Gold. People either love it or hate it. There aren't many who feel ambivalent toward it. Unfortunately, gold is deeply misunderstood by investors, and that misunderstanding is hurting their portfolio returns. Many in the investment community trot out the old myths about gold: that it is a bad investment; that it is very risky; that it is not a good inflation hedge. But is there anything behind these assertions? If investors take the time to examine the facts, these commonly held beliefs simply do not stand up to scrutiny. It is precisely because these myths have become so prevalent that gold is still undervalued. Once the general public realizes these beliefs are not valid, the price of gold will be much higher.
MYTH 1:
GOLD IS A BAD INVESTMENT
A frequently cited argument is that since it peaked at $850 per ounce (all amounts in U.S. dollars unless otherwise noted) in 1980, gold's return has been poor compared to the major stock indices. However, that peak price was a short-lived, single-day aberration. Investors who avoided the mania phase and purchased gold one year earlier in 1979 at its average price of $306 per ounce also avoided any significant losses during the subsequent bear market. The performance of different asset classes varies from cycle to cycle. The previous cycle from 1968 to 1980 saw the Dow Jones Industrial Average remain flat with significant volatility, while gold increased by 2,300 percent. In the current cycle, which began in 2002, gold has posted a compounded return of 14 percent, while 15 of the 30 Dow components are negative.
Many studies compare gold to equities over peri-ods as far back as the 1700s. But these studies ignore the fact that gold's price was fixed until 1971. Prior to that time, gold was money and not an investment. Interestingly, virtually none of the stocks listed in the 1700s still exist today. Instead, the returns of major indices such as the Dow are boosted by the removal of bankrupt companies and poor performers, which are replaced by high performers. Three of the 30 companies that made up the Dow in 2000 have since been replaced.
From a strategic portfolio allocation viewpoint it is easy to see why Ibbotson Associates, one of the world's most highly regarded asset allocation specialists, determined that holding between 7.1 percent and 15.7 percent in precious metals bullion reduces portfolio volatility and improves returns.
MYTH 2:
GOLD IS NOT A GOOD INFLATION HEDGE
The arguments against gold as an inflation hedge are usually based on calculations arising from the intra-day price spike in 1980. While gold did not keep up to inflation using daily prices from 1980 to 2002, the annual average gold price has kept up extremely well since 1971, when the price was no longer fixed, Figure 1. During the same timeframe, the U.S. dollar lost about 80 percent of its purchasing power. In fact, all the world's major currencies have depreciated by significant amounts due to continuous excessive increases in the money supply. The impact of this devaluation on real returns is significant.
Conversely, gold has not only maintained its purchasing power but increased it against all major currencies. It will continue to do so as long as the world's central banks keep increasing the money supply by a greater percentage than their country's GDP growth.
More importantly, gold maintains its purchasing power not only during inflationary periods, but also during deflationary periods. An extensive study, published by Roy Jastram, analyzed the purchasing power of gold in England and the U.S. from 1560 to 1976. Jastram concluded that gold held its value remarkably well over time. The purchasing power of gold and precious metals actually increases during deflationary periods because other assets decline in price by a much greater amount than precious metals do.
As central banks continue to accelerate the pace at which money is printed, inflation will increase, and the purchasing power of paper currencies will decline. This will result in more and more astute investors fleeing to the safety of gold. As a con-sequence, gold's price should rise far in excess of the Consumer Price Index and the true inflation rate. In order to protect portfolios from rising inflation, Wainwright Economics concluded that an all-bond portfolio would need an 18 percent allocation to gold, silver and platinum, while an all-equity portfolio would need 40 percent just to stay ahead of inflation.
MYTH 3:
GOLD IS A RISKY INVESTMENT
Risk means different things to different investors. A pension fund may perceive risk as a failure to meet its liabilities, whereas an asset manager may view risk as a failure to meet its benchmark. Most investors, however, associate risk with a loss of their capital or underperformance of their invest-ments in comparison to their expectations. "Risk comes from not knowing what you are doing," according to Warren Buffett.
