Skip to comments.The Truth About Buying Gold And Silver
Posted on 04/12/2014 10:48:13 PM PDT by Petro
Friday, April 11, 2014
The Truth About Buying Gold And Silver Every day, the radio airways and cable news broadcasts are filled with advertising from "gold bug" companies who are trying to convince you to buy both gold and silver. There are dozens of them: Goldline, Lear Capital, Rosland, Merit, and so on. All of whom claim that, by holding these precious metals, you are being protected against inflation as a result of massive government spending and the devaluation of the dollar, or, protected against another recession, depression, or stock market crash.
The problem is that all of those claims are bogus. The proof of that is in the chart below, which shows the combined price of gold and silver which has been adjusted for inflation in today's dollars: Click on Chart to Zoom As you can see, these two metals have a history of spiking in price, but once that price hits some "tipping point", there is a long and painful slide downwards. This happened in 1980 when gold hit a high of $850 an ounce or nearly $2,000 when adjusted backwards in today's dollars. By 2001, just before the next spike upwards, gold hit a 20-year low at $250 (unadjusted); or about $325 (adjusted). During that 20-year slide, holders were paid no dividends; probably weren't savvy enough to hedge against their losses; and, most likely got stuck with relatively high storage and insurance costs to protect their investment. Worse, if you did buy gold in 1980 at its high, you are still underwater (see graph) when adjusted for inflation. Just the opposite of what buying gold was supposed to do.
What none of the gold bugs are willing to tell you is that, in 2011, gold and silver both hit respective nominal (unadjusted) highs of $1,904 and $49.50 an ounce. Today, gold is trading around $1,300 or down $600 from 2011. Silver is even worse off with today's price near $20; and, that's a loss of more than 60% since its 2011 high. All indications are that these prices will continue to slide; just as they had done in the 20-year period after the 1980 spike.
I guess what really bothers me about the gold bug ads is that they make all kinds of unproven claims and predictions. For example, Lear Capital is running a current ad that features Eric Sprott; a billionaire Canadian hedge fund manager. In that ad, Lear offers any callers a report by Sprott that predicts that gold will exceed $2000 an ounce sometime this year and that silver will be at least $50 an ounce by the end of the year. Well, that's the same claim Sprott has made every year since 2011. In fact, in 2011 he predicted $2155 (Canadian) for gold and $64 for silver before the beginning of 2012. While close in 2011, none of Sprott's predictions since, have been anywhere near being true. My guess is Sprott is holding a lot of gold at a loss, and by hyping its price potential he can cover those losses and find an escape hatch. While Sprott's claims seem outrageous, there are a bunch of people predicting that gold will hit $5000. Just Google it and you won't believe how many, and for how long they've been making that prediction.
Lastly, these metals have big liquidity problems. There's a lot of dealers out there who will sell you this stuff. Try selling it back to them; especially when the prices are falling. Try finding buyers on your own. In either case, you will have the cost of shipping to the buyer, and the additional cost of hefty shipping insurance.
Chart Perspective Gold: 100 Year Historical Prices: http://www.gcasset.com/chart-perspective-gold-100-year-historical-prices/
What Happened to the Gold Price in 1980?: http://buying-gold.goldprice.org/2008/01/what-happened-to-gold-price-in-1980.html
Sprott On Gold In 2012: http://katchum.blogspot.com/2012/05/eric-sprott-on-cnbc.html
Sprott On Gold In 2011: http://www.jaggards.com.au/news/medusa/article_75.asp
Posted by George B at 6:54 AM Labels: gold, gold bug, Goldline, investment, Lear, Merit, prices, Rosland, silver
I buy gold for no other reasons than
1. “if” there is hyperinflation
2. “if” there is a collapse of society and money is no good.
either one may not happen, and if it does the gold may still not save me, but, I don’t use the rent money to buy, and on paper I haven’t taken a loss.
If society collapses, it won’t be gold or silver that has value - it will be food, water, guns and ammo that will be the new money.
I never hear these naysayers opine that you were a fool to have bought silver when it was $3.00 or gold when it was $290.00, but if you search the publications during that time, I'm sure you could have found an equal number of naysayers writing that only fools would buy at these inflated prices. Warren Buffett bought a bunch of silver at $5.00 and was so hounded by the pundits that he sold at $7.00 a few years later.
Beware the all knowing pundits.
I suspect at that point, as you say, lead (with a powder charge behind it) will be more valuable than gold.
My stashed and cached in various places, physically held, (no paper), P. Metals will not be used for barter or trade, (After some years of preparing up here, I’m as well prepped as I’m gonna get with the major essentials and tangibles), or anything else. My PM’s will be used only as a conversion to, a trade in for, a swap out to, an exchange for, or what have you, to the new ‘currency’ put in place after the collapse. I might be playin’ it wrong, who knows what is gonna happen for sure, but that is the plan I have been staging for. One thing is set in stone: I will never run or flee America because things are getting tough. I was born here and I’m goin’ out here.
Bizarre and intentionally misleading dollar-bug article.
