Silver Bullion Coins

If I was looking for something to trade with or barter during a crisis, I would choose cigarettes and booze - not coins. (no disrespect).

 

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Ammo.. I am a LifeMember of the NRA. I do not mind the brief digress.

 

Ouch, Oh, LOL......you're killin' me....:mouth:

 

Great question. I don't think anybody knows. Some analysts point to the Great Depression and the fact that silver and gold prices rose during a severe deflation. But back then, gold and silver were money, and metal backed currencies appreciate under deflationary conditions. Conditions today aren't really comparable. My best guess is that if we have moderate deflation, short term Treasuries are superior to metals. If we have super-severe deflation to the point where even Treasuries default, metals are superior to Treasuries.

 

The 70s were really tough if you weren't diversified out of US dollars. Bondholders got wiped out. Anyone who saved money was hurt, and the stock market crashed. There are parallels with the situation today, for instance the fear that the dollar would collapse, and personally, I think people would be wise to have physical metals, as some did back then, if only as a currency hedge.

But I also like to hang onto some cash. I'm not convinced that anyone can predict exactly what will happen in this situation they have gotten all of us into. Here's a link to an article which draws some parallels between today and the 1970s. He's a good writer and I enjoy his blog.
http://goldversuspaper.blogspot.com/2010/02/desperate-times-and-desperate-measures.html

 

If we get to that point, bullets might be the new currency. :thumb: (I work with a guy that has 200,000 rounds socked away!)

 

Yes, but wouldn't you expect an environment of rising interest rates to exert downward pressure on PMs...everything else being equal? Holding PMs still involves a carry trade afterall.

 

$15.40+$0.90=$16.50. I wouldn't mind buying from you at $17.00

 

No. That's a myth perpetrated by folks who weren't around in the 70s. Back then, gold went from $100 to $800 as interest rates rose from 3% to double digits. Initially you will see a dip when rates rise due to the knee-jerk reaction of the kids running hedge funds. But the longer term trend will continue to be up.

 

Zilch! - I doubt any pre-1964 will turn up.

 

I have nothing against cigs and booze and they are not bad for barter....but....not everyone smokes or drinks, and both booze and cigs are organic and easily wasted or ummm consumed. gold and silver however, remain as perfect barter instruments. Although, if things get as bad as you say, there are people who say "lead" would be the most precious metal.

 

I was around in the 70's, but I didn't pay too much attention...too busy chasing girls! :hug:Kiss

As I recall, interest rates (at that time) rose as a result of Fed tightening...in an effort to get inflation under control. It was Fed tightening that weakened the economy...pushing it into recession. In other words, rising interest rates created "uncertainty".

Today, we are gingerly pulling out of a deep recession and slowly rising interest rates are a sign of a strengthening economy and a more stable dollar.

It costs money to be invested in PMs. PMs don't pay a dividend and cost money to store and secure. When other investments generate a better return, one would think that savy investors would lighten up on PMs and bonds...in favor of equities.

 

I don't buy the idea that Fed tightening weakened the economy in the 70s. If that was true, all of the pain could have been avoided by just not tightening. But the combination of the cost of the Viet Nam war and other government spending plus the inflation from financing the oil crisis and recirculation of petrodollars by printing money [i.e., inflation] made bond holders leary of investing without being compensated by a high interest rate. These days, most of the profit on bonds comes from trading and the carry trade, so the coupon is less important.

It doesn't really cost most big players any money to invest in precious metals because the big guys are either (1) trading futures contracts and never taking delivery or delivering bullion, or (2) basis trading against physical positions to earn a risk free rate of return higher than short term treasuries. It is a mistake to believe that large gold owners do not earn money from their holdings that exceeds the carrying costs.

But I agree that the rising interest rate is a good sign [if it continues]. When the return on capital is near zero, capital is worth less and/or tends to move to other countries. However, I don't think it necessarily will be negative for gold prices.

Edit: I agree that stocks will probably outperform gold over the long run. But gold still has a place in an investment portfolio.

 

Just bide your time and at some point you will be able to get them at $12

Just bide your time and at some point you will be able to get them at $12! It will happen sure as wind blows and grass grows. That should wake up the CoinTalk people this AM!!!

 

It sounds like we're in agreement over the causes of stagflation in the 70's. However, I seem to recall a guy named Paul Volker that blew the top off the Prime/Fed Funds rates (way in excess to anything happening naturely in the credit markets) to sucessfully get inflation under control.

True, he could have not done that, but we might not have broken the back of stagflation, either. Nixon's Wage/Price controls weren't much help and Gerry Ford's "With Inflation Now" (WIN) buttons didn't help much, either.

I was in the Air Force at the time and the job environment felt a lot like it does today...I was glad to have a job! Here's a snippet I found in Wikipedia...

