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Poor Man's Gold
Ever hear the expression, "Cover their shorts?" Let me explain. If you "short" something, you basically are betting that the item will go down in price. You will have borrowed the item, and agreed to replace it, hopefully at a lower price than it was when you borrowed it, or agreed to buy it. If you "short silver," you have bought a futures contract, which bets that silver will go down. In order to 'cover your shorts,' or get out of that contract, you will have to buy enough silver to satisfy the contract. Obviously, when you buy a lot of silver to 'cover your short position,' the price will go up, and this worsens your situation. The more bought to 'cover the shorts,' the higher the price will go, and the holder of a short position in an upside market, is in trouble.
Thousands of '49ers left California and went to Nevada to try their luck. "Frame shanties pitched together as if by accident. Tents of canvas, of blankets of brush, of potato sacks and old shirts, with empty whiskey barrels for chimneys. Coyote holes in the mountain sides forcibly seized and held by men. Pits and shafts with smoke issuing from every crevice. Piles of goods and rubbish in the hollows, on the rocks, in the mud, in the snow everywhere, scattered broadcast in pell-mell confusion," was the way an early newspaper described it. Little towns sprung up seemingly overnight. "Gold Hill," "Silver City," and the biggest of all, "Virginia City." The same old newspaper continued..." Houses were built anywhere and everywhere, and streets were then made to reach them. The people camped all around in wagons, tents, and temporary brush houses or wickiups. The principal business houses were saloons, gambling houses, dance halls, and two or three so-called stores with very small stocks of general merchandise and little provisions." (The paper failed to mention the dozens of "Soiled Doves" (whores) which always frequented mining camps.)
Lawyers, freighters, and merchants arrived eventually, and established sizeable businesses and offices. One strike followed another, and a financial community with banks materialized. An outdoor stock market blossomed in the muddy streets of Virginia City. Shares in mines zoomed from a dollar to above $1500, in not much more than a year. The miners were working, but it was the mine owners and speculators who got rich. Remember, this was silver, not gold. A classic example of a man who went from virtual beggar to filthy rich, was John W. Mackay. Irish born, he had arrived too late in the California gold fields. Hearing about the Comstock strike, he walked the 250 miles from San Francisco to Virginia City. After three years of working the dirt with pick and shovel, Mackay heard of a lucrative claim with a missing partner. He left his site, tracked down the partner, who was fighting in the War Between the States, found him in the midst of a battle, and bought the man's share for $500. Going back to Virginia City, Mackay became one of Virginia City's richest mine owners.
Want another? George Hearst, father of the news tycoon William Randolph Hearst, was among the first wave of developers. He had been working unsuccessfully as a placer miner and shop keep in the California fields. Growing disgusted, he arrived in Virginia City and bought an interest in a mine for $3,000, which he didn't have. He went to San Francisco to raise the money, and returned with the money and friends. They started digging, and in two months, had dug out 38 tons of high grade ore, and got a profit of $90,000. They paraded through the streets with the gleaming silver bars, and stacked them in the window of the bank.
Samuel Clemmons tried prospecting and failed. He went to work for the newspaper, the "Territorial Enterprise," and became a world famous writer, taking on the pen name of "Mark Twain." He got that name after leaving Virginia City, and working on the Mississippi River as a boatman. They measured the depth of water using the measure of a "mark." "Mark Twain" then, was two marks, so he adopted the name. He wrote for free shares in mines, and of course glorified the mine he was writing about, so as to increase his shares value. "If the rock was moderately promising, we followed the custom of the country, using strong adjectives, and frothed at the mouth as if a very marvel in silver discoveries had transpired. If the mine was a 'developed' one, we would squander a half column of adulation on a shaft, or a new wire rope, or a dressed-pine windlass, or a fascinating force pump." "Feet that went begging yesterday were worth a brick house today," remarked Twain.
August 7, 2008 |
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I'm serious. Silver has often been called the "poor man's gold," and for good reason. It's ONE FIFTY SECOND OF THE PRICE OF GOLD. Literally, you can get 52 ounces of silver for one ounce of gold. It shouldn't be that way. With gold at $880, silver by historic standards, should be $55.00 per ounce, which is a 16 to 1 ratio. It was 16 to 1 in 1980, and has been for thousands of years...literally. It will be again, because all the manipulation and shorts on the COMEX will eventually come to naught. The ratio was 77 to 1 a couple of years ago, so silver has already reduced the ratio by 25 points, or in other words, silver has gone up 25% further than gold in the last couple of years.
Enough of that. Let's talk about the largest silver find in US history, which was the famous Comstock Lode in Virginia City, Nevada. Ever been there? It's a great place to visit. Lots of tourist gee-gaws and rubber tomahawks for sale, but you can still get the feel of what the place used to be. The prospectors had been digging and scratching around the mountains for years, and all they could find was this 'blue stuff,' which they thought was worthless. Someone finally discovered that the 'blue stuff,' was rich silver ore. Rich, beyond anyone's most glorious imaginings.
Virginia City became a metropolis of over 20,000, and became the second biggest city in the American West. Thanks to silver. Much of its wealth found its way to San Francisco, where an important financial and banking system grew up around the frenzied trading of Comstock Shares, and eventually underwrote the continuing growth of San Francisco. Know the name of Adolph Sutro? If you're familiar with San Francisco, you know that name, but probably don't associate it with Virginia City. Sutro proposed a solution to the flooding, heat, and problems with the underground mines of Virginia City. He proposed and built a tunnel downhill to the vicinity of what is now Carson City, to drain the underground diggings. By the time his tunnel had been completed, the mines had reached borrasca, so it wasn't valuable, but he had sold his shares at their peak, and was a multi-millionaire. He soon became mayor of San Francisco. The story of silver, Virginia City, its Comstock lode, and its far reaching effects, is a fascinating story to me, so this will continue next time. I hope this begins to prove what a valuable item silver is!