a couple POS questions

probably a bit much for one thread but I was wondering what everyones thougts on the following

1: Most people talk about building a "core" position before before trying to stack strategically via buying and selling highs and lows. If you goal is to provide a hedge against inflation what percent of your annual income would you consider a core position?

2: I preceive a ceiling at $30 that silver keeps butting it's head against. Do you agree? If so would you consider 3 straight days over $30 to be a conservative buy signal or are you conviced we will see mid $20's again shortly?

3: After only about a months breather Greece heading for a default seems to making it way back into the headlines. If this happens do you feel the dollar will get stronger reducing silver, or has all that money already moved. Do you feel a Greece default would bring the whole house of cards down or will America keep kicking the can for a couple more years?

As always I am grateful for your thoughts and opinions. DYODD, opinions are like donkeys holes, and all the other regular disclaimers are well understood!

 

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Pardon my stupidity, but what is "DYODD"?

Chris

 

You question would imply that silver is a hedge against a currency collapse or at best huge abuse i.e. monetary inflation. Yet there isn't much evidence this is the case. You should be looking at Gold instead for this.

 

Do your own due diligence.

 

1. A core position could be as little as 5% of your total investment assets, or more if you can tolerate the risk and are convinced silver or gold will outperform your other investments.

2. I don't see any evidence of a price ceiling for silver. It's just building a base prior to the next run up.

3. Greece isn't a big enough problem by itself to damage the USD.

All my opinion of course.

 

id say at least minimum 2-3000 a year.. i myself spend at-least 5000 a year

 

Thanks!

Chris

 

How would you feel about the following comments:

- Expand the supply of paper money and keep the supply of precious metals almost static and they will rise in price in terms of paper money

- silver will continue to track the gold bull market and ‘leverage off of it’.


- QE3 will cause the price of PMs to go up, along with other commodities.

If inflation dilutes the dollar and it takes more money to buy "stuff" and silver is physical "stuff' why do you feel it would not be expected that it would go up? I appreciate the thought that gold may be more stable. Many refer to silver as the poor man's gold implying that it would be comparable. I also hear many say the gold to silver ratio is way off historical ratios in that gold has gone up much more than silver. That silver has a larger upside to gold at this point.

I understand you comment that it is not a good hedge does not imply you feel it does not have an upside. Do you feel it is the industrial usage that makes it less popular as an inflation hedge for you?

 

I will be glad comment on your excellent questions.

1. "Expand the supply of paper money and keep the supply of precious metals almost static and they will rise in price in terms of paper money" This is simply a statement of inflation. Print more money and stuff costs more. The trick is how do you protect the wealth that you have. At best by this line if thinking, your wealth stored in gold or silver simply keeps up with inflation. You could buy an inflation protected bond to do the same thing.
   
   
2. "silver will continue to track the gold bull market and ‘leverage off of it" Except that it doesn't. In 2011 Silver lost ~9%, Gold gained ~11%. i.e. There was a 20% difference. The reason for this is that people buy Gold, especially outside the USA as a hedge against monetary abuse. Governments and central banks stock up on it as well. Gold is the defacto currency against fiat. Silver's relationship is only established once it is defined and traded in terms of Gold. This has not existed since 1968/1971 but despite this, people still believe there is some relationship.
   
   
3. "QE3 will cause the price of PMs to go up, along with other commodities."See answer #1. It would be correct to say that QE3 will cause "Gold" to rise. Other PMs may or may not follow. Gold consistently rises more when governments buy gold to hedge against their $ holdings. They do not buy silver. We had Qe1 and silver did not rise at all.
   
   
4. If inflation dilutes the dollar and it takes more money to buy "stuff" and silver is physical "stuff' why do you feel it would not be expected that it would go up?" There is not an automatic link between the two. There was huge inflation in the 70s & early 80s but PM prices ended up falling because interest rates were pushed up to 20%. It's more complicated than number of dollars printed. People often make the mistake of using this period as a guide for today without realizing this very important difference. The equivalent interest rate today in a futile attempt to save the banksters, has irresponsibility been set to 0%.
   
   
5. Do you feel it is the industrial usage that makes it less popular as an inflation hedge for you? If you are referring to silver, then understand that physical demand at this time has nothing to do with the price you are paying." These prices are paper prices set on the futures market which is now becoming unhinged due to corruption, failures to regulate, and no prosecution of those breaking the laws that are supposed to protect it. See MF Global and others if interested. Once this finally falls apart, we will have real price discovery on Silver.

I think that does it. If I left something out, let me know.

 

1.I would never worry about a percent of your annual income. Worry about percent of your portfolio. 5% is a conservative number to have exposure to PM, up to 10% is usually fine. Over that limit and you start taking more risk, and its more a primary investment than it is asset diversification.

