The odd thing about government currencies is that they start out strong and then end up being debased by the government. What happens is that a different metal is substituted for silver and gold with the implied value. If you were around in the 1970’s silver coinage disappeared in our country. There is a saying that “Bad money chases out good money.” In 1964 the US mint took silver out of our coins. It cost more to buy the silver than the coin was worth to produce. Then in 1982, if you collect pennies, you’ll notice that there are two different types of pennies, copper and copper clad. The price of copper had risen to where it was too expensive to mint copper pennies. The thing to observe here is that metals act like a barometer for the currency in circulation.
The present government can print all of the dollars they want to print, and the price of gold and silver will tend to reflect it, in their “rise in value.” It’s like being in a row boat and someone chops a hole in the bottom of it. The water is not rising, the boat is sinking. The apparent rise in the value of precious metals can be attributed to two things; the number of people wanting to buy it, and the supply available. That seems so obvious, but it really isn’t. The world population has doubled in the last 50 years. (Double click for a larger view)
There are twice as many people desiring precious metals. So the actual supply has been cut in half. Second, people have a lack of faith in paper money. Usually when a currency falters badly, owning gold is curbed or restricted. No government wants their currency dumped for precious metals. They will halt it immediately.
The world’s currencies are a mess. They kind of convert using gold and silver. If you do a bit of googling, you’ll find out that the world has about 40 billion ounces of silver and about 5.1 billion ounces of gold. So if we have 7 billion people in the world, there is enough silver for everyone, but not enough gold. Then if we bring in the precious metal Platinum, there are only 186 million ounces of it.
Let’s look at some historical ratios:
Silver trading to gold 16:1
Silver at $32 implies gold at $512
Gold at $1700 implies silver at $106
Silver trading to Platinum 50:1
Silver at $32 implies Platinum at $1600 and vice versa
Examine the total supply of precious metals:
Supply of silver to gold 8:1
If gold is fairly valued at $1700 then silver should be $212
If silver is fairly valued at $32 then gold should be $256
Supply of gold to Platinum 27:1
If gold is fairly valued at $1700 then platinum should be $45,900
If platinum is fairly valued at 1600 then that implies gold is only worth $59
Mull it over in your mind and about the only thing you can really agree on is that Platinum is way under priced. There is enough silver and gold in the world, where those buying and selling will determine the price and no one can really corner those markets. Probably three quarters of the world population doesn’t have $500 in savings so a one ounce gold purchase is out of the question--silver maybe. But we do have to realize that the doubling of the world population has probably doubled the demand for precious metals
At some point in time world governments are going to have to consider platinum as a medium of exchange in world markets. That’s not saying that they couldn’t miss the bus. The private sector will pick up on this even if they don’t. You can’t print dollars forever and not expect inflation. (Double click for a larger view)(Don't click if you are already depressed by what you see)
Another thing to realize is that silver has “become more valuable.” 100 oz. bars of silver are now worth $3,000. I was OK with a $300 dollar doorstop, now I feel like taking it to the bank for safe keeping. Its the same damn doorstop, but it's worth stealing now. I didn't do anything to it to make it worth more.
Platinum appears to be the biggest bang for the dollar. I bought gold when it was $300 and considered worthless as an investment. It’s still worthless as an investment, because it pays no interest. I can truthfully say the same thing for my savings account right now. Converting a portion of your gold holdings to platinum is not a bad deal right now, you get money back on the exchange. Platinum is cheaper than gold. It’s not an investment; it’s a bet that the government won’t stop printing dollars. And of course, there are only 186 million ounces of that precious shiny metal left (subtract what I finished buying yesterday).
Here is what the Platinum bars look like:
Or you can play the game the Congressional way.
Copyright 2012 by Jim Brubaker
29 comments:
This is a very informative article. Thank you. I posted something on the last thread but it was the end of the line and you moved on, so I'm reposting on this thread since it is relevant to the subject matter.
I guess I'm playing the devil's advocate here and it would be nice to hear everyone's feedback on it to help us all get oriented as closely as possible to reality. (Wish I had a crystal ball and I knew what was coming.)
I believe that gold and silver are a non-issue. We live in a fiat world. All central banks are in cahoots. And any emerging countries will have to follow the fiat model if they want any chance of growing via being involved in global trade.
