Silver is on the rise!

The Kitco bullion price for silver is up substantially today to over $15/ oz. The market analysts that I read see the traditional historic spread of silver to gold value as waaaaaaay out of wack; 15:1 being the mean, currently about 64:1!

If this run continues as the dollar tanks and the investors run for cover, I'll keep putting $$ into high grade Morgans. Silver has a historic monetary basis and is way more affordable than gold for the masses whose savings and 401-K's are dwindling; should be very attractive as a hedge.

Is there a flaw in my reasoning? A fly in the ointment? :hail:

 

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Well, there's wiggle room - in both directions!

Funny you started this thread. Last night, I was looking at some of my old spreadsheets where it shows the melt value for 90% halves at over $7.

Buy or sell? Oh....

 

Right now I'm valuing the estate of a retired coin dealer, which includes around £55.00 face value pre 1919 uncollectable silver. I'm trying to get the best value for the heirs, but do I sell now? I know if the coins were mine I'd hold on tight for a while.

 

The reason this interests me is that when I was a mere pup in the late 1980's, serving as a 3rd Engineer on a oil tanker, my chief engineer was a complete coin hound and kept his hoard aboard ship in his safe. We talked a lot, and I learned a lot. One of the things that was "seared into my memory" was: he held out two $5 Indian gold coins for me to inspect and asked what I thought the difference between them was. Of course, I was clueless. "This one is worth $50 and the other is worth $500!" he explained and went on to explain rarity, scarcity and demand. Whoa!!

Shortly thereafter, rare coins took off on their historic moonshot, under circumstances that are dwarfed by today's version of financial meltdown. Long story short, he sold off near the top and retired younger and happier than he ever thought possible.

Could that scenario repeat itself in the near future? There is already a flight of capital seeking safe havens, and the fecal matter has yet to truly hit the oscillating air mover. If there is one thing I've learned over the years it is that history repeats itself over and over; only the players change. Get in early!

 

Dunno if it's a flaw but a coupla comments: 1) I wouldn't buy silver based on the reasoning that the spread between it and gold has never been wider. People have been saying that for the last couple of years and it just kept getting wider and wider - and can get much wider yet. These two commodities have decoupled, and I don't see any reason for that to change. Silver is basically an industrial commodity whereas gold is recognized worldwide as a storehouse of value, especially when tensions in the world ratchet up as they have recently.

2) "High grade morgans" are numismtic items, not bullion. Rarity and condition drive their prices; I don't think the fluctuation in silver prices affects the value of these coins much at all.

3) Silver may be more affordable than gold, but what does that tell you? Rich people, people with money buy gold. Physical silver would just take up too much storge space to be practical as a storehouse of value. If you belive silver's price will rise, maybe better to play it buying some futures contracts.

 

All of which is true to an extent. But I remember what happens when metals enter into a "mania" phase; it's good for bullion, better for the miners, but great for numismatic rarities.

 

so you think silver at $15 signals the beginning of a "mania phase"? I'd like to hear the case for that. And if prices rise, you're likely to get as many sellers as buyers.

 

Tipping points in history are rarely accompanied by banner headlines...

 

when was the last time we saw a tipping point in the price of silver? WWII? Of course it hit $50 or so when the Hunt brothers tried to corner the market, but that was very short-lived. Go to Kitco and see the twenty year chart. Silver did hit $20 in Jan-Feb. 2008, but then fell right back down. So I'm just wondering why it should be any different this time?

 

You can't have 2 standards, one will be preferred to the other which will make it the standard. I know we've had 2 standards for a long time, but it only worked because they were interchangable for each other as per government mandate. Based on the evidence you presented, it looks like the long term trend is for gold to increase more than silver. I see no reason why that trend won't continue.

In other words, buy tenth ounce GAEs.

 

It might not be different. But there is so little physical silver out there in coin and bar form compared to the trillions of dollars, yen, euros, etc of investable funds around the world that even a small change in demand can result in an enormous price increase. Remember, even a billion ounces is only $20 billion at the peak price of 2008, which really isn't much these days if the hedge funds get involved.

 

Phase II of the 3-phase interest in metals is when institutional investors start taking substantial positions. We have been seeing that now over the last month or so. When I start hearing about gold/silver "investment" from my gardener, we'll be entering phase III! hya:

 

I agree with that, but as you know, hedge funds and NYMEX traders can drive the price up quickly and then take profits and exit a market just as quickly. The average person can get whipsawed if they're speculating on the price of precious metals or any other commodity. No one really knows where the price of silver will be six months or a year from now. Experienced coin dealers who've been through the ups and downs of silver and gold price swings over the years will tell you that.

 

The manipulation of commodity prices by traders is nothing new, but even these guys were caught off-guard by events like China quietly doubling their position in gold bullion. With world events in such flux right now, I wouldn't be surprised to see other big shocking events. In fact, I'm counting on it! :eating:

 

yes. it will continue to rise.

 

Just a note - From 1986 to 2007 - I believe the average annual silver/gold ratio has posted less than 60-1 only five times.

 

Now you have my curiosity. What was happening immediately before and after these 5 times?

 

The silver/gold ratio was in a basic steady climb from 20-1 in 1970 to over 60-1 in 1986.

 

my guess is that when gold reach $3,000.00. the silver will be trading between $60.00 to $75.00 an ounce. so the ratio is around 40:1 to 50:1 against gold.

 

The five years were 1998, 1999, 2000, 2006 & 2007.

What was happening before: the economy was booming/in a bubble. The high relative price for silver continued into 2008: the gold/silver ratio didn't drop below 60 until mid-August.

What happened afterwards: the dot.com bubble and the sub-prime bubble burst ... and the economy tanked

<goldbug mode on>

This evidence confirms, to some extent, the goldbug thesis that silver is at least partly an industrial metal nowadays, and does well when the economy does well. As such it is an excellent hedge against inflation ... better even than gold.

Platinum is much the same.

If, however, we have deflation you need gold rather than either of these.

The gold/silver ratio rose to very high levels a while back; and the price of platinum fell below that of gold. To a goldbug theorist, both of these implied that the market expected deflation. Very worrying.

Mr Brown in the UK and Mr Obama in the US have since announced their plans to increase the money supply. The subsequent drop in the gold/silver ratio and the surge in the price of platinum imply that we shall avoid deflation ... at the cost of having inflation in a few years' time.

If you believe that Messrs Brown and Obama will successfully switch from encouraging inflation to discouraging it--exactly at the right time and in exactly the right amount--then you have no need for precious metals as a hedge.

<goldbug mode off>

Later,

John