investing help

We have 6 or so coin shops here in town...not counting the "we buy gold/silver" pawn shops and storefronts....Everytime I have gone into the shops the last 6-7 weeks (I go several times a week to 1-2 out of the 6) it is standing room only with 30-50 year old housewives swapping the family jewelry for cash....or seniors buying the living snot out of gold eagles/maples or Silver Eagles/junk silver.

I kid you not that a shop that would have 2-3 customers in an afternoon now has 20-30 over a couple of hours. Had a 70 something lady in front of me last Thursday that dropped 5k cash out of an envelope and picked up 2 gold eagles and 20 ASE...the owner of the shop looked over at me smiled and rolled his eyes. After she left he joked how things were getting a bit much when the grey hairs start to flock ( no offense intended to the retired community).

Perhaps it is just Arizona where we seem to have a preponderance of survivalists/tea party seniors/believers in doomsday that is driving this mad rush, but in this town everyone is buying. All I am waiting for now is the obligatory "cant lose money in gold" to work it's way into the media and on the lips of casual conversations...then I know the flurry will be about over.

 

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But was the money supply fiat or made out of silver and gold during the time frames you mentioned? We've only been under the current system for 40 years so there's a lot of other variables to consider if we are to go outside that span. I would expect there to be a bias toward precious metals on a board dedicated to that subject, and I do think you and others like Medoraman who go out of their way to point out both sides of an argument are doing a service for anyone who may not know what they are getting into. However, I am one of those who is extremely biased towards owning PM's primarily based on longterm history, and if I had my way everybody would own some because I truly believe that currencies are being devalued, and I don't want to see people lose their wealth. Could I be wrong, sure.

 

So on the one hand you have housewives cashing out of their precious-metal jewelry, and on the other hand you have older people buying precious metals. Sounds like trends that are canceling each other out.

The lousy economy means that people will sell stuff that the feel they don't really need, especially when they can get a decent price for it.

On the other hand, the older people remember when silver circulated as money, and they remember when the cost of living was a fraction of what it is now. They also remember when the national debt was manageable, and don't like what they see in the current monetary policy, don't trust the stock market, and don't like the pitiful interest being offered by banks and other financial institutions.

 

Ok it is going to the moon...and the OP should get in now while he still can? Not quite sure I get the meaning of your posts as the only thing I have inferred in this entire thread was to tread lightly...don't go all in on anything, be patient and have a plan. I don't quite care if gold is going to $2500 or $1250, makes no difference to me one way or another.

If the worst case happens and the world financial systems crash and we are running around with fractional pieces of gold to buy a loaf of bread then my opinion would be twofold:

1. Not really a world I would care to live in anyway

2. My glock would would serve me better than walking around with a bag of junk silver.


In the end these are scary times just like they were in the late 50's when the world was going to get blown up....the 60's where rioting on the streets of this country were common...70's where I still remember odd/even days at the gas pumps and when you bought a house you were getting 18% mortgages. There is always something wrong in the world or in this country, it will either get better or we will self destruct. I personally choose to believe this is just another bump in time that is made worse buy 24 hour news cycles and internet warriors.

I would still advise the OP to diversify, learn the market he wishes to invest in, invest for the long term and stay calm when others are climbing the wall of worry.

 

Why choose if you can have both In such a scenario you'd get robbed without a way to protect your metal. I would wager such a situation would likely be 'transitory' anyway, and people with metals are the ones who'd come out the other side with their wealth intact.

 

You have a point as at least around here everybody carries anyway, so best I could do would be a mexican standoff

Back to the point and to the OP's question I just a very leery of any type of frenzy by joe public, the same joe public that tried to daytrade his 401k mutual funds during the tech bubble, the same joe public that was frothing at the mouth at escrow closings right before the real estate bubble and who are the same ones that listen to certain nationalized talk shows that urge them to call Goldline now before it is too late. Joe public walks around swinging his johnson without even knowing what he is swinging at.