There are many kinds of risk: currency risk, default risk, market risk, inflation risk, systemic risk, political risk, interest rate risk and liquidity risk. While all of these apply to financial assets, many do not apply to gold bullion. Physical bullion is not subject to default risk, liquidity risk, political risk, inflation risk or interest rate risk. In the rare circumstance of strong currencies, gold may be subject to short-term currency risk and, at times, to market risk. Unlike financial assets, however, gold bullion cannot decline to zero. Gold is the only asset that can protect wealth from non-diversifiable systemic risk.
Volatility or standard deviation are often used as measures of risk, and gold is considered to be quite volatile. However, when annual compounded returns are plotted against standard deviation, the individual Dow stocks are all more volatile than gold, and all but two of the Dow stocks had poorer performance than gold, silver, and platinum over the past eight years. Figure 2.
Returns are important, but even more important is to compare risk-adjusted returns. Clearly, an investment that has higher volatility may still be attractive if the returns are appropriately higher. Nobel prize-winning economist William Sharpe devised the most commonly used measure of risk-adjusted performance: the Sharpe Ratio. This ratio measures the amount of excess return per unit of volatility. The interpretation of the Sharpe Ratio is straightforward: the higher the ratio the better.
Bullion is unlikely to suffer underperformance risk in the near future. Demand for gold, silver and platinum is increasing for both commodity and monetary attributes, while annual mine production is declining. As the price of oil continues to rise due to production declines and increased demand, inflation will accelerate. As central banks increase money supply at accelerating rates, the purchasing power of currencies will continue to decline. As these two major trends interact with each other, the price of gold will continue to rise.
MYTH 4:
GOLD DOES NOT PAY DIVIDENDS OR INTEREST
The Bank of England used this argument to justify selling half the country's gold holdings at the bottom of the market in 1998. It wanted a "safe" investment, one that would generate interest, and it chose U.S. treasury bills. The gold was sold for under $300 per ounce. In the months following that sale, the price of gold tripled, and the value of the U.S. dollar lost 30 percent against the British pound. The currency exchange losses plus the opportunity cost resulted in billions of pounds in losses, significantly offsetting any interest income the Bank might have received.
The same is true for bond investors. In an infla-tionary environment, the "real" or inflation-ad-justed interest rate they receive is often negative. Gold, like any other asset that sits in a vault, will not earn interest or dividends, but neither is it at risk. No asset class generates income unless you give up possession and take the risk of not getting it back. However, gold's capital appreciation is many times greater than the prevailing interest yields, while not being subject to any of the risks that interest-bearing investments are subject to.
MYTH 5:
GOLD IS AN ARCHAIC RELIC
Gold is often referred to as an archaic relic with no monetary role in today's modern digital society. Several facts contradict this view. The world's central banks still hold 29,000 tonnes of gold in their reserves. Gold, silver and platinum trade on the currency desks - not the commodity desks - of the banks and brokerage houses. The turnover rate of physical gold bullion, between the nine members of the London Bullion Marketing Association, currently averages $24 billion per day. Trading volume is estimated at seven to ten times that amount. Clearly, gold is still trading in its traditional role as an alternative currency.
MYTH 6:
MINING STOCKS ARE BETTER INVESTMENTS THAN BULLION
While mining stocks can generate impressive returns during an uptrend in precious metals prices, they do not always outperform bullion. It is unfair to compare junior mining companies to bullion because of the huge disparity in risk. While successful junior miners can generate impressive returns, over 90 percent of precious metals discoveries never become productive mines. A better comparison would be the larger producers. While mining stocks have outperformed bullion during the early stages of this bull market, gold bullion has outperformed the major mining indexes since March 2007. Figure 3.
Mining stocks tend to be significantly more volatile and risky than bullion, and during sharp market declines they tend to follow the broad equity markets downwards -even if the price of the metal is rising. During the late stages of the bull market of the 1970's, mining stocks underperformed bullion. In order to adequately compensate investors for the higher risk, mining stocks would have to outperform bullion.