Go down to your local shopping area/mall and count up all the “We BUY Gold” signs.
Then try to find one that says “We SELL Gold”.
For a while. When things settle down after a period of transition, and people return to producing surplus goods, some form of wealth transfer (currency/coin) will be needed. Gold and silver have been such throughout much of human history, and alternatives (tobacco, for instance) were used when the metals/coinage was in short supply.
The only times when gold and silver were not worth much were when there were extreme shortages of necessities, and even then most black markets would have a deal somewhere, albeit the gold or silver was worth relatively little.
What’s actually going to happen is that the Federal Reserve Note - that many people continue to call the ‘Dollar’ - is going to continue hemorrhaging buying power. Shadowstats estimate it at about 6 to 8% a year.
Since Nixon closed the Gold window the whole world has been using Fiat currencies: mere pieces of paper backed by Government force and increasingly unrealistic Government promises. Their buying power is bleeding away - just like the FRN.
Buy precious metals. Also: add to your stock of food, stores, tools, ammo. Make all the usual FReeper preparations.
But do not stay in paper money and paper promises.
Buy it just under $300 an ounce, sell it at just over $1,200 an ounce, kick yourself a bit for not waiting till it went to $1,800 an ounce but still smile. That’s what you should have known about buying gold.
As in, he buddy I'll trade you an ounce of gold for that can of beans. How about two ounces then?
Now how the heck do they know that?
The ads are so annoying. People have no jobs, no money and these annoying actors and their sponsors what peole to buy gold and silver.
What people want are jobs, money to pay bills, food on the table, affordable medical insurance not mind numbingly stupid commercials telling them to invest in gold and silver by some phony actor.
Unless events push society back to a literal stone age - a hunter-gatherer existence with no farming - then money will be valuable.
Why is money important? Because it allows for the "concidence of wants" without which trade is impossible.
Join me in a thought experiment.
Imagine that the dollar has finally collapsed and that we live in a Mad Max dystopian nightmare.
In the center of this brave new world you run a chicken farm (appropriately defended by traps, barbed wire and kick-ass FReepers with sniper rifles).
This month you have costs - you need to hire a guy to mend the generator and a midwife to help with your daughter's pregnancy. How are you going to pay them?
They have what you want - but do you have what they want?
Unless you have some money there is no "coincidence of wants".
The generator guy and the midwife have no use for a hundred chickens! They need to replace their working materials (bearings, WD 40, medical supplies, etc) and upkeep their cars by trading with people who live a hundred miles away.
But if you have money then you can trade with them.
Carrying on with the example of a chicken farm - it's market day. There are a hundred customers lined up at the gates of your compound who want to buy what you've got - but do they have what you want?
Fifty of them have wheelbarrows of devalued fiat currency and bad attitudes. You don't want their bundles of useless scrip.
Forty of them will offer some form of barter: alcohol, batteries, hunks of homemade cheese, their young, nubile bodies, etc.
You are faced with the time and expense of evaluating forty different barter offers, many of which you will have absolutely no use for.
And ten customers offer you money: Gold and Silver. These are your favorite customers: their real money fulfills the requirement for a coincidence of wants. You can take what they offer you, and use it to buy the services of the midwife, the engineer, etc.
In summary: trade relies on the coincidence of wants, which itself relies on money.
At the moment we can still use fiat currencies for trade, because fiat currency still (sort of) works like money. But we won't be doing that when we've passed into Zimbabwe or Wiemar republic mode.
Hope this was helpful.
Gold will only shine as a future investment if inflation starts to soar. Even then its price could be suppressed by soaring interest rates.
The dollar is immune from normal investment logic because it is the reserve currency of the world and Washington can get away with runaway spending forever it seems. Maybe not forever, but cash has been king for a long time.
I would buy only a small amount of gold or silver as insurance against a unlikely runaway inflation scenario. Your cash flow is more important. As the saying goes:” Sometimes the market can remain irrational much longer than you can remain solvent.
I like collecting gold and silver coins for numismatic purposes, especially fractional gold coins, as even if they lose value as collector items, they can still be used for barter with someone who may not have change for 1-oz of gold.
When the US confiscated the public’s gold, they did not confiscate collectible coins.
I used to give out stamped, silver bullion bars as Christmas presents to my employees, merely because they looked cool, they were tangible, they were heavy, they were valuable, they were investments that the employees might retain and great conversation pieces that most people didn’t/don’t go out and buy for themselves.
Are gold and silver the end all of asset protection? No. Just as .45 ACP is not the end-all of self-defense. You need a 12-gauge shotgun (with an assortment of bird shot, 00 and maybe even rifled slugs) and a nice long range rifle (I like a 308.)
I think having some gold and silver is as wise as having a bug-out bag and grub stashed away in safe-boxes in safe locations.
You don’t need enough gold and silver to fund a new country... just a little in case others got bit by the gold-bug and trade with it when nothing else is trading.
Crack and Xanax - start stocking up
I bought most of my gold at $295/tr oz and most of my silver at $15-$25/tr oz. I’m holding it as a SHTF hedge. It still seems like a good idea.
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