Best low-end bullion investments for survival?

Easy Ben! I was talking about wishing I had the ammo to sell!


Bill

 

Log in or Sign up to hide this ad.

The usual way is to study the ratio between the price of an ounce of gold and the price of an ounce of silver. The problem is determining what the ratio ought to be.

May I take a few minutes to offer a historical approach to this question? It's a bit of a ramble, I'm afraid.

The first clearly articulated gold-silver ratio was thirteen-and-a-third to one. This ratio of 40:3 was established by the classical Persian empire and it remained roughly right for about 2000 years, from 500 BC to 1500 AD.

It wasn't rock-solid constant, though, which was a nuisance for countries with a bimetallic currency. Monometallism wasn't that convenient either; using only gold meant that small change was vanishingly small; using only silver meant that serious trading entailed the shipping of large weights of coin.

Then came the start of European trade with the Americas. Not always a pretty story, it resulted in a lot more silver coming to Europe. As always, an increased supply led to a lower price ... and thus a higher gold-silver ratio. In the 16th and 17th centuries the ratio increased from about 13 to about 16.

Oversimplifying somewhat, the Spanish used this new ratio for a currency where each coin was double the value of the one below. They had silver pieces of 1, 2, 4 and 8 reales, and gold pieces of 1, 2, 4 and 8 escudos. Since the two series had the same weights, the 1 escudo coin was worth 16 reales, or two silver pieces of eight.

The English, of course, did things differently. When the Anglo-Saxon silver penny was introduced (in the 8th century in, ahem, the country of the Jutes) the currency was silver only. A penny was a coin made from one-twentieth of an ounce (22.5 grains) of alloy 37 parts of silver to 3 of copper. Since there were 12 ounces in a pound of silver, there were 240 pennies in a pound sterling, a number that the English were stuck with for the next 1200 years. In the middle ages, gold coins for trade were introduced, but sterling continued to be defined in terms of silver, so the gold coins had to be revalued upwards as more silver came on the market and the gold-silver ratio increased.

In 1717, the Master of the Royal Mint, Isaac Newton, called time on this creeping revaluation by defining the value of the gold in the guinea coin to be one pound and one shilling. Not his finest move, since the silver in 21 silver shillings was worth more than the gold in a guinea, and much of Great Britain's silver coinage was melted down and sent abroad. The country had to make a virtue of necessity and develop a token silver coinage to go with this new gold standard.

The young United States chose bimetallism, adopting a silver dollar of 8 bits that was very similar to the Spanish piece of 8 ... and a gold-silver ratio of 15 to 1. This ratio soon became too low: the opposite problem to Newton's. The gold in a $10 eagle was worth more than the silver in 10 silver dollar coins, so the gold eagles were melted down. In 1834, the official ratio was changed to 16 to 1.

Then something strange happened.

It took Great Britain a century to get a proper grip on token coinage, but, once it had, the combination of a gold standard with a token silver coinage was attractive. It avoided the problems of getting the gold-silver ratio wrong. Between 1870 and 1900 a host of developed countries went to a gold standard and ceased using silver a monetary metal.

And the price of silver plummeted. Between 1870 and 1900 the gold-silver ratio increased from about 16 to about 32. And apart from the days of the Hunt silver corner, it hasn't been back since.

When, 100 years later in 1971, Richard Nixon broke whatever links remained between the US dollar and gold, most fiat-money enthusiasts expected the gold price to plummet as silver's had.

But it didn't. Instead of halving, the gold price has increased by a factor of 25. Or, possibly, the value of the dollar has decreased by a factor of 25.

As a result of these happenings, conventional wisdom among gold bugs (and I do not regard "goldbug wisdom" as being a contradiction in terms!) is that gold remains a monetary metal, while silver (and platinum) are both monetary and industrial.

Therefore, in times of boom, with accompanying inflation, both silver and gold will do well, with silver doing better than gold. Both metals are useful hedges against inflation.

But silver is not a good hedge against deflation. With companies on the ropes, the industrial demand for silver (and platinum) will decline. Gold will hold its value and can be used as a hedge against deflation.

As the cycle of boom and bust continues, one should expect the gold-silver ratio to go down and up. Which it has done, ranging from 30s to 70s with an approximate midpoint of 50 to 1. So in the medium to long term, I think silver is undervalued.

But in the next 5 to 7 years, I think silver's value is going to be determined by our governments' success at handling the intractible problems they face.

If you believe they will err too much on the side of caution and will not do enough to prevent deflation, you should buy gold.

If you believe they will prevent deflation only at the cost of storing up massive inflation a few year's ahead, you should consider silver and platinum.

If you believe they will get it just right, easing the money supply just enough to avoid deflation, and tightening it again just in time to prevent inflation taking off, then you have no need of precious metals!

Later,

John

 

You also have to look at what the sellers are paying. How much will they give you for a silver eagle?

Let's say they give you $17.00. That's only 85% of their asking price. That means that the retail price would have to go up 15% or so for you to break even. And even if the spot price goes up 15%, will that translate into a 15% increase in the buying price of silver eagles?

 

Yes, indeed, that is a big problem. But the gap between gold and silver seems to have been growing over the long term. Silver has lost its allure as a monetary metal among all but the most avid silver aficianados, or among us old-timers who can remember when silver actually circulated as money. The whole world has gone to a fiat monetary system where increasingly, not even tokens and "monopoly money" but even more estoric forms of "cash" in the form of electronic information encrypted in a computer file or card are viewed as "money". And the younger generation seems to have mostly accepted this system, and most of them, it seems, will give you a blank stare when you tell them that at one time, silver actually circulated as money. Or maybe they will say, "What? There's no silver in the quarter or dime? Then why do they look like silver?"