CONCLUSION
Investors who take the time to carefully evaluate the benefits of bullion will realize that these com-monly held myths do not hold up to scrutiny. Those investors stand to reap significant rewards. Investors who believe these myths are missing out on the opportunity to add an asset class that diversifies portfolios, protects against inflation, and may provide better returns than traditional assets, such as stocks and bonds.
Under a worst-case scenario of systemic risk, bullion may be the only asset that holds its value. As these myths are dispelled and the price of bullion rises, as many mainstream analysts predict, informed investors will benefit from purchasing bullion at today's undervalued prices.
When the public at large becomes fully educated with respect to precious metals, it will bid up the price. Considering that global financial assets are estimated at over $180 trillion, while total global above-ground gold is only $4 trillion (and above-ground bullion is less than $1.5 trillion), a massive wealth transfer event is likely to occur. It is inter-esting to note that even a 10 percent switch from financial assets to gold would result in a 450 percent to 1,200 percent increase in the gold price.
by Nick Barisheff Bullion Management Group
Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of Lydia about 300 years later. Throughout the centuries, people have continued to hold gold for various reasons. Below are eight reasons to own gold today.
A history of holding its value
Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.
Weakness of the US dollar
Although the US dollar is one of the world's most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices.
The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008. The decline in the US dollar occurred for a number of reasons, including the country's large budget and trade deficits and a large increase in the money supply.
Inflation
Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Since World War II, the five years in which US inflation was at its highest were 1946, 1974, 1975, 1979 and 1980 (as of 2008).
During those five years, the average real return on the Dow Jones Industrial Average was -12.33%, compared to 130.4% for gold.
Deflation
Deflation, a period in which prices contract, business activity slows and the economy is burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s. During that time, the relative purchasing power of gold soared while other prices dropped sharply.
Geopolitical uncertainty
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity", because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments.
World's greatest investors
For example, gold prices experienced some of their largest recent movements during periods of tension with Iran and Iraq in 2007 and 2008. Its price often rises the most when confidence in governments is low.
Supply constraints
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008.
At the same time, production of new gold from mines has been on the decline since 2000. According to BullionVault.com, annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices.
Increasing demand
Increased wealth of emerging market economies has boosted demand for gold. In many of these countries, gold is intertwined into the culture. India is one of the largest gold-consuming nations in the world, and gold has many uses there, including jewelry.
As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold. In China, where gold bars are a traditional form of saving, the demand for gold has also shown rapid growth.
Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, the largest gold ETF, StreetTracks Gold Trust, became one of the largest ETFs in the U.S. and one of the world's largest holders of gold bullion in 2008, only four years after its inception.
Portfolio diversification
The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
The 1970s was great for gold, but terrible for stocks.
The 1980s and 1990s were wonderful for stocks, but horrible for gold.
As of 2008, this decade has been a good one for gold, and an unfavorable one for stocks.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.
Conclusion
Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, gold has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.
There's a worldwide run on gold coins.
Even as the price of the precious metal itself comes under pressure along with commodities like oil and copper, people around the world are demanding so many of the valuable coins that government mints are having difficulty filling orders.
A spokesperson for the US Mint tells me that gold coins in this country, for the past month, "are being allocated because of an increased demand." [BMK note: Perth Mint is totally out of gold and silver coins]
And the price that the government charges coin dealers has recently been increased by as much as 10 percent for a 10-ounce coin.
Robert Mish, a coin dealer in Menlo Park, Calif., says customers who want to purchase 200 gold coins often have to wait up to two weeks. Six months ago, he said, a purchase that size could have been filled immediately.
Someone who recently tried to purchase 100 one-ounce American Eagle gold coins in the New York City area was turned away, even though he'd uneventfully made purchases before through the same dealer.
And even when gold coins are available, dealers report that customers are paying a bigger premium than they would have just a few months ago.
Previously, American Eagle coins were going for 5 percent over the market price of gold on the Commodity Exchange (Comex). Now the premium can be anywhere from 10 percent to 15 percent, even though the US Mint raised its price to dealers by just 3 percent for an ounce coin.
In one sense, the attraction for gold coins isn't surprising. Since ancient times, gold has been considered the safest investment to hold in times of uncertainty.