I really wonder about gold bugs and their thinking.
The US government confiscated and controlled gold back in 1934 or whenever FDR did it. The same will happen again on a more stringent level. What is the point of owning gold or silver if you can't pay your income and property taxes with it, can't buy pure water with it, can't buy groceries with it, can't pay the doctor or dentist with it, can't pay your rent or mortgage with it, can't get your car repaired with it, can't buy gas and oil with it, etc? Wealth is only wealth if you can trade it for something else, right?
The whole international banking/central banking/government/taxing authorities must operate on fiat or paper money always (and are in the process of transferring it all over to electronic money for total efficiency so it, and we and all of our transactions, can be monitored and controlled). These guys are winning big time. What makes you think they are going to be deposed or turned around any time soon? And even if so, by whom?
It's fiat and then electronic digits at least until civilization collapses and a new one is begun (and we can't assume the new one would be based on learning from the previous errors of empires, governments and economies).
Face the fact that it is gonna be paper for a long time, because that is all there will be. Make a lot of it and convert it into water, food, land and income properties and stable businesses that have demand in any economy—because that is wealth. That is all there is that will get you through hard times.
In the UK, gold sovereigns have the advantage that, being coin of the realm, they are free of Value Added Tax and Capital Gains Tax.
Hi Dearieme
You're very right!
(Let's keep quite about that)
The Obamacare bill had a provision in it to issue 1099's for gold sales and I guess it's been dropped, it would have been too hard to enforce. So we know goverment minds are at work here.
Hi Anon
Fiat is a cheap Italian car. The world is playing with monopoly money. There is no government or bank conspiracy. Just a bunch of dumb sheep that accept having their savings taxed by inflation. That silver bar I paid $300 dollars for is worth $3000 now. The home I paid 50K for is now worth 150K. Real things can be converted to paper currency anytime.
If you can sell drugs freely in this country, no one is going to stop you from selling gold or silver.
The government can confiscate gold silver and guns true. Are you going to tell them what you have?
I don't remember anyone going to jail for not turning in their gold,
Where can you buy and sell platinum bars?
Hi Anon 8:02
Any coin dealer can order them or has them in stock. You want to shop around to see the premium that they charge over spot price. $24 for bars and $48 for coins is good. I have heard of dealers that charge $120 over spot-- I haven't run into one yet.
Or go long platinum in bullion and short gold through an ETF.
of course, when something goes up for a decade, it can also fall, as many investors of gold found out in the late 80's and 90's.
Hi Anon 5:26
A lot of people play with ETF's. I would be very careful. ETF's do not necessarily have to have the product backing them to issue them, a lot do, but it is not a legal requirement.
Bernie Madoff was in business for 35 years and everything worked ok right up until it didn't.
Take possession of your metals. That way you don't get taxed at 28% on the gains. No 1099 and you can pass it on to the kids outside of probate.
Keep your receipts. If you sell at a loss you can always claim it on your taxes.
anon 526 here...
going long platinum short gold was a way of removing the directional risk of precious metals and betting only on the gap between the price of the two metal.
in addition, you are holding the real platinum bars and just insuring yourself through a short gold etf. you don't want to make money from the short gold obviously, it's just an insurance policy in case precious metals take a licking for a decade as they have done in the past.
just a thought on how to make money on the price differential between gold and platinum, regardless of the direction PM prices move.
what do you know, California has a surplus. i though cali should have melted away financially by now...i guess not.
Hi Anon 5:26
I agree with what you suggest, it will work.
I'm not worried about losing money on gold and platinum.
I'm worried about what the government printing presses can do to my savings in the bank.
I bought my gold in the 1980's and now I have converted half of it to platinum and it didn't cost a dime.
As for California, CalPER's is going to want 40 billion from Kalifornia to make their pension plan whole. So Governor Moonbeam is stretching the truth a bit, they have already spent this years tax receipts last year. Not sure how that will turn out.
Ask yourself one question, do people go bankrupt slowly or is it all at once? It's kind of hard to sell State bonds if you tell it like it is.
Here is an opinion that makes sense to me that there will not be hyperinflation and stacking gold is not a solution.
http://armstrongeconomics.com/the-taxman-cometh/
The Weimar Republic and Zimbabwe did not have bond markets. The USA has the biggest one ever and the bond vigilantes will keep The Fed from printing out of control.
