Is anybody still buying silver and gold?

Considering that numerous central banks around the world bought large amounts of gold at $1500+ I find it hard to see the price dropping below that. Gold is in the ballpark of a $300 billion market (yearly) where as silver is around a mere $30 billion (this is also in my mind evidence of price suppression considering how versatile and integral silver is for many industries). Either one, but especially silver could become very explosive if even a handful of billionaires decide to jump on board. To put that in perspective oil is more like a $3 trillion market. So that is a factor of 10 from silver to gold, and from gold to oil.

 

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I would point out that Currency trading dwarfs all other assets. Just saying that oil trading is not large compared to currency in the scheme of things. Compared to currency trades, PM is a literal drop in the bucket, but then again so are stocks.

I have always seen currency by far the largest, then bonds, then way down the list stocks. Its funny how much attention stocks get versus the size of the market. I do not recall seeing oil in that list of comparisons. I believe bonds are larger than oil trades, but am not certain since it was not in the reading I reviewed.

Chris

 

I agree with you on that Chris, and it leads into the point I was trying to make (or at least thinking about) that there is a lot more money out there than there are precious metals to be purchased by that money which means that if there were a rush into PM's we would see quite a significant squeeze. I was pointing out the size of the markets to show how very little it would take to dry up the silver supply.

 

Yes sir we agree. However, that is true of every single asset class. To make an assumption that one day everyone will want a certain asset is hopeful at best. I am not saying you are making that assumption, just cautioning this is a risky investment premise. It is pitched that way frequently, though, by pitchmen saying, "If everyone in the world bought just a tenth of an ounce of gold, gold would go up XX amount". While technically true, I simply do not see why most people on earth will all of the sudden get that desire when they have never had it in the past. I do, however, listen to the effect Asia is having on demand, since they historically HAVE shown a desire to own gold.

 

True, but I don't view gold and silver as just assets. They have always been money throughout history until partway through last century, and I do anticipate they will (and already seem to) be returning to that role. So the likelihood of this happening with gold and silver seems a much greater prospect to me than any other assets. This would be why people would get the desire for them, as they replace fiat currency. If that doesn't happen then I would expect them to be treated like any other asset, but I find it hard to see any other outcome based on the rapidly expanded monetary supply that is not backed by gold.

 

According to Wikipedia, (take it for what it's worth) 50% of the world gold consumption is in jewerly. How many people on this planet have some sort of gold jewerly including wedding rings, watches, etc. This would imply that gold ownership is very widespread and growing.

 

Hmm. It would be interesting to see an infographic that puts all of the investments into visual perspective. How big is the global real estate market compared to stocks : oil : artwork : angel / venture capital?


Just because the banks bought gold at $1500/oz, why do you think that puts a floor on things? There were a lot of people who bought homes for $300,000 that aren't even worth $200,000 now. Just because one person forms a mental price anchor doesn't mean anyone else will agree with them.

 

I'm not sure about the size on real estate, but I would imagine it's pretty large. If we take just 5 million houses at $200,000 that's a $trillion and there are way more than 5 million houses. The thing about central banks buying gold is that it's been a lot of different nations around the world. That's not to say it can't go below $1500, but if they thought it would they'd probably have waited for a better price. I figure they have more knowledge about that sort of thing than the average person does about the housing market.

I did misstate the size of the gold market at $300 billion, it's closer to half that.

 

I have to agree. If a bank buys at $1500 but sells at $1800, they've made 20% profit, and whatever downward movement that occurs after that won't affect them.

 

If a central bank buys gold at $1500 and sells at $1800, they now have $300 profit per unit. So the question is this. What does $300 mean to an institution that can create money out of thin air? It would be much easier for them to simply print $300 of their own currency and exchange it.

Hint: To a central bank, gold is not equivalent to a fiat currency.

 

As I can see, it is time to sell gold and buy silver while the price is right.

URLs deleted, vIolation of Forum rule 3B

 

If a central bank is small, and it needs to build up a reputation so that its fiat currency doesn't become devalued, it can take action like selling off a little gold to get "hard" currency and bolster the standing of its own currency. For the little guys, merely printing more currency is an invitation to have Zimbabwe- (or at least Argentina-)like problems.

 

For this purpose the small central bank does not need to sell the gold. Central bankers do gold swaps amongst themselves all the time. Optionally they can simply deposit the gold in one of the larger central bank depositories and use it as the basis for conversion of currency. The NY Federal Reserve holds over 7000 tons of gold that fits this category in it's basement in Manhatten. This isn't normally done at the $ market rate for gold. The central bankers have another undisclosed set of rules for operating betweent themselves. Remember the NY Fed lists it's own gold holdings at the rate of $42/ounce.

 

In one of Ron Paul's recent questioning sessions it was stated that the Fed has the gold certificates, and the US Treasury actually has the gold. Mike Maloney also states the Fed has the gold, so there seems to be a lack of consensus.