PM's are a fine investment when used properly at the same time I know of people that are buying PM's on credit cards that charge 15+% interest....why? because PM's are going up and they make 30% a year on them and net 15%, geez these sound like the same people that re-financed every 6 months when housing prices were going up.

 

I've never said that precious metals are "going to the moon". I never said anything about "walking around with a bag of junk silver". I never mentioned buying bread with fractional gold. And I have NEVER talked about doomsday scenarios. I'm only providing a possible explanation for what you are witnessing in your particular part of the world, and pointing out that the behavior of a group of people in one shop in one town in one state cannot be used as a basis for judging what the general public are doing. When I go back to my hometown and visit my friendly local coin shop, it is basically the same atmosphere as it has always been since the '70s. And here in Japan, there is no mad rush to buy either gold or silver, although there has been an uptick in the selling of scrap gold recently.

 

If there is a point to be made on facts and logic then I would say bias isn't warranted. i.e. Someone gives the reason that PMs are the only thing for them to own and they can give a logical factual reason why the plan that works for them. If they are offering it up as an opinion, then yes it's a bias, but all opinions are biased. Tossing the word around at the entire forum is really a statement that "my opinion is right and everyone elses is wrong".

 

I would never suggest that anyone invest in anticipation of things happening that currently do not exist and are not in the pipeline. It could just as easily be stated that the cost of production in the future will be much higher if energy and labor costs rise. But it is best to deal with what is rather than the range of things that don't exist. If someone makes a significant breakthrough in mining or recovery technology, it should be factored in. But until then it is best to deal with what is.

 

But facts and logic are not unbiased. If they were, we would all agree. Facts may be facts, logic may be logical, yet people disagree on conclusions from them. Every political debate has "facts" yet the conclusions are never the same.

Everyone has a bias. Anyone who truly believes they are unbiased in their decisions are delusional.

Edit: Before anyone gets mad, this was not meant as a slam against anyone. Its a sinple fact that everyone has biases, I know I do, and its simply human nature and how we process information. Anyone on this board I beleive is biased in favor of PM and coins, yet 99% of the public does not share this bias, and we need to recognize that fact.

 

While, in general, I completely agree with this sentiment...investing in pipe dreams is what creates bubbles (Though, admittedly, the early adopters of bubbles can make some decent money *heh*) isn't ALL investing, at least to some degree, "anticipation of things happening that currently do not exist and are not in the pipeline"?

At least to some degree, a great many investments are made based on sound fundamentals of a company/project/issue, with the anticipation that they will come together to, say, produce something that doesn't exist yet. Indeed, the BEST investments over the longest terms are those made in companies that create things that were unthinkable when the investment was made.

Unless you care to assert that Apple, IBM, and Microsoft, were lousy investments in their first 5 years.

I do, however, see and agree with what I believe to be your actual point...it's probably unwise to invest (or choose not to) based on a series of unsubstantiated "what ifs".

Of course, MY original point was, pretty specifically, not that any of those things WOULD happen, or even that one should or should not invest in silver because they MIGHT...but rather to counter your statement that:

Clearly, that's NOT the only way...and that was my point. There ARE other ways.

While I agree with your point...investing based on "what might happen if" is probably a lousy idea...I'm not sure investing based on an incomplete, limited set of options is much better.

 

I don't think investing involves anticipating things that don't exist. It usually involves either seeing things that exist that others are overlooking, or looking out into the future and making a better evaluation of current trends better than the masses. When you anticipate things that don't exist, you are guessing. Apple, Microsoft and IBM were fantastic investments. But it is easier to see that now in hindsight, and forget about the hundreds of other companies in their fields that didn't make it. To take a current example, you can look at a list of all of the biotech companies with sales under $100M, but how easy is it to forecast which ones in the group will have revenues of $10billion or more 20 years from now based on ideas that don't exist yet? If it could be done with a high degree of probability, everyone would be rich.

 

Good thought Cloud, I would throw one thing out. We are performing the opposite by assuming that pricing will never have an affect on demand. Silver at $40 is very different than silver at $10, yet we are assuming industrial demand will remain constant. If history has shown us anything, it is that absent a very few inelastic items that are only inelastic for periods of time, higher costs will reduce demand.