High inflation, stagflation and deflation all happening at different times and in different areas of the economy is what I think we will be dealing with, buy never hyper-inflation.
Cash/money will still be good for quite awhile and economic volatility and crises will continue to push people to fly to USD and treasuries, thus keeping the USD up and working as the reserve currency.
Hi Anon 8:33
Thank you for the link. I read it, and question a lot of it.
I don't see how the bond market can keep a country from hyper inflation. The bond market would be destroyed long before you hit hyperinflation.
We can pretty well figure out that Obama is going to print about 6 trillion in the next 4 years.
Taxes paid are a slice of product produced. Printed dollars are a claim to product produce and look no different than tax dollars which have a rightful claim to product produced.
What I was trying to point out at the current point in time, is that of the two, precious metals or currency, the better bet is precious metals. Dollars in the bank pay almost no interest.
The other thing to realize, you wouldn't loan your entire savings to a complete stranger for one percent interest a year. Most people are hoping that rates will rise back up to about 8 percent. The trouble is, at 8.5 percent interest, all of our tax dollars would go to just pay interest on the national debt.
In hyper inflation, you don't lose your possessions as Armstrong suggests, only your savings and or debts. You get to keep what you buried in the back yard.
Our currency has lost 90 percent of its buying power in the last 50 years. At the rate the government is spending it could lose another 90 percent in 10 years. I wouldn't quite label that hyper inflation, but I would definitely seek a better store of value for my earnings. Inflation is a government tax, not a fact of life.
Our currency has lost 90 percent of its buying power in the last 50 years.<<<<<<
Gee, I know MY buying power has been constantly going up each year since.
Some just don't understand and likely never will.
Benjamin Franklin advocated a paper currency. Oh yeah, he also founded the U. of Pennsylvania, which happens to have the oldest and arguably the finest of US business schools, Wharton. Heck, we probably would have lost the Revolutionary War without a paper currency.
BTW, Stocks of great companies with good balance sheets and have a long history of paying good dividends and raising them each year, with 55 years of experience, I see as fairly valued by ALL financial measurements. Gold, Silver, OK as an insurance policy on the currency, but just an insurance policy. Platinum, might be a good speculation, but I'm just not a speculator.
BTW, just a few facts to consider for precious metal bugs....
The newly nominated Treasury Secretary, under Clinton, was budget director when the US for three years had a budget SURPLUS and left the US on track to paying off the national debt in about 10 years.
And, the US budget deficit, during the last 3 years, is shrinking at the fastest pace since WWII, now $200B smaller than when the current president became president.
Hi Joseph
In 1964 gas for my car was 25 cents a gallon. My dad earned 5K a year and my mom didn't have to work. The average home cost 20K, a car was $3,000 and our coins were minted out of silver.
Today gas is almost 4 dollars a gallon, the average home is about 175K and a new car runs about 25K. My wife and I both work just to maintain a standard of living that my parents enjoyed with only one person working.
I question how your perceived buying power has increased every year.
IMHO, our standard of living has gone to hell in the last 50 years.
IMHO, our standard of living has gone to hell in the last 50 years.<<<<<
The Times They are a Changin'----
Some can't handle change, others prosper.
There were also things called computers and few knew about them back then when they cost millions of dollars. Now, they are a tiny fraction of the price and are orders of magnitude more powerful.
What good is that? They provide information and information is power....the little guy has never before in history had as much power at his/her disposal.
"Use it or lose it" is a saying worth noting.
Back in the 50's, some were saving baseball cards and collecting silver coins. During the 80's, many also bought gold around $300/oz, some did it by selling some of those baseball cards, which cost pennies each, for thousands of dollars and using the money to buy the gold.
Times change and I have found when they do, also come along new opportunities.....so much so, I welcome such changes.
When there was the recent housing bubble, it allowed people to exit, taking advantage of the bubble. While recently, because of new things called short sales and housing, even good homes in good locations, being much cheaper than before the crash, one could take advantage of such changes. Oh yeah, with short sales, there was, (I think just expired) a tax provision where money "lost" in a short sale is not taxable like in previous times. Oh, and one could have used some money made in the recent bull market in stocks, also made from great tax subsidies on dividends and cap gains to fund a recent housing purchase.
No super intelligence, just going with the flow of things.