With fears of future inflation rising and concern about the value of paper currency and government debt increasing with each new recovery plan announced in Washington and in foreign capitals, the desire to hold gold grows.
That part makes perfect sense. But there's another more puzzling aspect to the recent gold rush.
Even as the demand for gold coins such as the Canadian Maple Leaf or the Krugerrand of South Africa has grown, the market price of the precious metal itself is off its highs.
In early October, the price of an ounce of gold on the spot market was about $930 an ounce. With the commodities bubble bursting in recent months, gold declined into the upper $600 range. Spot gold closed yesterday at $739.90, down $2.60.
Bill Murphy, chairman of the Gold Anti-Trust Action Committee, says the price of spot gold is even more perplexing given the demand for coins and the fact that central banks in Europe have stopped selling gold into the open market.
"Gold should be moving up," Murphy says. "How could there be such a dichotomy between the historic high premium for coins all over the world and the low Comex price?"
His answer? "Today the public is buying gold like crazy, but the US government and the banks that hold bullion are intentionally keeping the price down."
Ah, but that column will have to wait for another day.
I've written many times about the chronic shortage of physical silver. This has now moved into the gold market.
Gold is Going a Lot Higher The shortages in the retail bullion market continue to intensify and are spreading to a variety of bullion products. The FT and Reuters report overnight that the US Mint has now "temporarily" suspended the sale of the popular Gold Buffalo coins (1 ozt) due to them not being able to keep up with unprecedented demand. The FT reports that "the shortage of gold coins is the latest sign of investors seeking a safe haven into bullion amid Wall Street woes. Gold prices this week surged above $900 an ounce, up about 20 per cent from its level before the collapse of Lehman Brothers."Retail demand is extremely robust as evidenced in shortages of gold and silver coins and bars internationally, but particularly in the US, India and in Asia. The US and Canadian government mints have not been able to keep up with demand for their legal tender bullion coins and the world's largest gold refinery, Rand Refinery, in South Africa was cleared out of their entire inventory of Krugerrands in one order by an anonymous Swiss buyer - http://rs6.net/tn.jsp?e=001uZ2pCvZBz3eEE9Uv_vsozCRtEgr3E6V44a628SObLs_Ltuzd8gFlSvsXGfY7TjXTflM9mI7ApBo7CB-PcMFYpcWTQByOEewadhx-ATx4rNgsyCowEALyD3ikQCRfLCs9yQtVA9AxnyXmmu6XX0jmg_u90uscCT7Tx7JHJm8UxEcNeKQohWK6SLBAcwZ9x1RBuXrtyIfD02_tWgwaZLmcyvpogYO4Ucur.Premiums on nearly all gold and silver bullion products continue to rise significantly. Some premiums are actually increasing on a daily basis. Gold and Silver Investments are now paying a wholesale premium of 4.5% over spot for Krugerrands in volume, up from 3.2% two weeks ago and up from near spot or melt value a year ago.Some of the largest wholesalers in the US have no stock left of silver bullion coins (Eagles and Maples) and silver bullion bars (1, 10 and 100 ozt) and are running low on 90% and 40% silver bags ($1000 face value worth of the actual silver coins used as currency in the US pre 1965). Increasingly there are delivery delays on a swathe of bullion products including on older European coins like British sovereigns. Some wholesalers are not just talking about delays of a few weeks but delivery delays into 2009 on certain products. These shortages are leading to premiums going up sharply on all bullion products . Some large wholesale bullion dealers have assigned and appointed a dedicated person to monitor pricing and raise premiums as required in accordance with lack of supply and rising demand.The confluence of supply and demand, macroeconomic, inflation and systemic factors is leading to extremely bullish conditions for the gold market - probably even more bullish than in the 1970s when gold rose some 3,000% from $35 to over $850 in just 9 years.
This weeks featured interview covers a broad range of topics from precious metal history, the root causes of the current financial mess & some amazing projections for the long term price of silver.