2. Eventually it will be above $30 of course in an inflationary environment. Always remember that, it will go up with no skill of your own by design. I don't think there is anything magic about $30 threshold. Why is it everyone in the world thinks their currency numbers changing somehow has magic? Lol. I look at costs of production, price of silver long term should track oil basically.

3. Greece was never the concern, it was other European countries. If it majorly spread to Italy, Spain, and especially France was the worry. I view the Euro calming down and rising in a little bit. I just put some more money into a Euro account.

Just another dudes opinion, very possibly wrong.

Chris

 

Try using a different span of 365 days, why start on Jan 1..?...Why use 365 days...?

Do the same for the span of April 25 2010-Apr 25 2011 for both gold and silver.

 

Because I can. I only had to give an example where these two metals don't follow each other during times of economic duress. During the last 12 months we have had plenty of that and it seems like a long enough period.

 

How many days last year did gold go up and silver go down or vise versa...?....If you really wanted to make your point you would use the G/S ratio over the past 100 years.

 

Both gold and silver prices are up about 6X in the last dozen years or so. They won't track each other exactly but will generally follow the same macro monetary conditions with silver likely to underperform somewhat when the real GDP growth rate is falling and outperform somewhat when the real GDP growth is rising. Nobody can say which will be best to own in the future, which is why many people here own some of both.

 

i can't agree with the long time lines that people want to use. while following the GSR is a very useful tool i feel going by the last 40yrs or so and looking ahead the next 40 is more important. that willgive some history and cover most everybody's investment life.

 

My 4 cents.. through the colored glasses of my choice.

1. Core position in my mind seems open to interpretation. The question I've heard posed before that I agree with is that if you ask yourself whether or not you need more, and the answer is no. That's when you've reached your core position. If I were to put a number on it, I would say anything over 100 ounces is a good start. For me personally, the question is different, which is do I have enough silver to sustain my quality of life for a year, or at least not live uncomfortably.

2. I hardly even watch the short term movements anymore. Available supply demands higher prices. It's a matter of time for those who have the patience to wait. I could point to this or that on the chart and make a case for this, but it's a paper denominated price. The chart doesn't really mean much in the real world other than that it sets the price you can purchase at. I buy as much as I can comfortably spare every paycheck, literally. I did it when silver was $40, and I'm doing it while silver is $30. If it goes to $20, great, but there may come a day when you're ready to buy the farm only to find out that the barn is empty. I'm in the barn right now collecting eggs.

3. Typically markets move ahead of the news on insider trading, so I think the money has been moved to some degree. I don't think Greece will bring down the Euro, but if other indebted nations follow, which odds are they will, that could spell trouble. Short term I think it would create flight to the USD, but if Lindsey Williams' track record is to remain intact the USD will follow the fate of the Euro within a matter of weeks in such a scenario. To me that says temporary buying opportunity.

 

Yes indeed. People will argue long time lines when it agrees with their per-determined view of the universe. They point it out as some sort of proof they are right. This same argument is made about the stock market. Yet in both cases, the real data is often ignored. For example, the stock market has been a losing proposition for longs for more than a decade. So, Let's look at the historic Silver/Gold ratio since we went 100% fiat in 1971.

Why 1971? Because if one thinks that some sort of gold and silver ratio is important then one absolutely can't ignore that the legal reasons for it ended 40 years ago when both silver and gold lost all legally defined ties to the currency, each other, and when the currency went 100% fiat with notes issued only by the Federal Reserve. With one artificial exception noted in 1972, there has been no correlation between silver and gold as determined by their price ratio.

[table='head']

Year
Silver Price/oz
Gold Price/oz
Ratio

1971
$1.88
$35
18.61

1972
$1.60
$32
$16*

1981
$8.43
$492
58.36

1991
$3.91
$371
94.88

2001
$4.37
$273
62.47

2011
$29.83
$1467
49.17

Jan 19 (open)
$30.77
$1665
54.11
[/table]* 1972 the $ was devalued against gold by the Nixon administration so that the silver/gold ration approached 16:1

So as one can clearly see, there is no longer any predetermined relationship between gold and silver and investing using such a strategy over the decades would have resulted in failed expectations. Gold and silver don't track each other and investor's in either metal need to understand what drives prices. Gold is the hedge against currency abuses, debasement, where people run to when times go bad. Silver, who can say? I don't know but it's clear the price is not being driven by gold. The math doesn't lie.

 

Start on Jan 1 2002 -Jan 1 2012, 10 years...Silver beat gold, and 95%+ of the time when silver goes up on any given day so does gold and when silver goes down so does gold.

You keep even break that down by the hour to show how close they track each other if you really wanted to.

 

Math doesn't lie when you cherry pick the numbers you use to prove your point.

 

If what you say is entirely true then a correlation between gold and silver has to exist. A correlation between gold and cotton has to exist. A correlation between gold and oil has to exist. In fact a correlation between gold and all the traded commodities has to exist. Why? Because gold is the hedge and these commodities are the very things you are hedging to buy in the future.