This KITCO chart shows gold prices from 1975 to present. The chart of the late '70s has a similar trajectory to the chart of today. As you can see, once Paul Volker got busy working his magic ('81-'82), inflation was brought under control and gold prices CRASHED!

I don't see the Obama administration taking such draconian measures today, although...they ARE bringing back Paul Volker (watch out!!!). The Dems #1 goal is to get reelected in 2010 and "Jobs" are the #1 priority.

All I'm saying is that there's a "chance" the markets might worry about Paul Volker-esc rate hikes after the election and PM's could sell off heading into the 2010 mid-term elections. It really doesn't matter what actually happens...only what the markets think "might" happen.

EDIT: I forgot about the large PM owners selling futures contracts. :thumb:
...and I ain't selling my little ladies, either!

 

What Volker did was redirect Fed policy from controlling the interest rate and letting the money supply expand as much as needed; to controlling the money supply and letting interest rates move whereever the market would take them. He didn't raise interest rates in the sense they are raised and lowered by the Fed today. He let the market raise them by stopping the supression by the Fed and letting the Fed Funds rate and discount rate track the market. But the point I was trying to make was that the rise in interest rates didn't cause the economic problems back then. The problems already existed and the rise in rates was the cure.

 

Agree 100%, but the "cure" caused a lot of pain. My original point was that the anticipation of rising interest rates "generally" has a depressing effect on PM prices. I'm not selling off any of my gold (FS coins), but won't be suprised if PM prices begin a slow, steady decline in the second half of 2010.

I just hope I'm not throwing my money away on the FS series. I keep telling myself that I'm buying tomorrow's treasures...but, who knows?

 

Economically that's an important distinction, but everyone back then knew that restrictions on the money supply would raise interest rates until lower demand (economic recession) achieved an equalibrium.

The Fed is currently withdrawing liquidity from the market which should put upward pressure in interest rates...assuming steady demand. I suspect this will be done quite gingerly (through 2010, at least), but likely needs to be done to appease the Chinese and other buyers of our debt.

The question (from a CT perspective) is what effect might this have on PM prices. My guess is that the "probablility" is for a rising dollar and lower PM prices...especially given the turmoil in the Euro countries.

 

I think the jury is out on whether PMs will rise or fall. There are too many variables to assume a simple rule will work. For example, is the dollar really rising, or are the other currencies in the measure just falling faster? Even though interest rates might rise, are they higher or lower than the real inflation rate? Will a stronger economy increase demand for PMs? Will rising interest rates cause long term bondholders to flee to other assets such as PMs to avoid losses on bond holdings? Will PM fabricators increase their inventories to avoid supply disruptions, or decrease them to capture expected future lower prices? Will the CFTC put lower position limits on PM holdings in the futures market? Will hedge funds run the PM prices up [or down] just to make a profit? Will China and others add to gold reserves just because they currently have a relatively low amount? Will there be any new gigantic PM discoveries? Or will PM mines continue to deplete? Will PM ownership be banned [or encouraged] anywhere in the world? Will rising energy prices inhibit mine production, or lower prices encourage it?

There are so many moving parts that when someone here says they think PMs will rise [or fall] for any particular reason, you can bet that the reasoning is wrong even if the outcome happens to be right.

I expect the rise in PMs to continue primarily because there seems to be a higher probability that more things will go wrong than right, and the 9 year rise in gold seems to be developing the characteristics that will lead to a spectacular speculative price rise. But that's just me.

 

As always...excellent insight! You ask some great questions...

I suspect the dollar is falling less quickly than other currencies...although, it seems that this Administration's strategy is to devalue the dollar more quickly to correct trade imbalances...I suspect they're rethinking that strategy.

I wish I could find two economists that agree on how "real" inflation is measured. My guess is that "core" inflation (ex food and energy) is about on par with the 10 year note...3.8%

A stonger economy will increase industrial demand for PMs...the question is what effect that will have on speculative demand. Equities may be more attractive in that environment resulting in a net outflow from PMs.

YES! ...but into equities, not PMs. Well managed companies continue to surprise in the upside due to this period of consolidation and belt tightening...great for productivity/profits, bad for jobs.

Good question! I suspect they will hold tight if it means bringing inactive assets online. That costs $$ and those are likely their less productive assets...increasing their average production costs.

Dunno.

Dunno.

I doubt it. They'll likely stick with a strong-ish dollar if it's available.

There are plenty of untapped resources, but production costs will rise. "Gigantic new discoveries"? ...I doubt it. Terrorist disruptions is a concern.

The trend has been to "encourage".

I suspect energy prices will remain steady in the near term.

I don't think things are quite as bad as they seem. Things are bad, but we'll pull through...we just have to keep from doing anything really stupid. Political gridlock might not be such a bad thing at the moment.

Really?! I guess I had better buy some more FS coins.