I disagree with your 20 x undervalued example. I think gold is undervalued, but not by 20 to 1
.
It was just an example. I don't think it's 20:1 either. It's most likely between 25-50:1
Silver has historically always had a monetary function as well. I don't see the ratio ever hitting 100 to 1, considering the mining ratio is 10 to 1, not gonna happen.. As far as extra storage costs, thats minuscule compared to the value of the PM.. to say that someone wouldn't take payment in silver over gold because it will cost 0.013 percent instead of 0.01% (for gold) (monthy rates) for storage is silly
. Again the way I see it silver is undervalued and a major change in the ratio will be towards the fundamentals.
If gold becomes offically accepted in a currency capacity, silver will also.. After all, silver (last circulated in 1964) was still used as an official currency in the US for 30 years after they took the gold away (in 1933)..
One could argue that silver is more of an official currency then gold is
It has, and it will retain that aspect. I expect Mexico and certain other regions that are richer in silver than gold to support silver more readily, at least domestically. Western nations are another story.
Private parties can make use of gold or silver for exchange right now. A main barrier is convenience - it's easier to exchange dollars, Euros, or whatever other medium is more convenient. This applies mostly to western nations. Use as a transactional medium isn't the issue; use as a means of saving is.
If metal is going to sit for a long time, 10x or more in storage costs is
not reasonable. Consider the amount of storage
expansion that would be necessary to house official reserves. Can you imagine how much bigger Ft. Knox or West Point would have to be to accommodate 10x the physical material? Even a 50:50 mix of gold:silver reserves would require facilities 25x the size. Space is the premium even over cost, not to mention rapidly escalating security measures that rise with the area involved.
There is nothing that guarantees a bi-metal stance. Only real market forces, which cannot be ignored, but
can be delayed.
Eventually, silver may surpass gold in reserves. Even platinum or rhodium may come to be used more readily.
The difference is incentive. Imagine this scenario: Facebook decides that it will only release an app for iPhone and announces this. With hundreds of millions of users, how many people will take into consideration availability of the FB app for their next phone purchase? It will assuredly
not be an insignificant number.
Now imagine that I control the supply of diamonds, a la De Beers. Western governments announce that diamonds and fiat currencies may be used for transactions, and anything else will be penalized, with rewards paid for reporting unauthorized forms of payment. How many sheeple will use anything other than diamonds and fiat?
Replace diamonds with silver. How many people will use gold? Now reverse the two. How many people will use silver? The incentive structure
favors one over the other, and the social herd will avoid pain to seek the path of least resistance so they can continue to eat, breed, and avoid introspection. It's a very well-examined, emergent psychosocial pattern. It's been analyzed, modeled, tested, and manipulated. It'll always be limited by fundamental factors in the end, but it can go against them until exhausted. Don't fight the flow.