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Less than you think! In the world there are currently somewhere between 120,000 and 140,000 tonnes of gold 'above ground'. To visualise this imagine a single solid gold cube with edges of about 19 metres (about three metres short of the length of a tennis court). That's all that has ever been produced. Divided amongst the population of the world there are about 23 grams per person, about 1.2 cubic centimetres each. This equates to about $250 - $350 worth per person on Earth, depending on the current price. The value of that short tennis court sized cube is about $3.6 trillion. This compares to the US government's sovereign debt of $11 trillion, which until 1971 was part-backed by gold. The US Gold Reserve is just over 8,000 tonnes - which is about 6% of the total gold ever mined. It is worth about $200 billion, or 1.8% of the US national debt. $3.6 trillion is about one fifteenth of the paper based international bond markets, which themselves, at about $55 trillion, are about two thirds composed of western government sovereign debt almost all of which has appeared, co-incidentally, since 1971 and the declared supremacy of paper money, which was what allowed governments to borrow without caution. The total gold content of the world would pay - at current values - about 7% of the international bond market's sovereign debt. But of course 75% of the world's gold is not available to governments - being held privately as jewellery, bullion and coin. In fact only about 30,000 tonnes, about 1% of the world's sovereign debt is what is held in central bank gold reserves. Meanwhile the entire gold stock of the world - including the privately held bulk - is much less than one half of one percent of the underwritten risk in the global financial derivatives markets. The world has placed absolute trust in paper currency denominated assets. Investors have shunned gold for about twenty years while the notional value of paper based financial assets has exploded. About 30,000 tonnes of the world's gold [20-25% of above ground inventory] is held in central bank vaults. Major Central Bank Reserves (2000) Nations & institutions Reserves (Tonnes) USA 8139 Germany 3469 IMF 3217 France 3025 Switzerland 2590 Italy 2452 The totals for other central banks tail off rapidly after these main holders. Most only hold a few hundred tonnes, and together they make up a bit over 30,000 tonnes in all. The rest is held by individuals in the form of gold jewellery [approx 70,000 - 80,000 tonnes], coin and privately held bullion [combined at 20,000 tonnes]. 90% of the gold above ground has been mined since the start of the California gold rush in 1848. Modern power machinery and chemicals have steadily lowered the price at which gold can be extracted. The average production cost of the world's biggest producer - South Africa - is about $238 per troy ounce. 1997 industry estimates by the Federal Reserve Board suggested an average production cost worldwide of $300 per ounce. Where it is known about with reasonable confidence, and can be extracted economically, un-mined gold appears on the books of mining companies as 'reserves'. There remains as reserves about 40% of the total of gold above ground - i.e about 50,000 tonnes. South Africa has 50% of the world's known stock of un-mined gold. Gold is difficult to find in commercial quantities. It also takes time, typically 5 years, and plenty of money to bring mines into production. In this sense the supply side of the gold equation is relatively constant. One of the features of this is that boom times encourage investment which takes a considerable time to work through to production and - eventually - to worked out mines. After a boom, when investment decisions may be made on over-inflated expectations of ultimately achievable prices, there is a tendency to subsequent overproduction and poor prices for a considerable period. The gold price boom of 1979/80 resulted in steadily increasing production all over the world from a stable base of 1200 tonnes annually to a peak of above 2600 tonnes in 1999. All major producing countries except South Africa substantially increased production in this period. Production then levelled out and started to dip slightly, as mines were exhausted and poorer mines shut. Also the uninspiring gold market encouraged a decrease in exploration which now means there are a lower number of new mines coming into production than is expected to be required by the market. Nonetheless for the time being gold is still being mined and refined at the rate of almost 2,600 tonnes per year. Thus the world supply of above ground gold is increasing - or inflating - at just over 2% annually. At current rates the gold supply is growing the under-sized tennis court cube at about 12 centimetres a year. It will reach a full tennis court sized cube in about 20 years time. The following table compares kilogram quantities of gold with monetary