Another thought, back in the early 1980's, when interest rates were sky high, one could have bought a 30-year Treasury bond paying about 15%.....oh, with most state gov'ts subsidizing them by not charging state income taxes on the interest....also favorable fed cap gain taxes on profits. Also, CDs were offering similar rates. Now interest rates are low, so other opportunities appear.
Hi Joseph
I could delete what you just wrote, it doesn't address any the the claims you raise that I rebutted. But I didn't.
What is your point? Are we better off than we were in 1964?
Don't you find it amazing that there isn't a government on this planet that has a logical approach to finance, business or the its country's economy? That there is not one government that operates on sound fiscal policy, has reserves, a surplus of cash, and spends less than it makes (from taxes or whatever)?
There is no model to aspire to.
History just continues to repeat itself, or rhyme. All of these empires, dynasties and countries on Earth that have amassed such great power, wealth and influence have all gone by the boards: Babylonia, Egypt, Chaldea, Persia, Rome, Portugal, Ottoman, Holland, Spain and England, to name a few.
Do you think Japan, Europe, the USA or China will NOT have the same fate as their predecessors? Current facts and events seem to point to the reality that they will.
Some empires faded due to war, conquest, pestilence, weather changes, etc. Yet, many faded due to the mishandling of finance within the government and poor oversight and/or proper support of their economies. And over-reaching and meddling in the private affairs of its citizens (aggressive taxation, regulation, etc.).
Man never seems to learn his lesson, does he? These civilizations have just faded to dust and blown away, and then new ones appear to follow the same cycle of action.
Some start out with excellent tenets. Like the USA: small government, Bill of Rights, Constitution, no income tax, support of a free market and entrepreneurship, property rights, rule of law, etc. Yet, somehow they get corrupted or altered and go by the wayside.
It is not that those in the past, or we in the present, didn't or don't have the basic knowledge or technologies to accomplish a strong and logical infrastructure that fosters creation, growth and longevity. We haven't lacked in the sciences or industry. I think we've been weak in the humanities to some degree in that science and technology have moved forward in quantum leaps, but the human studies have mostly stood still, as if frozen in time.
I believe that the human mind, human behaviour and the human spirit are the areas that are least understood and form the common denominator behind the fall of most all of our past attempts at civlization. I think the answers lay in these areas... not in the areas of political science, quantum physics, math, medicine, economics, etc.
Note: I didn't include psychology, psychoanalysis or psychiatry above, as none of them are sciences (per definition) and neither have made any true inroads towards the goal of man understanding himself. They were all quickly converted into government control mechanisms anyway.
Man has demonstrated that he is capable of cooperation, creativity, production, prosperity, peace, etc. yet there is a virus or series of viruses that tend to break these virtues down over time on a micro level, which then does everyone in on the macro level.
However imbalanced, Man is on a slow but positive trajectory of evolution and progress. He's been going through governments and empires like a persistent inventor (eg. Edison and his light bulb) in an attempt to get it right. He's had his dark moments and his bright ones.
Looks like we are closing the book on a bright period and ending off with another dark period.
I think we all know what is going to become of the USA and the West (and most of the rest of this planet, since we are all globally linked by communication and technology now). The final death rattle probably won't occur in our lifetimes, or maybe even our children's lifetimes (who knows about that).
The most important points are to somehow be prepared for whatever comes, as a few more of our empires come to their end (i.e., how do we preserve our wealth? have access to clean water and food and shelter? maintain or create quality in our lives?, etc.) and most importantly to be building a new civilization now, based on all of the positivity and knowledge of our past, so we have something to replace the old and dying one.
I could delete what you just wrote, it doesn't address any the the claims you raise that I rebutted. But I didn't.
What is your point? Are we better off than we were in 1964?<<<<<
"We?" I'm better off and most people are, world-wide, than in 1964.
It does address your claims! Many things are cheaper (so, some present opportunities for the future), computers (much cheaper now and more powerful and provide info (knowledge) like never before).
So many GREAT opportunities - OK, just to add another, kind of important - life expectancy and other beneficial medical/health matters increased significantly, so costs higher, but the opportunity to live longer and healthier.
I could add so many more opportunities created during and since 1964, but I won't, just to say "why can't you see them yourself?" Really, I'd like to know.
