This is Why NO $50 Silver

I've put together a silver value calculator based on your own inflation expectations. Please do try entering what you believe are reasonable numbers and see what value of silver you get...

http://passantgardant.com/blog/66-silver-value-calculator

 

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Exactly, that's about 2% of the deficit part of the spending for 2011. It's next to nothing, more like a teaspoon of water from the ocean! Not good at all for the long term prospect for prosperity in the US but more foundational support for silver to move higher.

Bluesboy65

 

Do you use the silver gold ratio to determine the value of silver? Other? Would like to get you to expand on this.

Regards,

Bluesboy65

 

If you really want to know my thoughts on valuation, I've posted them elsewhere.

 

Passant, it is you who are ignoring well reasoned arguments and still posting your beliefs as facts. Every well reasoned argument I have presented to you has simply been skipped over as "inconvenient" to your presonal beliefs.

Let me try one more time. Your argument concerning debasement of the dollar versus precious metals ignores a critical fact. People do not simply hold dollars as dollars, they hold them in interest bearing instruments or investments. These items grow at rates usually equal to inflation or greater than it, (historically that is). PM's do NOT grow, you do not get 1.1 ounces of silver a year later, in fact they shrink since you need to either pay to secure them or risk loss. This is the fundamental difference in your analogy. Take $100 in 1920 either in gold or stocks, and look up how much is worth more today. Do the same for a house, or even a government bond. You will see you LOSE MONEY by investing in PM's.

If you ignore this fact, then I will know you are not willing to listen at all and am simply here to read your own words. If you have a good counterpoint to this, I am willing to listen. I am always open to other views.

Chris

Edit: The calculation I was alluding to would be start in 1920 and get how many ounces of whatever PM you want for $100. Then you have to deduct storage charges each year from this amount. For Cash, buy a US treasury for $100 and compound, (no storage charges due to them being in your name, but you would have to account for income taxes every 30 years). Or, buy $100 worth of an average house, deduct maintenance but add living value and appreciation. The numbers I see are much greater returns for bonds or housing than PM, but would be interested in what you would show.

Its WAY too simplistic to say cash versus PM, since the cash will grow and PM will shrink, its a very common mistake with many who advocate PM ownership, and repeated often by SELLERS of PM's.

 

Not that interested...

 

I personally do not subscribe to any ratio analysis between the two anymore but am well versed in them. The two markets are too dissimilar for the ratios to mean much, though my guess is geologically gold is anywhere from 10-16 times rare in the earth than silver. The flip side is that since gold is so valuable almost none ever gets "consumed" so above surface gold is probably more common than silver.

Interesting though, NorthKorea, you are the only person here I have ever seen use that ratio, any ratio, to say any metal is OVER valued. Most only use it to "prove" something is undervalued. Good to see others who recognize it could cut both ways.

 

Let's save the best 'till last.

I don't know...I think many investors have considered PMs and decided to pass.

I began in 2005 and continue to add to my position...but only Numismatic PMs; not PMs just to have PMs. PMs to me are a hobby, and an investment hedge...not a real investment.

Me too! I inherited a collection in 2005 and can't sell, either. My inherited collection brought me back to coin collecting and Coin Talk, also.

Agreed.

Agreed.

Agreed! :thumb:

I predicted that anticipation of a Republican win in the last election and a more conservative fiscal ethic would cause interest rates to rise and PMs to fall...didn't happen. The massive Quanitative Easing pumped into the markets saw to that.

I then predicted that once the Republican victory was in hand, the markets would acknowledge the inevitable and interest rates would rise and PMs would fall...didn't happen.

I then predicted the Republicans would do what they said they would do (cut spending), QE2 would end without a followup, interest rates would rise, and PMs would fall. I can't say what's gonna happen tomorrow, but it looks like the markets are finally taking the Republicans seriously.

PMs could still climb a bit from here, but I still say Silver will stay just south of $50/Oz...we'll see. :kewl:

 

Just a reminder that this Friday is SLV April option expiration. It is still too early to see who is in charge, the longs or the shorts, but unless there is more external pressure like last month, since 40 level for SLV ( 39.21 close today) is a major one, they may each push to finish on their side of 40 on Fri. There are currently about 4 X more bulls than bears, but that can change quickly if a major player wants to jump in. If you are thinking of buy/sell in the $40 range physical silver rather than SLV shares or options, you might watch the SLV level to see direction. You may not like SLV itself, but it does move the spot price ( much more I think than physical silver buy/sell demand level).

Jim

 

Thanks for the analysis! I'll follow it with great interest as I drive to Myrtle Beach this Friday for a much anticipated/deserved week of eating :eat:, drinking :cheers:, and golf :headbang:.

 

Medormam.........
I’m worried about today’s problems, not the past, we had an industrial base back then, that could and did pull us out of economical slumps. Today our industry has eroded, not to mention our skilled labor force, and every day that passes, both are weakening. IMO this scenario is a bit bleak, it’s going to take some big changes, to get us back on track.

So for the time being, PM is doing what I bought for, a $$ hedge against more bad decisions by our leadership. If I’m wrong, and I hope I am, I’ll happily take the PM losses.

 

As I posted earlier - you can buy more of almost every traded commodity with an ounce of silver now than you could 3 years ago. In most instances significantly more and commodities in general have had a fairly decent run during this time.

