Friday, June 18, 2021

Precious Metals in The New Economy

I haven’t been writing much. I’m kind of burned out on how the economy is going. When I started this blog in 2006, I saw the depression coming.  It was hidden by the government and the news.  We did have a depression in 2008 and it more or less went into a stagnant economy. But in 2008 the banks almost collapsed.  Congress had to prop up the banks. Think about it, if the banks had failed, where would the government borrow from?  The banks didn’t fail and we kept on putting straws on the camel’s back (the national debt).

Economics is the study of the economy and how it responds to certain stimulus.  The trouble is, economic theory can’t predict the future; it can only explain what has already happened.  Economics is not a science. So here we are increasing the national debt with many people retiring and the Covid stimulus packages being paid out.  Something is wrong.  Millions of workers are being paid to not work.  This cannot continue.   People need to produce product, if they don’t, the product desired becomes scarce. 

This is where inflation comes in.  If the product is scarce and you want it, you have to pay more for it. The fact not even realized is that it cost 23 cents for a pack of cigarettes in 1962 and now a pack cost $8.00.  It’s been slow and progressive.

Lawmakers know what is happening, but it is drawn out over time.  Most people will never notice until they retire; their saving doesn’t have the buying power it had 40 years ago.  The real factor not realized, is that the dollar saved in 1965 has the purchasing power of 4 cents, in today’s world. Kind of mind boggling. What was saved in 1965 would pay the rent, now in 2021 it only buys groceries.

 An ounce of silver used to be a guide on the hourly wage, and an ounce of gold was a paycheck for the week.  It looks like that may still ring true. Bear in mind that precious metals are not rising in price, they are reflecting the drop in the value of the dollar.  As the water level rises in a lake, the boat will still float.

Right now, there are four areas of investment; Bonds, real estate, stocks, and precious metals. The bond market interest rates are so low, you have to ask the question, who would be dumb enough to put their cash into savings. Real estate and stocks seem to be the markets of choice right now.  The precious metals market is kind of an unknown.  With inflation at 10% and the cost of money at one percent, it costs literally nothing to hold precious metals.

If you examine the precious metals; silver, gold and platinum, you’ll notice that they fluctuate in price, unrelated to each other.  Gold is in the lead; Platinum is underpriced and silver is trending upward. Last week, I converted my silver to platinum. 50 pounds of silver converts into 10 ounces of platinum and doesn’t take up much space in a safety deposit box. Also converting Gold to platinum is rather attractive.

The thing you need to remember about precious metals, is that if this mess gets worse, you might have the cash to purchase precious metals but most suppliers may be out of product, and you won't know that until you go in to make a purchase. That has happened to me twice this year.  The premium to purchase has gone up considerably especially on silver.  I kind of choke on a premium of $3.50 per ounce for silver. The following 6 months could be an eye opener.  The precious metals market for delivery is in a very unknown condition. Is the physical metal there for purchase?  


dearieme said...

"an ounce of gold was a paycheck for the week"

I like the comparison that a Troy ounce of gold will buy you a very decent suit and two thousand years ago it would buy you a very decent toga. Mind you, which family could hang on to its ounce of gold for two thousand years? The royal house of Japan, maybe?

Our safety deposits locally seem all to have shut. Buying physical gold is (I'm guessing here) made difficult by anti-money laundering laws.

Anyway here's a link to the story of Samuel Pepys and his gold.

Jim in San Marcos said...

Hi dearieme

Thank you for the link. Sounds like the gentleman had too much money, a horrible situation to be in ;>)

I keep most of my precious metals in a bank safety deposit box. Of course if your banks don't offer that, you could hide in in your home. I always joke about burying gold in the back yard, but the ground here is so hard, that it takes about two hours just to did a hole to plant a rose bush.

If people don't know you have it, there is no reason to rob you. I did have a relative that buried his stash in the basement of his house and he had a stroke and couldn't remember where he hid it. I don't think they ever found it.

I worry with all of this global spending, that what happened to the German Weimar Republic in the 1920's could happen to us. People who had saved a lifetime lost it all to inflation and were penniless in their old age.

Retirement has no meaning if you are broke.

dearieme said...

Jim, I thought you might like the headline in this.