values, spatial volumes, and meaningful human measurements, to get a feel for the numbers. Kilograms Value @ 780$ / Oz Litres How much 0.008 $200 0.00041 A British sovereign coin 0.031 $780 0.00161 US Eagle / Canadian Maple coin 0.100 $2,508 0.00518 0.500 $12,538 0.02591 1 $25,078 0.0518 1 kilo - a golf ball sized sphere 2 $50,156 0.1036 3 $75,232 0.1554 4 $100,308 0.2073 5 $125,386 0.2591 6 $150,462 0.311 A can of 'Coke' 7 $175,540 0.363 8 $200,618 0.415 9 $225,684 0.466 10 $250,772 0.518 12 $312,000 0.645 A standard 400 oz bullion bar 20 $501,444 1.04 A litre bottle of water 50 $1,357,845 2.59 100 $2,507,716 5 A good sized deposit box 1,000 $25,077,160 52 10,000 $250,771,802 518 Half a cubic metre - fits in a corner of a small bank vault. 100,000 $2,507,166,025 5,181 1,000,000 $25,771,160,000 51,813 A small living room - and more than twice Britain's gold reserve. 8,139,000 $204,102,504,000 421,710 The US gold reserve fits into a town house. Fort Knox is mostly empty space! 30,000,000 $752,320,190,000 1,554,404 The world's total financial reserve of gold (central banks + significant global financial institutions) 100,000,000 $2,507,166,048,000 5,181,347 The approximate total of all privately held jewellery, bullion and coin 140,000,000 $3,501,802,468,000 7,253,886 All the gold in the world - A block with edges 3 metres short of a standard sized tennis court. $11,000,000,000,000 The current US sovereign debt (which excludes future pension and health obligations, none of which have been reserved against in the public accounts)
This podcast is a must listen for any bullion investor. It highlights extraordinary demand and puzzling discrepancy between physical and paper bullion.
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One of the most common questions we get at Bullionmark is should I buy 1000oz bars or 1oz coins? Logic suggests you should buy maximum number of ounces as close to spot as possible. However in most cases this approach does not maximise your returns.
When investing in silver you must consider that you are warehousing silver today for sale at a higher price sometime in the future. So deciding the target market for the future sale has a pretty important influence in your purchasing decisions today right?
If an investment mania in silver occurs it will be the average Joe who will bid up the price for your warehoused stocks. Average Joe is going to pay the biggest premium for bullion coins because it is recognisable, real money, transferrable, trustworthy. Most of those qualities do not apply to large bars. You are an early entrant into this investment opportunity, just be smart about your choices today and you will do well. This is a business not just a fun hobby, so think clearly about your exit plans. Think about who will buy your silver in future and plan your mix accordingly.
As an example right 1oz silver coins are selling at over 100% premium to spot up from 50% 6 months ago and 25% in 2007. It is not your buying price thats critical its demand potential and selling price (margin) that counts. Coins have and will continue to provide the best margin potential and greatest demand. Alternatively if you buy a 1000oz bar today I pay $15.50 but only get $13 in resale a 16% decline versus spot. Why because the only demand is from a dealer who has to make his own margin at your expense. I know paying such high prices over spot is somewhat counterintuitive but owning the products that will have the greatest demand is the best route to profitability.
- Coins are portable for trading goods & services and resale to joe sixpack at some date in the future
- Mid sized bars are a good convenient store of value easily go in safety deposit boxes or safes. Are reasonably easy to trade with Joe sixpack if branded by recognisable mint.
- 1000oz bars are for your families store of wealth & security if you can securely store them and transport when necessary. Strategically safe and accessible storage is critical, but very expensive and complex. Due to a limited target maket they are difficult to offload and likely to be the worst retun on investment
Whilst I support the quest to accumulate as many ounces as you can afford, make sure they are profitable ounces.
Some important things you should consider as silver bullion investors.
· Silver in bullion form is a very safe investment – it is no one elses liability
· In your possession it is totally removed from the financial system & government
· On almost any inflation adjusted measure silver’s true value is well in excess of $100 per oz but it may take years for the market to recognise this
· Silver is money at all times under all circumstances – paper money has and will come and go, silver has stood as money in all cultures for hundreds if not thousands of years
· Silver is a great inflation hedge – its buying power has stood the test of time. Silver still buys the same litres of oil as it did in 1950 or same bushels of wheat it did in 1600.
