Gresham’s Law And The Gold And Silver Squeeze

“Bad money drives out good money.”  When Gresham put forth this proposition, sovereigns were diluting gold and silver coins with metals of lesser value yet the diluted coins were given the same value for legal tender purposes as the more pure coins. Gresham observed that the more pure coins were hoarded and the lesser value coins were used for trade.

Sound familiar?  Go find pre-1964 dimes, quarters and half-dollars and try to buy them for their legal tender value.  Pre-1964 silver coinage contains 90% silver.  Post-1964 silver coins are made from nickel and copper.  No one who holds pre-1964 coins would use them for their face value. They have disappeared from circulation. The melt-value of the silver in a 1963 quarter currently is $2.60.

The disappearance of gold bars from the LBMA and Comex is Gresham’s Law in action. Though the virus crisis exacerbated the problem, shortages were developing on both trading venues well before anyone heard of “coronavirus.”  As an example,  Russia dumped its Treasury bond holdings and used the dollars to buy gold for its Central Bank. China, which holds 12x more Treasuries than Russia held, has been slowly converting its dollar reserves into gold for several years.

Chris Marcus of Arcadia Economics and I discuss the current developments on the Comex and LBMA in our latest weekly conversation:

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I felt in my gut that something was amiss with the markets a year or so ago and started reading up on sound money/macro. At that time I had most of my money in UK stocks but wanted a way out and a way into the metals. I needed guidance thus why I signed up to your short seller and mining journals.

Today I am way down on the mining stocks and somewhat down on physical silver and gold. But I have offset 80% or so of those paper losses with paper gains on a raft of put options on indexes and sector ETFs. I had limited options experience prior to these purchases.”   – Mike in the UK

One thought on “Gresham’s Law And The Gold And Silver Squeeze

  1. Hmm,

    Did you ever buy even One Square Yard
    of Real Property
    using either Honest, Lawful Money
    gold or silver Coin?

    Do you grasp the significant Tax Benefits
    to both the Purchaser & Seller of Same?

    Did you ever convert (Redeem)
    your Fiat Phed Reserve Notes (IOUs) earned
    into Lawful Money Coin via 12 USC 411
    & take the Tax Loss/Write Off provided
    under the Internal Revenue Code (Title 26)?

    Honest Weights & Measures.
    It’s as old as Holy Scriptures!

    Got Lawful Money?

    Cheers!

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