Looking at silver insitute graphs, I see production climbing and the only demand that is going up is "investment". Can investment continue to "use' more and more production every year, and offset industrial demand drop? That is what is being assumed I suppose.

I am taking way too long to simply say you are correct to not predict a future based on future technology, yet some of us here are predicting PM future ignoring what historically high prices have done to industrial demand. To me, that is also in error. Now, maybe "investment" demand WILL "use" all excess production. I am not predicting price future, simply saying that these prices should decrease industrial demand, and if it does and "investment" demand abates, what would happen?

Chris

 

There was an interesting article linked to from Coinflation this week about the use of nanosilver. Manipulating silver at the molecular level. There are ways being discovered to accomplish some of the same industrial applications using fractions of the amount of silver currently being used. This could lead to increased use of silver while using less of it. This kind of thing can also lead to a lowering of prices as the volume of demand goes down even while the amount of use goes up.

 

Regarding industrial demand, silver is such a high-performance metal and so cheap when used in small quantities that I don't really know if manufacturers would be willing to sacrifice performance for a small cost savings. It seems that new applications are being developed pretty rapidly that require or can use silver, so higher prices might not depress total demand.

Regarding investment demand, it is true that at some point investment demand will decline. So far higher prices seem to have increased demand. I don't think it is possible to forecast where the crossover will be. Maybe this will be a blow-off top similar to tech stocks in 2000. I've already started to sell some gold and silver investments even though I don't see a near term top and expect prices to go a lot higher before the inevitable decline.

Regarding the Silver Institute, they are about the only game in town for statistics on the silver industry, but they seem to side with the users of silver rather than the producers, and I don't know if that influences the presentation of data. I look at their stuff, but I don't necessarily trust it.

 

Then either the facts or the logic applied are faulty.

 

All I'm going to add here for the OP is bullion is the Vegas of investments. A few lucky, and I stress the word lucky, as there is no formula that works for guessing what commodities that have no needed value will do, will make a buck or two. But most will just throw their money away. I saw it in the 70's and the 80's and everyone who was on the bullion bandwagon then was spouting the same rhetoric we are hearing now, and most of them lost a lot.

I've pointed out countless times here, with no response from die-hard metal heads, that even if you bought gold at 1990's prices, the gains you would have made by today's prices would pale in comparison to even the most mediocre of stocks. Don't buy into the hype. If you want silver and gold buy it to collect it. Then when you either make or lose money on it, it won't matter. Keep the investing for proper investments.

Of course, this is just my opinion based on my experiences, nothing more.
Guy

 

Depending on the facts believed or use you can then logically come to very different conclusions. If you truly believe that a human can sort through the billions of facts out there, pick out the only ones which will lead to the correct conclusion, then logically deduce that conclusion accurately then you must be an extremely rich man.

To me, every single opinion here is based upon facts. Now whether those facts are pertinent or not, or will logically predict a certain future or not, is unknowable.

Every second billions of new facts are created. Which ones will predict the future? That is the art. Facts and logic are fine, but do not guarantee your conclusion will be valuable or worthless. Am I saying people hsould come here and simply state their opinion without any facts to back up their opinion? No, but I do contend that most opinions here ARE backed up by facts.

You and I disagree a lot, which is fine, but both of us have facts to back up our positions. Having facts and logic cannot make you right. Your facts can be right, your logic perfectly sound, and your conclusion completely wrong. Like I said, if your facts and logic are always perfect, you must be a wealthy man.

Chris

 

I agree that stocks are a superior investment vehicle in the long run, and the OP would probably do better spending the time on learning how to choose stocks or a mutual fund rather than PMs. But PMs have a time and place, and the past decade has been it. I got in a little late, in December 2003, when it became obvious that a new bull market was in progress. The next big task will be to get out with most of my gains without leaving too much on the table.

 

I hope to average somewhere between 3-4% a year over the long haul on my PM's, I have set a very low hurdle for them to jump over and hopefully they will accomplish that over time.