BTW, I really don't mind if you delete anything I write - I do learn from your deletions, plus really, I don't want to anger you, just love debating things. This IS a remarkable time in history - financially and because economics is all about people, remarkable about people - and I do love learning about people.
Oppenheim:
This article and statistics refutes your comment about life expectency.
http://www.zerohedge.com/contributed/2013-01-12/deaths-all-causes-short-not-necessarily-happy-life-americans
That you could even argue that the purchasing power of the USD hasn't diminished is incredulous.
You live in your own reality or your idea of our general reality is quite warped.
Do we have to continue to put up with your idiotic posts because "you love to debate things or love to learn about people"?
Jim: Oppenheim says he doesn't mind if you delete his posts so please do us all a favor and delete them so we don't have to read his nonsense any longer?
Hi Anon 2:39
I hear you.
Since I started this blog, I think I've only deleted about 15 comments.
Comments that are personal attacks or laced with profanity are usually what I will delete.
I'm sure Joseph gets some satisfaction of seeing his thoughts in print and lets face it, of the people who read this strip, very few post a comment.
I'm not here to change peoples thinking, only to connect the dots. If you already have them connected like Joseph, I'm not going to change your mind.
I'm sure your comments will affect Josephs future posts to some degree. All of us are diamonds in the rough, and criticism is the polish that will make us shine.
Your comments were well appreciated. Thank you.
Never bother about the recent statistics for the US life expectancy. The untold truth is, that the Hispanic and black population increases faster than the other races in USA, and such increase brings down the mean life expectancy for all US races combined.
i have said this a million times,
when you are a hammer, everything looks like a nail.
when your thesis is the great depression of 2006, you are blinded by it and can't acknowledge points that go against it.
Jim, If we don't enter a depression in the next 3 years, heck, 5 years, will you admit your thinking was flawed???? or will you say, the depression is coming...well, duh, eventually pigs may fly, but will we be alive to see it.
all of you Jim lovers, it's not jim you are standing up for, it's that you have the same narrow views that you cannot intelligently change when the FACTS prove that your views are flawed.
economy is getting better, opportunities are numerous, but many are married to thier tired and old ideas.
calculated risk called the housing bust way before jim but because he is an intelligent man that can see different view points, he is noe positive on housing and the economy. that's what a real econ bog is.
This blog is a cult!!!! believe in our thesis or "i'll delete your post" OR "don't wear out your welcome", jeeeeezzzzz
how many more options does a car today have compared to a car from 1964?
how about gas mileage? how about safety, how about reliability?
simple minded people can't see that you cannot compare a 3k car from the 1960's to a 25k car today, the problem is more complex than that. that is what Oppenheimer is trying to say.
In the 1950's, 15% of income was spent on clothing, now 3% of income is spent on clothing, so making things with cheaper labor in china hasn't increased our buying power?
those of you in this cult, read a current econ book or two, not only the econ books from the 1930's. there has been a lot of progress made since then.
are some of you sending messages using pigeons still? how about the pony express?
technology hasn't improved your standard of living? maybe you should get electricity hooked up to your house and see the wonder, even the Amish are using it these days.
Hi Anon 6:02, 6:10
Hate to break the news to you, we have been in the Great depression for about 3 years now.
The major premise of this blog which I learned while studying the Great Depression of the 1930's was that no one at the time realized they were in a great depression until they had been in it for 3 to 5 years.
I'm a currently licensed real estate agent that stopped selling housing in 2002 because I couldn't look someone straight in the eye and tell them that it was a good time to buy a house.
I probably lack 8 credit hours for a dual degree in Economics. I might point out to you that economics is not a science, it is a method used to explain what went wrong and why.
My views are not narrow, far from it. Most people are too scared to open their mouths in fear of being wrong. My views are controversial and not always right. Everything I have written is still out there as it was first published.
I have deleted about 16 posts as of today over the span of this blog. 10 of them were from just one person. Most of the deletions were off topic or personal attacks on me.
I don't believe that you have more than a high school education, the idea that our standard of living has dropped drastically in two generations escapes you. The concept that one person worked and supported a wife and two kids when I grew up, is a hell of a lot more different than both parents working to make ends meet.
The first great depression had the advent of radio, indoor plumbing, the family car, radio, electric lights,mechanized farming, and their standard of living went up.
