Much of our interest in silver is driven by its comparison to paper U.S. Dollars.
A few months ago, we wrote a post about a gas station in Oregon accepting 90% junk silver quarters and dimes. In that commentary, we explored the relationship between silver (…or commodity backed money) and the fiat dollar and found that at a certain price level, it can be advantageous to use silver rather than U.S. dollars to fill your tank.
Gas prices are certainly a hot topic this year for a couple of reasons – one being the fact they’ve risen so much in U.S. dollars and the other being that it’s a presidential election year.
In the course of all of this, more Americans have been exposed to the relationship between silver and U.S. dollar, and the preservation of wealth bullion offers.
Congressman Ron Paul, a Republican presidential candidate and 12-term Member of Congress, illustrated this quite well when he questioned Fed chairman Ben Bernanke during a hearing of the House Financial Services Committee.
Dr. Paul asked the chairman about the declining value of the dollar in the context of a 1-oz silver coin.
When Bernanke became chairman of the Fed in 2006, 1-ounce of silver would buy 4.62 gallons of gas. On the day of the hearing (2/29/12), that same ounce of silver could buy 10.12 gallons of gas (…an increase of 119%!!).
This interesting video from George Smith entitled “On the Money” gave us some good background and illustration of this concept.
In 2006, the national average for a gallon of gas was $2.50. In March, 2012, the average stood at $3.68, a 47% increase. In ’06, $1 would buy 0.40 gallons while today, $1 buys .27 gallons of gas, which effectively translates into a 33% decline in the value of the dollar.
Silver stood at $11.55 per ounce in 2006 but on 3/1/12, the London fixed exchange price was around $38. Smith takes these prices and the average gas price from these two dates to determine that one-ounce of silver could purchase 4.62 gallons of gas in ’06 but that very same ounce was able to purchase 10.12 gallons today.
To put it another way, say you lived in Atlanta and wanted to take your family to Disney World in Orlando. According to Google Maps, the trek is somewhere in the neighborhood of 450 miles.
Let’s say you rent an SUV for the journey that averages 17 miles per gallon.
In 2006, it would have cost you around $120 for gas round-trip.
(Take 450 and divide it by 17 to arrive at the number of gallons then take that number and multiply by $2.50 and then multiply by 2 for the return trip)
Today, that very same trip would cost you $195 – an astounding 61.5% increase!!
If you’re able to buy gas priced in silver, that same trip would cost approximately 4-ounces of coin (…round-trip) – regardless of whether you took the trip in 2006 or went today.
Examples like this help us make the point that precious metals like gold and silver preserve the value of your wealth. Smith’s video clearly shows how the dollar has declined in value over the last several years.
It’s never too late to start preserving the value of your wealth by collecting gold and silver bullion and coins. For barter purposes, many turn to 90% junk silver (pre-1965 quarters and dimes) but 1-oz silver coins like the Silver Eagle and Canadian Maple can work for those purposes as well.
Check out the video below for more as well as some historical and Constitutional insights into money. Mr. Smith does a great job of explaining legal tender laws. Keep in mind, the video is not meant to endorse candidate Paul nor does it reflect Provident Metals’ political agenda. The video simply makes a few great points and includes analogies relative to preserving wealth during inflationary times that might be of interest to viewers. Check back with us again soon as we explore the topics of sound money and legal tender laws.