· Silver is a great catastrophe hedge – war, famine, disease, financial meltdown . Unlike financial assets silver excels in these environments.
· Silver ownership by the masses is at the lowest point of history
· It took 1000 ounces of silver to buy a house in Sydney in 1980, today it takes over 35,000
· Silver is dramatically undervalued versus gold – 500 years of ratio 15-1 (sometimes even parity) today it is 60-1
· Unlike gold most of the silver mined in history no longer exists
· Silver mining supply is diminishing rapidly due to rising mining costs and the fact that silver is most often a by product of other metals such as zinc or copper
· Silver has the most patents pending of any metal due to its unique medicinal, antibacterial and conductive properties
· Silver is the most conductive of all metals its use in nano technology is rising dramatically
· Silver is set to compete with platinum for use in catalytic converters for diesel engines
· Demand for physical silver is increasing rapidly at industrial and investment level
· Worldwide shortages of physical investment coins and bars is an early sign smart money is mobilising into silver
· Most wealthy families in history have used gold and silver as a store of wealth
Alternatively,
· Silver and Gold are political metals inciting war and deception throughout history
· Silver and gold are the governments and banking systems worst enemy because they hold governments to account on printing money, controlling interest rates, are difficult to tax and generate little commission because they are hoarded not traded.
· Silver is a volatile metal – price can fluctuate 30% in one trading day
· Paper silver (futures, ETF’s options, derivatives, shares etc) often trades at a significant discount to real market prices for physical
· Silver (&gold) are manipulated in price by central banks and governments
· Manipulation to restrict the price is actually a good thing because it creates value for those willing to buy on discount hold for the longer term
· Gold has been confiscated and deemed illegal to own by governments including US (1930 – 1971)
· Paper silver would be impacted by government price controls or ownership restrictions, but physical gold and silver would likely thrive in underground market (as happened in depression & WW2)
· Never give (sell) your bullion back to the government under any circumstances – bury and say its lost.
· Silver can be melted down if you require smaller denominations
Day to day rules,
· Don’t watch the daily price – this is a minimum 4 year investment I would recommend no selling until at least Mar 2012, but prefer 2018.
· In my view we could see a worldwide collapse of the financial system within 6 months, under these circumstances it is almost certain paper gold & silver will go down as leverage is unwound and people strive for cash. However, in this situation the physical market will thrive with the paper market catching up shortly after as bankers realise the only safe haven will be gold & silver. Great buying opportunity.
· Dont panic!!! Silver will never be worth nothing like paper money will be.
· If you can average down, buy more as the price declines
· Price is not important, its all about how many ounces you own!!!
· Even if silver goes to $5 per ounce petrol will be 50c per litre. Your buying power in todays dollars will be maintained. Dont see this happening though do you?????? Especially with peak oil with us.
· Remember in 1980 dollars 400z of silver is just under half a Sydney house!!!!!!
· Be patient................
- Educate others on the fascinating history, economics and politics of gold and silver.
- Build a case for precious metals as the best wealth preservation strategy in the coming global hyperinfationary depression.
- Alert others to key issues supressed or ignored by the mainstream press
Whilst this chart is a few years out of date it clearly indicates in the very long run how undervalued silver is in absolute terms and relative to gold. Click on the chart for a larger view.
The historical high for silver was set 531 years ago in 1477, topping at (using the purchasing power of 1998 dollars) a princely $806 an ounce. By comparison, the price of silver less than $15 an ounce today, and was only about $5 an ounce in 1998, after having bottomed at under $4 an ounce in 1992.Now, fast-forward to today as our 2008 dollars, which have fallen 50% in purchasing power since 1998, means that the all-time high price of silver, set in 1477, now stands at $1,012 an ounce, measured in the buying power of 2008 dollars! Over a thousand dollars an ounce! For silver! In case you haven't noticed, we're unmistakably coming off the lows of a 530-year bear market in silver and, theoretically, entering a long bull market, which ought to be exciting to people who have a lot riding on silver gaining so much in price, or even just keep up with this kind of thing, like, for instance, Israel Friedman, writing at InvestmentRarities.com, who notes that there are 5 billion ounces of gold sitting around someplace in the world, but that there are only 2.5 billion ounces of silver, even though 5 times as much silver is mined every year than gold. Therefore, silver is being consumed at prodigious rates, which is why Mr. Friedman says, "Silver is needed to maintain and improve future standards of living. Gold is needed for luxury and emotional reasons. Silver is for the optimist, gold for the pessimist."In that optimistic vein, Mr. Friedman says, "I honestly believe that silver must eventually sell for five to ten times what the price of gold may be". Let’s hope he is right!