From the early 60's to now, the government has been printing money and our standard of living has been dropping. We have a 17 trillion dollar national debt which is coincidentally the same amount of all of our savings in this country. It's not sitting in a bank anymore, it has been spent and the government is paying us 1% interest.
And since you like to perfume the air with your ridiculous nonsense that has an air of being a "know it all," send me your email so I can send you a bale of hay and some oats for your lunch. I'd throw in a book or two, but you'd probably eat them.
The only reason you guys aren't "experiencing" the depression is because this economy is being propped up with monetary and fiscal policy unheard of in the history of this country or the world for that matter. Obtaining new credit cards to make payments on the earlier ones that you've maxed out is not a solutions, is not an improving economy, and will bring upon you a total destruction eventually. Jim is being simple when he offers the example of there only having to be one income earner per household back in the 50s (he felt that was all that was needed to make his point but he didn't realize how blockheaded some of you blockheads really are. I'll elaborate-- dad could work a job and come home for dinner and help the kids with theire homework and take them fishing or camping or to the zoo on the weekend and give them quality time and parental guidance -- then he had to start working later and evenings, and the kids were asleep when he got home--then he had to work weekends too (if he didn't there was someone who the employer would replace him with)-- then the most degrading thing he had to ask his wife to go to work, and the kids have to go to daycare, no more help with the homework, no more field trips not much interaction with the parents (and mom and dad are always either working or too tired to do anything)--then dad needs to take a second job in the hope of making more money--now they need to get into an MLM in the hope of getting some extra income to help with the bills and debts--now they need to buy a newer bigger house in a new neighborhood that will "appreciate" so they can use the equity to get ahead and pay the bills and debts off--now they need to get into the stock market and take risks for the same purpose--you can't make enough money to live with a job the wages aren't going up and everything costs more-- a candy bar was 5 cents when I was a kid and now it's $1.50! Gas was 25 cents per gallon when I used to fill up the tank of my first car and now it is $5 per gallon?!
The government has to borrow money to pay the interest on the debt. California is going bankrupt. The Fed is printing money to fuel the warfare/welfare policies, pushing this country in to further debt.
How do you think this can end up well?
Get the picture blockheads?
That last post was mine. I'm AIM (I forgot to post my name and came on as anon). I forgot to mention...
Look at the increase of juvenile delinquency, crime and drug use, and all of these kids committing mass murder. A direct result of lack of parenting. The Fed and the government are responsible for this (it's acually the big greedy bankers behind them who are trying to own and control everything). Look at the unemployment rate for the youth right now, a falling economy, more overseas export of jobs, automtation and robotics will only make this worse. Look at the trillion dollar number for student debt. These kids are all going into debt and won't have high paying jobs to enable them pay them off. Social security originally had close to 15 workers per each retiree... now there is less than 3 workers for each retiree and it will soon be 2 workers.
Obama and Congress have almost doubled the national debt since they took office!
You can't pay 17 trillion dollars back. Do you have any idea how much money that is? Look at the GDP (even though is a false stat by the government and isn't really a gauge of productivity or wealth). Look at tax revenues... they are no where near helping the government to pay its way. Look at our demographics, we are an aging society.
What is with you guys. Are you really that gullible to be blinded and cajoled by the mainstream media?
There is more gold, gun and ammo buying right now then any time in US history.
The NDAA was just passed, the Patriot Act was passed and Congress didn't even know what was in it (wait until you find out), there are drones being used for surveillance and eventually enforcement in our country by our military and law enforcement groups.
Obama is trashing our Constitution and Bill of Rights more and more every day.
Our GDP and our prospects can't even compare to the amount of debt and unfunded obligations that we have.
The propping up and pretending and extending that the government is doing can only last so long.
Open your eyes and look at what is happening!!!!
Hi AIM
Thank you for the backup.
Another key point that was left out is that there was no such thing as food stamps in the Great Depression. There were soup lines and lots of starving people.
There are now almost 50M Americans on foodstamps as I write this!
Foodstamps are the modern soup line. Can you get the idea of 50M people on soup lines.
There are people with jobs who also receive foodstamps. They can't even afford to buy their food even with a job!
"There is no depression. The economy is recovering."
I feel sorry for you out of touch, brainwashed, sheeple that actually believe that. Boy are you going to be shocked as hell over the next decade.
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