So the silver aficianado can continue to invest in the metal, and who knows? it may go back up in value. But then again, it might once again reach a price where the 40%/90% coins and grandma's silverware, not to mention silver bullion being held by base metal mining companies, are once again dumped on the market to take advantage of the price before it is once again driven back down.

 

Another thing to think about

I bought my first Franklin half dollar in 1968 or 69 for the price of 85 cents from an ad in Coins magazine (before that, I had been asking neighbors if they would sell me silver coins at face value). By the mid-70s, the price had risen to about $1.50, so I sold that and the other meager silver holdings I had accumulated and focused on collector coins. In 1978 and early 1979, I once again turned my attention to "junk" silver, and accumulated a small amount for about 3.2 to 3.7 times face value. By the end of 1979, I was selling that silver for 13 times face. The best price I ever got was 16 times face-- $5 face value in silver got me $80. Then, the bottom started falling out of the market, and by 1989-90, I was paying exactly the same for "junk" silver that I had been paying in 1978! Having a little extra money to spare by that time, I bought as much as I could, and was able to complete half of a Walking Liberty set, 90% of a Silver Roosevelt dime set, 3/4 of a Franklin half set, and 2/3 of a Mercury dime set just with the "junk".

Today, the junk silver price is, what, 4 times what it was in 1989-90? But the silver price is off 40% from its peak from last year. Personally, I would love to see the silver price go higher. But unless there is some sort of super new use for silver discovered, or if there is severe inflation, I think that in the foreseeable future, the price will continue to get hammered down once it reaches a level that entices large holders, and/or large numbers of holders, to sell.

 

Sorry I was kind of excited yesterday, my bad.

Sorry I was kind of excited yesterday, my bad.

 

When silver goes over $20.00 an ounce the melting pots will be working overtime. The price of the old silver coins will go up 10% to 20% and you can take that to the bank.

 

my 2 cents

I hope not we lost a lot of good coins in the 80's when silver jumped to near $50.00

 

The gold/silver ratio is to variable that it is essentially useless for investing purposes. The industrial demand for silver is basically in balance with mine production. Silver is primarily a byproduct and there are few new primary silver mines. So any increase in industrial usage due to economic recovery or new uses will raise the price. And there is only about 1 billion ounces [about $20billion] of investment grade silver, so any significant increase in investment demand for silver by even one large institutional investor could make the price soar.

 

Why is cash for gold and silver is on the up swing someone is making$$$$

 

Reclaimed

As time has progressed silver and gold have been recycled, but only a couple of companies , maybe one make a living as it is very labor intensive . Old CRTs were being done for a while.

Pep

 

I don't know where you get that figure of only 1 billion ounces of investment grade silver being available, but considering that over 600 million ounces were used just to mint US silver coins dated 1964, I believe that figure is way off.

 

YOU CANT NOT MELT US COINS ANYMORE!
AGAINST THE LAW SINCE 2006.
So dont worry about a loss of collectable coins.

 

The 2006 law applies to pennies and nickels. As far as I know, the Coinage Act of 1969, which allows the melting of silver coins, has not been repealed.

 

Three years ago I purchased a prepaid college tuition pkg in one payment from our state treasury for a new grandson. About a year ago the state started having meetings around the state expressing concern that it might not be able to honor its intended goal. (At the meeting I attended two armed state troopers were on the stage with the board members) Long story short .. I withdrew the principle and $200 earned interest. Am thinking of purchasing gold. Would be interested in any comments/opinions.

 

The number comes from Ted Butler, a silver analyst, based on reported and estimated inventories around the world. Obviously, if the price of silver skyrockets, many folks will be tempted to sell a lot of collector coins for melt. But the 1 billion figure seems reasonable for the amount of silver available at today's prices. Also, many millions of ounces of the coins you mention have already been melted by the government and in the 1979 runup and should not be double counted. I doubt that very much of it would come to market unless/until silver prices move and stay above $25.

 

That figure still seems way off to me, considering that one billion ounces were used to mint just 3 years of US silver coinage (1962-64), and that was almost all new silver and does not count the silver that came before, or after it. And how many billions of ounces of new silver have been mined in the 45 years since then? (671 million ounces were mined in 2007 alone). How much silver is available in other countries in the world?

 

Junk US silver coinage.

 

The government took the old silver coinage out of circulation and melted it. What they missed is sitting in collections or was largely melted in the late 70s. Mintage figures have nothing to do with available investment supply. It seems to me you are counting supply but forgetting that everything that is mined is consumed. But that's okay. Many people believe as you do, which is why silver is still below $20. Once the realization sets in about how much is left, it's going to be fun!

 

I don't think the government conducted any great silver melts, certainly not like with the gold coins. There was a coin shortage at the time (1960s), so it wouldn't have made any sense to call in the silver coins. Also, LBJ was insisting that the clad and silver coins would circulate side-by-side for decades, but citizens were hoarding the silver coins, as per Gresham's Law.

And more than a half billion ounces of new silver are mined each year. This is not all "consumed". The reason why silver is not moving is because the market knows that an awful lot of silver is being mined each year and much of that is just being added to the existing silver stockpile.