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Look For the Silver Lining

May 4, 2011 • Businesses, Demand, Supply, and Markets, Households, Thinking Economically • 234 Views    No Comments

You might want to decide whether to set the table with Granny’s silver, sell it, or melt it. To see why, you just need to look at a graph of the price of silver. Representing a 162% increase between January and now, the line is almost vertical.

When silver was $49.845 an ounce on April 25, people recalled its 1980 high of just over $50.00. (Within 4 months, the price dropped 78%.) If we adjust for inflation, silver would need to be $135.00 an ounce today to equal its 1980 high.

Still though, silver’s current price is making a difference. Silver jewelry has gained  “cachet.” But, on the other hand, jewelers are looking for cheaper metals. Similarly, if the price goes high enough, industrial users will look for substitutes. And predictably, with price soaring, silver is attracting new investors.

The Economic Lesson

According to this silver value chart for coins, a Washington Quarter minted from 1932-1962 contains $7.53 of silver (May 3 prices). This takes us to one basic rule. The value of the metal in a coin should not exceed the value of the coin. For that reason, coin can be called nominal money. It has little intrinsic value.

An Economic Question: If the value of U.S. coins and paper currency are worth no more than whatever they are made of, then why does money have value?

You can look here for an answer.

 

 

 

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