most easily doubling?

Do think copper could ever really be as much as a dollar an ounce?

[ZenOps]

Gelogically speaking, copper to silver is slighly over 600:1.

In coinage however, especially US coinage (with all the silver mines) much closer to 60:1.

I don't think its really all that fair to use coinage values, if you go by that, technically nickel to silver should be 1:1

[creshka46]

Do think copper could ever really be as much as a dollar an ounce?

$16/lb ???

Price would have to increase by a magnitude of about 4.4

The last time the price was 4.4x lower than it is now ($0.83/lb) was only about 10 years ago.....

Who knows where we might be in 10 years ?!?!

[68Camaro]

A major difference in "spot" price, copper vs silver, is that spot copper is truly the price of electrolytic slabs which require substantial further processing (which costs more than the raw material) in order to put them into any usable form. $4/lb doesn't get you anything that anyone can do much with. Buy anything actually made of copper (even rounds) and you're talking well more than $10/lb for the finished form.

[68Camaro]

If you read the silverdoctors article in the attached thread, I have a problem with his analysis. He compares the copper:silver ratio based on 100 copper cents to a silver dollar. Correct me if I'm wrong, but from 1865-1964 while we had silver dollars and small copper cents, weren't pennies really just tokens, even then? I mean, the gov was bound by law to fix the price of gold and silver but not copper, right? So I always believed that the copper value in a cent was never really related to its face value. Can anyone confirm or correct me?

The original cent was essentially valued to copper content, but it was a huge coin. The later revised cents shrank and became disconnected from copper intrinsic content/price.

See these threads for more background. First

http://realcent.org/viewtopic.php?f=7&t=20286

then this one is the one you really need

http://realcent.org/viewtopic.php?f=17&t=14625

[uthminsta]

Buy anything actually made of copper (even rounds) and you're talking well more than $10/lb for the finished form.

I have about 350 pounds of 95% pure sub-ounce rounds that I can get you for a little bit less than $10/lb. Just let me know.

[68Camaro]

If it wasn't for that pesky zinc in them they'd be worth several times that!

[ZenOps]

The British penny was silver for 922 years.

http://en.wikipedia.org/wiki/History_of ... (1714-1901)

"The Hanoverians (1714–1837) Silver pennies The change in dynasty did not affect the form of the design of the silver penny — a 12 mm diameter coin weighing 0.5 gram"

By 1797, they had switched to a "token" of one ounce of copper being a penny (28.3 grams, not a troy ounce)

[uthminsta]

I wouldn't call it a "token" coinage... paraphrased and quoted from the Coincraft Standard Catalogue of English & UK Coins 1000 to Date:

By the end of the 18th century, there was a lot of counterfeiting going on with British money, both silver and copper. So in comes Matthew Boulton who pushed the govt to allow him to strike coins that were hard to counterfeit and that the value of the coin and the intrinsic metal content were closely matched. He finally secured a contract with them; in a proclamation dated 26 July 1797, it was declared that 'certain pieces of copper should be coined, which should go and pass for one Penny and two Pennies, and that each of such pieces of one Penny should weigh one ounce Avoirdupois and that each such two Penny pieces should weigh two Ounces Avoirdupois; the intrinsic value of such pieces of 1 Penny and 2 Pennies, workmanship included, corresponding as nearly as possible with the nominal value of the same respectively.'

So by that logic, 28.3 grams copper = .5 gram silver. Or a silver:copper ratio of 56.6:1.

Going up a level, a sovereign (valued at 4 crowns) is 8 grams of 22k (917 fine) gold, and a silver crown was 28.3 grams of 925 fine silver. Do the math... carry the one... a gold:silver ratio of 14.28:1.

[ZenOps]

Yeah, but... A currency devaluation is just that, a devaluation.

Canada had silver 5 cent pieces, 1.167 grams of 92.5% silver all the way until 1919. By the time 1922 rolled around they revalued it to 4.54 grams of nickel.

Does that mean that 1.08 grams of silver equals 4.54 grams of nickel? With the hoard of nickels, I'd like to believe that its at a ratio of 4.2:1 to silver, but I think it might be a little bit on the unrealistic side.

Or not... I don't think anyone knows for sure.

[68Camaro]

Maybe you should look at the prevailing price of metal and not the silver to copper ratio based on coinage.

[uthminsta]

... a silver:copper ratio of 56.6:1 ... a gold:silver ratio of 14.28:1.

Maybe you should look at the prevailing price of metal and not the silver to copper ratio based on coinage.

Okay, let's take those historical British coinage ratios into dollars to see if they make sense.

Using the current spot price of gold, that would mean:
Gold $1664/Toz
Silver $116.53/Toz
Copper $29.97/lb ($1.87/oz)

Using the current spot price of silver:
Gold $447.82/Toz
Silver $31.36/Toz
Copper $8.07/lb ($0.50/oz)

Using the current spot price of copper:
Gold $204.29/Toz
Silver $14.31/Toz
Copper $3.68/lb ($0.23/oz)

What SHOULD the ratios be? Consider this: if those ratios were fixed, we would only need ONE spot price.

[Engineer]

b]Using the current spot price of copper:[/b]
Gold $204.29/Toz
Silver $14.31/Toz
Copper $3.68/lb ($0.23/oz)

What SHOULD the ratios be? Consider this: if those ratios were fixed, we would only need ONE spot price.

Given the advancements in mining/refining technology which makes modern day copper cheaper to produce (it's the most expensive in terms of work necessary to equal the same reward), I'd say the copper example would be the most appropriate.

That's in the absence of hoarding, however. Central banks simply don't care how much they have to pay for their gold hoards, because they print the money to pay for it...but they do have to be careful not to make copper too valuable for fear of crashing the economy.

Some would argue that $200 gold is below the cost of production, but in the absence of hoarding, a $1,667,000,000 dollar mine would likely become a $204,000,000 mine. As the cost of entry goes down, so does the debt service, expected profit, and overall cost of production.

That's just a mental exercise, however. Once you include hoarding of Au by the wealthy and Ag by the commoners, prices bubble up just like they did with real estate. To get a true feel for where they should be, it's probably best to compare metals pricing with food, fuel, wages, and housing.

Using a gold/house ratio of 150oz/house, gold should be around $1K.
Using a gas/silver ratio of 1 gal/quarter, 90% silver should be around 12x face.

...but these are VERY uncertain times, and I'm more comfortable leaving my money in technically overvalued PMs than rapidly depreciating fiat. With the current gold/house ratio well under 100:1, a country house on a couple acres is looking better every day.