The Spot Price of Precious Metals Is Becoming Irrelevant

I like this PhD and his blog. http://www.peakprosperity.com/podcast/81653/spot-price-precious-metals-becoming-irrelevant

 

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When are youse guys gonna learn that PM's ain't an investment but rather a hedge to current inflation?

 

and good diversity...plus a way to play outside of the Wall St casino...and no counter party risk...and a couple others...

 

I only buy them because I am terrible at saving money.

 

You know I just don't get this stuff, probably because I have not done it and will not. It is as much a roll of the dice as stocks and bonds. I lost my butt (stock market) in 2008 when the economy tanked, but hung in there, even though my wife was always preaching otherwise. Lost 50% or so of it's value, but got 100% back at today's level.. Either way I think you are flirting with problems, no matter what you do. Like someone said, it helps to diversify, but unless you put a bunch of money into the metals, I don't see the diversification argument. I would not want my retirement mostly or heavily in metals when I retire.

 

IMHO - PM can be an "investment", it all depends on why you buy them. I buy PM for its value as insurance in an uncertain world. If you look at the main definition of investment, that might not qualify as "investing":

Of course I hope it appreciates in value, but that is not the primary reason I purchase it.

But if you look at the other meanings, it just means you've put some money into something:

...and from the definition of the word "invest":

By those standards, I have an investment in PM.

 

On the other hand, I do see where Green is coming from. It annoys me when people assume that I buy PM as a traditional investment to earn money.

 

Some never will. I always hear a lot about how poorly stocks do, like people are trying to justify their faith in bullion, but I must not trade on the same market as they do, because even my worst performing stocks made me over 30% last quarter. Gold and silver can't hold a candle to that performance in it's best trading quarter.
Guy

 

Yes, but stocks can be just as volatile as commodities, so if the DJIA head south to 13k again that 30% gain will be 0.

 

Actually, they have come close to or even beat 30% within a quarter in recent times:

4th Quarter 2010: 41%
1st Quarter 2011: 23%
3rd Quarter 2012: 29%

Where stocks will always outperform PM is in the long term. If you buy and hold a mix of stocks and you buy and hold a mix of PM, the odds are very much in favor of the stocks outperforming the PM.

However, if you buy and hold one stock and you buy and hold one PM, there is a noteworthy chance that within your lifetime the stock will be worth $0, which will never happen with a precious metal.

 

I was in the same boat as you, Texmech. My stocks took a big hit but I didn't panic and held on to what I had, and today the portfolio is performing rather well, but I just attribute it to dumb luck. There's a corollary to the old saying "what goes up has to come down".......it's 'what goes down has to come back up'......it don't always happen, but it's happened enough times for me to be optimistic. I agree that we all flirt with disaster in no matter what it is we invest.

 

Investment timeframes over short time periods aren't very useful unless trying to paint a short sighted picture. If we look over the last 10 years both gold and silver have vastly outperformed stocks even at today's prices. Maybe they won't in the future, but it all depends on the timeframe. Obviously they are underperforming right now, just like they did in 2008 before silver rocketed up over 400% in less than 3 years.

Yes, historical odds favor stocks outperforming PM's according to history, but we are in unprecedented times. We never had debt based currency impacting gold and silver prices in the US until the 20th century, so anything before that is moot as the situation was very different.

The other thing that is different this time, yes I said it, is that we have the first ever global fiat currency system, and while it's not the first time that we have had highly leveraged financial markets (Great Depression and other examples exist surely), it is the first time that such leverage has been required to sustain the global monetary system's well being.

If we do see another Great Depression type scenario the consequences will be far greater, and all non-tangible assets will be very risky to have at that point as priviliged holders and robots get to pull their money out long before your average investor.

I do see silver as an investment because of the supply and demand fundamentals that are not being adhered to by price action. I also see gold as an investment because of the monetary dilution that has yet to inflate on the open market. Otherwise if precious metals were allowed to react accordingly based on their roles instead of having those roles usurped by electronic markets then I would agree they are just inflation hedges and not so much investments.

 

Howdy folks,

I view pm's very much the way that I think most of you do - at least by your comments. I see them as a store of value relative to the fiat currencies that are floating about the globe. Uncle Ben is printing greenbacks 'til **** won't have it and since the Fed was invented back 100 bleedin' years ago, the dollar has lost over 96% of it's value. 'nuf said.

My grandkids have stuffed animals that they refer to as their 'bed buddies'. Well, my little bit of physical pm is My bed buddy. I know that at the end of the day, that ounce of silver and gold is worth an ounce of silver and gold. In ancient Rome they say a man could buy a nice toga and sandals for an ounce of gold. During the Roaring 20's a man could buy a nice suit of clothes for an ounce of gold. Today at $1500 or so, you can buy a nice suit of clothes.

PM's should be a part of everyones wealth portfolio. Period. Let's say 5-10% - whatever floats your boat. I consider this to be an investment vs. a speculation. More than this core holding is speculation. You're playing the market. That's fine. It's just important that you know the difference. I played the Hunt Bros as old GI bill econ student but with 90% silver that I bought for face out of change. I've been playing this bull run since around '02. It started in '01 but with any serious trend you like to watch it develop. Geez, I bought Silver Wheaton in the 3's. That's speculation in a momentum investing way.

However, owning stocks is still like going to the casino and playing blackjack. The stock market is very much stacked against us wee folk. feh. That said, you can still play it and win and even just simply use it as part of your overall wealth strategy. You just need to keep it in moderation and understand the rules and risks and costs.

For now, anyone that doesn't think this market is an asset bubble predicated on QE1 . . .nth and stocks being the ONLY game in town . . . do you share your recreationals? The stock market is the only part of the economy that's doing well and it's only because of unlimited dollars chasing returns and no where else to go. Geez, that's the only reason the green back is doing so well relative to gold and all other fiat currencies . . . it's the least dirty pair of socks in the hamper.

You still need to keep pm's in perspective and not get goofy. I read where the elder Baron Rothschild said that to survive tough times, you needed to keep 1/3 of your wealth in securities, 1/3 in real estate and 1/3 in rare art. [define rare art as you will but it's not beanie babies]. Run your numbers. I was 90/8/2 and almost blew chunks. 5 years later I'm 60/25/15 and feeling better.

and so it goes,

peace,

rono

 

i am sure i am going to lose forum points for this one...

but in reference to your whole post, and special attention to this beauty:
"Geez, that's the only reason the green back is doing so well relative to gold and all other fiat currencies . . . it's the least dirty pair of socks in the hamper. .."

in the words of the great charlie sheen....

WINNING

 

An ounce of gold would be almost four aurei (a Roman gold coin), and an aureus was a month's wages. Even at minimum wage, that would be one heck of a nice pair of sandals and toga

 

Ya had my attention until you mentioned that 'Charlie' fellow. Most annoying he is.......

 

i know i know but the perfect analogy he used was just so spot on...winning

 

Well, I must say, I've always liked his 'Dad'...........

 

:too-funny:

 

Well it's the truth. Plus it is a fun way to save money. Sure I might lose some or make some. But if for some reason I do need more cash then what I have it makes me think about if i really need it or not and it is nice knowing i have the ability to raise it if need be.