However, before you jump in and buy silver you need to be aware of some important positive and negative considerations;
On the positive side,
• Silver in bullion form is a very safe investment – it is no one elses liability
• In your possession it is totally removed from the financial system & government
• On almost any inflation adjusted measure silver’s true value is well in excess of $100 per oz but it may take years for the market to recognise this
• Silver is money at all times under all circumstances – paper money has and will come and go, silver has stood as money in all cultures for hundreds if not thousands of years
• Silver is a great inflation hedge – its buying power has stood the test of time. Silver still buys the same litres of oil as it did in 1950 or same bushels of wheat it did in 1600.
• Silver is a great catastrophe hedge – war, famine, disease, financial meltdown . Unlike financial assets silver excels in these environments.
• Silver ownership by the masses is at the lowest point of history
• It took 1000 ounces of silver to buy a house in Sydney in 1980, today it takes over 35,000
• Silver is dramatically undervalued versus gold – 500 years of ratio 15-1 (sometimes even parity) today it is 60-1
• Unlike gold most of the silver mined in history no longer exists
• Silver mining supply is diminishing rapidly due to rising mining costs and the fact that silver is most often a by product of other metals such as lead, zinc or copper
• Silver has the most patents pending of any metal due to its unique medicinal, antibacterial and conductive properties
• Silver is the most conductive of all metals its use in nano technology is rising dramatically
• Silver is set to compete with platinum for use in catalytic converters for diesel engines
• Demand for physical silver is increasing rapidly at industrial and investment level
• Worldwide shortages of physical investment coins and bars is an early sign smart money is mobilising into silver
• Most wealthy families in history have used gold and silver as a store of wealth
Alternatively some of the downside,
• Silver and Gold are political metals inciting war and deception throughout history
• Silver and gold are the governments and banking systems worst enemy because they hold governments to account on printing money, controlling interest rates, are difficult to tax and generate little commission because they are hoarded not traded.
• Silver is a volatile metal – price can fluctuate 30% in one trading day
• Paper silver (futures, ETF’s options, derivatives, shares etc) often trades at a significant discount to real market prices for physical.
-It is possible, some say even likely, we could see a default on paper silver and gold contracts, so be warned there are risks of owning bullion in this form.
• Silver (&gold) are manipulated in price by central banks and governments
• Manipulation to restrict the price is actually a good thing because it creates value for those willing to buy on discount hold for the longer term
• Gold has been confiscated and deemed illegal to own by governments including US (1930 – 1971)
• Paper silver would be impacted by government price controls or ownership restrictions, but physical gold and silver would likely thrive in underground market (as happened in depression & WW2)
• Never give (sell) your bullion back to the government under any circumstances – bury and say its lost.
• The low per ounce price of silver makes it extremely hard own in large quantity due to storage and transportation challenges.
Day to day rules,
• Don’t watch the daily price – this is a minimum 4 year investment I would recommend no selling until at least Mar 2012, but prefer 2018.
• In my view we could see major problems in the financial system within 6 months, under these circumstances it is almost certain paper gold & silver will go down as leverage is unwound and people strive for cash. However, in this situation the physical market will thrive with the paper market catching up shortly after as bankers realise the only safe haven will be gold & silver. Great buying opportunity.
• Dont panic!!! Silver will never be worth nothing like paper money will be. At a minimum it will maintain your current purchasing power.
• If you can average down, buy more as the price declines
• Price is not important, its all about how many ounces you own!!!
• Remember in 1980 dollars 800oz of silver would buy the median house in almost any city in the world.
• Be patient................
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