The Two Faces of Silver

What happens to the price of silver during a War? The price of silver soared in World War I and during World War II. (1)

When World War I broke out, the people of India were suspicious of the British Government and the paper money secured by sterling credits in London. The Indian people demanded actual silver in exchange for their goods and services.

When Great Britain sent in forces into Persia during World War I, the commanders carried quantities of British gold sovereigns in order to buy supplies, recruit workers, and organize their forces.

Once the war ended the paper system came back into vogue. By the time World War II broke out the only country in the world using silver as it's monetary basis was the United States. The only currency anywhere in the world fully covered by the metal (silver) it was purported to represent was the United States of America silver certificate. (2)

When World War Two broke out, a demand again surfaced for silver in Asia. This was despite the fact that Asians were used to dealing in paper money for quite some time prior to W.W.II. Basically, the working people of Asia rebelled against paper money and demanded silver. Approximately 410 million ounces of silver were shipped to Asia under the Lend-Lease Act during this war.

The historical record sites another example of the importance of silver to the maintenance of economic and political stability among Asia and Africa. John Leighton Stuart, a missionary in China for over forty years has this to say about the Nationalist-Communist war of 1946-1949. " The United States Government was supporting the Nationalists with arms, munitions, and gold, but the authorities were keeping gold impounded in Taiwan, and issuing against it notes termed Gold Yuan." Stuart further comments; "More crucial than strategy were silver coins with which to pay the troops. They did not want Gold Yuan, but four silver dollars per month apiece. Other wise, Communist agents could buy them off with hard money or even promises. The government had nearly 300 million U.S. dollars in gold and silver bullion, but most of it was safely in Taiwan"(3)

Does the briefing above hold any water for the War on Terrorism? It certainly can be argued that most of those who remain in Afghanistan are not using their American Express cards for supplies and munitions. President Bush has incorporated the idea that one of the ways to fight this war is to cut off the financial power of the Terrorists. If successful, by what means would the War continue? Will there be any monetary demand for silver during this new war?

However, this only looks at half of the question because as any silver bear knows silver is dead and has been dead as money, once President Johnson eliminated silver from the coinage in 1965. So, what is the rest of the silver story during war?

Silver's entrance into the battery market came during World War II when it was used because it provides a good power to weight ratio. The U.S. Navy upgraded its underwater SEAL Delivery Vehicles designed to carry combat swimmers and their cargo in fully flooded compartments. The vehicles use an all electric propulsion system powered by rechargeable silver-zinc batteries. Looking out beyond land and sea, a Pegasus Rocket delivering NASA's "Trace Spacecraft" to its low-earth orbit was powered by two 28-volt silver-zinc aerospace batteries providing reliable electrical power for the rocket's operations.

What happens in a war, casualties and injuries, here again silver use is important. Restoration of natural skin function following severe burns has long been a prime concern of military doctors. In severe cases, restoration often requires skin grafts, the success of which is not always assured. The Army Institute study employed silver-coated nylon fabric dressings, soaked in a saline solution, and placed over the burn wounds of laboratory rats. A small direct current of one-tenth microampere (less than that normally used for human electrocardiograms) was then applied. This released a stream of silver ions which flowed into the wound area. In the study, it was shown that the silver ions not only exerted their effective anti-microbial activity against such virulent bacteria as Pseudomonas, the presence of which inhibits the natural restoration of skin function, but enhanced the healing of both the areas of skin grafts and the donor sites used to harvest skin for the grafts.

In addition, the Army study revealed that the silver-coated nylon dressings with the imposed direct current enhanced healing by reducing the body's tendency to regenerate thicker and shorter muscle tissue, which often happens with skin grafts. The silver treatment also limited the loss of tiny blood vessel circulation in the burn area while markedly reducing the presence of surface bacteria.

During war the use of aircraft increases, many are unfamiliar with the vital role silver plays in aircraft safety. It was discovered during World War II that a layer of silver on main shaft bearings could prevent failures of the giant aircraft engines. Silver, with its superior fatigue resistance, lubricity, corrosion resistance, and thermal conductivity came to the rescue. Today's jet aircraft are equipped with engines of far greater power than the old propeller engines. Operating at very high rotational speeds, commercial and military jet engines deliver 35,000 to100,000 pounds of thrust under high temperature conditions. Despite the higher power and more rigorous internal environment, silver continues to provide the superior performance and critical margin of safety for today's jet engines.

The FAA and airplane manufacturers require fail-safe engine testing for bearings. The test requires turning the lubricating oil system on and off for 15-second intervals with the engine running at full power. This is done four times and the lubrication power of silver always allows the engine to pass the tests. Despite considerable searching for alternatives, no substitute for silver as a high-performance bearing material has yet been discovered.

What can be more important in war than communications. Secure communications and free of interference. Electrical interference from cellular phones, TV and radio stations, motors and other devices can reach sensitive equipment and cause them to malfunction or give false readings, and the results could be deadly.

The only way to prevent outside interference is to shield medical equipment in grounded metal cases. However, problems arise because unwanted signals can still enter through openings in the metal case even when they are closed. The use of silver-plated particles embedded in an extruded silicone elastomer has been found to be an ideal gasket material to help seal these and other necessary openings.

A resilient silicone gasket material, from TechNet Shielding Systems was developed to provide an electronically impenetrable seal. The pliable silicone also provides a barrier against moisture and pollution as well. This system is used for industrial or military buildings or rooms that must be kept secure from radio surveillance.

What is an assault without proper supplies? What supply is more vital than water? Large-scale silver-based sanitation systems provide bacteria-free drinking water to remote military bases and Red Cross units in distant locations. In the United States and Canada, more than 100 hospitals have installed silver-based systems to eradicate Legionnaire's disease, a deadly bacteria that infects hot water pipes and storage tanks in large buildings. Recent tests in the Pittsburgh Veterans Affairs Medical Center showed that, despite scalding high temperatures and frequent flushing of the water system, the organism that causes. Legionnaire's disease was still present. Once a new silver-based water purification system was introduced, the bacteria disappeared. (4)

Photography, is used for military purposes. The TR-1 high altitude platform supports photo reconnaissance. Damage assessment is provided by photos. Strategic planners often use photos for all types of briefings.

All these parameters deal more with a conventional type of War scenario. Initially, this new war will be fought on different terms, more of a surgical type of cutting out the terrorists. The problem will be that this can quickly escalate into a full fledged war and all the military uses for silver will be needed in quantity.

The demand for silver will increase as the war continues. The most strategic metal during war is silver. The Defense Logistics Agency silver inventory has been reduced to minimal levels. (5) This situation is a major factor that will become important to silver investors.

David Morgan

October 15, 2001

Silver-Investor.com

email: [email protected]

Mr. Morgan publishes a private newsletter for serious precious metals investors. He hosts the web site: Silver-Investor.com. He has been a private economist for over two decades his background in engineering , with an advanced degree in Economics/Finance. He has been interviewed on Don McAlvany's radio talk show, Financial Sense Newshour, Hard Money Watch, and appeared on television. Mr. Morgan was published in Global Investor regarding ten rules of silver investing. Currently, he is writing a book on silver.

(1) Roy W. Jastram , Silver the Restless Metal [John Wiley & Sons NY 1981] pg. 76

(2) Elgin Groseclose , Man and Money, [Frederick Unbar NY 1961] pg. 281

(3) Ibid.

(4) Silver Institute website

(5) Gold Field Mineral Services World Silver Survey 2001 pg. 30