Here's the video - http://www.youtube.com/watch?v=-UdsQz-hwq8

 

I didn't look at the video. FDR took the physical gold obtained from the 1933 gold seisure, had Ft. Knox built, and this is where the gold went. He then sold this gold to the Federal Reserve which received gold certificates represented by the physical gold. The gold was used to balance out trade with other countries that redemmed their excess Federal Reserve $s. Nixon ended that in 1971 because the Ft. Knox supply was quickly running out. Supposidly the gold bars in Ft. Knox are rather unique because they are mostly coin gold (90%) instead of pure gold. There is supposed to also be a horde of gold coins from the time that were not melted down.

Whether this gold is there or not, I have no idea, but this is the official story of the US and Federal Reserve. At the time, they were issued, the certificates were valued at $35/ounce gold. It was repriced in the early 70s to $42 where it stands today. (you can see this yourself on the Federal Reserve balance sheet on their website) Of course I didn't get into this convoluted arrangement because it would have distracted from the topic. The reason it was handled this way is because it let FDR devalue the US dollar by 70% by the stroke of a pen.

 

The Fed also keeps some or perhaps all of its physical gold in the gold vaults beneath the Federal Reserve Bank of New York offices in lower Manhattan.

 

The Fed states that gold is being held for other countries. It is not their gold.

 

This is making my head spin. To quote Scott Alvarez, Fed lawyer in the video:

So the confiscated gold has been transferred to the Treasury, and the foreign gold is not actually owned by them, thus it is true that they own no gold. Yet to say that is a reason they cannot have possibly participated in gold swaps seems like a sleight of hand, since they are holding gold for other nations. Where's the line here? I'm also curious what their recourse is for redeeming those certificates.

 

See my post above. The gold assets the Federal Reserve holds are gold certificates from the US government that are covered by the gold in the US Treasury Depository in Ft. Knox. The Federal Reserve holds no physical gold that it actually owns. The gold that is in its basement in NY belongs to other countries including large economies such as that in Germany. As I stated in another topic, they perform gold swaps amongst themselves (other central banks) where the details are not disclosed.

The Federal Reserve has no need to redeem the gold certificates. It has no need since it can print all the money it wishes out of thin air. The reason it was setup this way was a FDR/Banker slight of hand. The Federal Reserve printed $20 dollar bills. The citizenry however mostly used $20 1 ounce gold coins (certificates) for commerce. This caused a problem for FDR who could not print money for his social programs as there was no gold to backup the convertible FRN. So FDR seized all the gold at $20/ounce. You turned in your $20 gold coin and got back a freshly printed $20 FRN. After all the gold was collected, FDR sold this gold to the Federal Reserve at $35/ounce.

Effectively this devalued the USD by 70%. Because it now took $35 to buy the same items that it once took $20 to buy it was a big reduction in the standard of living and many who understand this would say this was the primary reason of the hardships of the 30s. The devaluation gave FDR all the money he needed to start his massive government spending programs. They still had the problem with silver convertibility, but this would not manifest itself until decades later. So from 1933 on, American's standard of living was decreased by 70% due to this currency manipulation/debasement. It took this convoluted arrangement to seize wealth from the common American in order to pay for the excesses of the US Stock Market/Finance Industry of the 1920s.

Almost all of this disappeared into history due to deliberate obfuscation by the government that has lasted for decades. It would have stayed lost except that the Internet has made it available again for those who wish to look for it.

 

On second thought I should have given a better answer than this. In the context of 1933, FDR's presidential order to seize gold only applied to residents of the USA. He was powerless to do anything about international trade settlements, US obligations overseas, etc. In that case banks in other countries could still redeem their Federal Reserve and US dollars for gold. This is how the world worked then. So if a central bank wanted redeem their excess Federal Reserve notes, then it was an obligation of the Federal Reserve. They in turn would "sell" their certificates back to the USA which then handed over the equivalent gold that went to the foreign entity. This really wasn't an issue until after WWII when the world moved to the USD as the reserve currency and the USA stopped being a net exporter of goods. Nixon closed this window in 1971 so the Federal Reserve no longer redeems these certificates for this purpose.

The other theoretical purpose for those certificates would be in the very unlikely event that congress decided to close the Federal Reserve and went back to issuing US currency. This would happen, for example, if the world went back to a gold settlement standard that existed prior to WWII. (now you know why countries are so keen to own gold) In that case, theoretically, the redemption rate would be at $42 to the price of gold in FRNs. So if this happened today, it would be ~$42/$1850. Or in other words, if you had a bank account with $100,000 in it, it would now have $2270. There would also be blood in the streets when this happened so that is why, at the moment, it's nothing more than a theoretical discussion. Of course, those holding the physical gold would be protected from such wealth destruction in such a scenario. (assuming you could keep it hidden during until the resulting madness settled down)