The importance of commodities in a financial crisis...especially SILVER

NEW YORK (Aug 20) Commodities range from precious metals such as gold and silver to food items such as grain and drinking water. The importance of commodities will depend upon the various roles commodities play, as such roles are intertwined with the demand each commodity has in the marketplace. In order to understand such relationships, one would be well advised to explore this interplay based upon the background of assorted economic scenarios.

To start with gold, in an environment of great uncertainty as to the viability of fiat currencies impacted by the status of respective national economies, gold is historically known to be a magnificent store of value much desired at the onset of increasing inflation and possible hyperinflation. Excessive central bank printing of fiat currencies enable governments to inflate away respective countries' national debts. The resultant loss in value of fiat currencies is reflected by a concomitant increase in the value of gold as a safe haven. The price of gold increases both due to the measured fall in value of fiat currencies and the increase in demand for gold by the informed populace desirous of protecting personal wealth.

Silver, on the other hand, is a great store of purchasing power. Usually priced substantially lower than gold, it forms a practical medium of trade, particularly for small transactions dominant in everyday personal living. Furthermore, silver has extensive industrial use in minute quantities especially in electronic products. It is important to note that such small amounts of silver incorporated for instance in computer products are not recoverable as such products become obsolete, so that the above ground availability of silver is being continually depleted while the discovery of new silver deposits in mines is gradually falling in frequency. Hence silver is on a net upward movement in price before even being augmented in value by increased demand for its store of purchasing power.