 

Rope, I understand your sentiments, just cautioning about using too much exposure to what is effectively a protective asset. What people need to be cognizant of when I say that is how large their other investments are. People always ignore their house and retirement assets when talking about asset allocation. Let me explain. Lets say a person has a $150,000 house, $60,000 in 401k, a US citizen so Social Security will be there, (to an extent), and then "investments" of $50,000. This person will be tempted to think of the 10% rule only applying to the $50,000 of his "investments". This is not right. I am saying 10% would be the max of his total assets, which could be guesstimated to be about $340,000 minus his mortgage. I am estimating the value of Social Security. Therefor $34,000 would be the max I would say should be in PM as a hedge, not $5,000 which would be 10% of only outside investments.

Now, in historically high PM markets would I advocate buying all of that $34,000 now? Of course not. I would advocate throughout life to buy PM every year as your assets grow. I didn't do that, I bought a ton in the early 90's, and have simply held onto them and their appreciation has balanced versus my portfolio. TBH, I should have bought some more over time, but I have 2-3 thousand ounces of silver. I really am a silver nut, have always loved the metal though I would bet many here would never believe that from my posts.

 

I'm not sure that's entirely correct. 10% in PMs is kind of high for the average person. Also, when determining value of a secured asset (mortgaged home), you must consider the market value of the mortgage, which isn't simply the negative value of the balance. Let's assume the same example as above:

$340k "market value" home
$60k 401k
$50k "investments"
$90k mortgage

Now, the 401k is actually only worth ~$47k as a "post-tax" asset.
Also, assuming the individual is in the 25% tax bracket, it's viable that their mortgage interest rate is around 4.8%, making their payments $1680.18 on a mortgage due in 60 months. As such, the mortgage would be "worth" $91170 in a neutral market. Given that we're in a low interest rate market, we should adjust that (since the term is only five years), but for the sake of argument, we'll assume treasury rates are constant. Now, if the mortgage were larger and the period longer, then the "value" of the mortgage would be vastly different. Given all, that values the home at ~$249,830 net of mortgage.

So, the "new" values: $47k 401k + $249,830 home + $50k investments = $346,830.

That said, most investment professionals avoid using the home as an asset. By contrast, financial advisors / insurance agents tend to focus on the home as an asset. The rationale for the two opinions goes as follows:

Not counting: Since you always need to live in something, a home isn't really an asset that can be liquidated.
Counting: Since you carry the liability of the home, you need to protect it with higher life insurance coverage.

So, it would be irresponsible to tell someone to have 10% of their home value held in another illiquid asset, such as Precious Metals. Also, you shouldn't be over 50% in real estate in a properly diversified portfolio. So, it's fair to consider the "investment" value of the home as excess of the value of rent replacement. So, maybe the true value of the $340k home (from an investment viewpoint) of a 50-year old would be closer to $79.8k (50% less the mortgage value). In reality, it's probably even less than that.

So, using the replacement values of assets, we have:

Real Estate $80k
401k (probably specific to whichever industry employs/employed you) $47k
Precious Metals $5k
Other investments $45k

Total investments: $177k

It's reasonable for the average person to have 5-7% of their investments in precious metals and 10-15% overall in commodities. (I still recommend a stronger overweight in commodities, but this is based upon application of MPT.)

PMs: $8.85k-$12.39k. Assuming 50% silver/gold split, $5k in gold is right in the mid-range.
Other commodities: $8.85k-$12.39k. Assumedly, exposure to commodities in an index fund is close to 25-30% today with everyone chasing oil. $11.25k-13.5k of $45k. So, slightly overweight commodities. If your employer is in the commodities sector, you're probably HEAVY overweight commodities.

Given that the amount of over-/under- exposure doesn't exceed 10% in any area, most financial advisors would say changes aren't needed.

The irony of Medora's comments... I'm also a silver bug, but no one would think it from my posts.

 

But it shows me that even though you may be a silver bug, you also look at commodities in balance within a reasonable level of one's holdings. To me that show responsible consideration and is far from the " Silver will hit $250 in December" silver-bug
IMO

Jim

​

 

First of all, you're confusing saving with investment. They are not the same thing. You can compare saving with fiat vs saving with precious metals, or investing with fiat vs investing with precious metals, but not saving in precious metals vs investing in fiat.

Secondly, you're making my point for me by agreeing that 100 years later it takes MANY more dollars to purchase the exact SAME commodity or financial asset, but the same or less precious metals. This is not a refudiation of inflation, but an example! What SHOULD be economic growth is in fact stagnation because the central bank STEALS the benefits of improved productivity.

 

Since 99% of people don't even have 1% invested in precious metals, talking about needing 10% is tantamount to predicting $500+ silver even without a currency crisis.

 

One thing to consider is that back in the late 70s when gold and silver prices were exploding to the upside, people still didn't have 1% invested in precious metals on the upside or downside, and probably never will. Most of the action took place in the futures market and among central banks, just like today. Eventually, the price of all commodities revert to something close to the marginal cost of production [including the cost of capital]. Everything else is due to speculation. While I like gold and silver a lot right now, and expect prices to continue to rise for now, both gold and silver probably [it's hard to get good data] sell for more than the marginal cost of production.

 

This statement is entirely wrong. The benefits of productivity improvements show up in the real economic growth rate [i.e., nominal minus inflation].

 

How can you "invest" with precious metals so that your physical holdings increase each year without further deposits? I understand perfectly how to make my money grow (in fiat terms) via CDs, money markets, or stocks. I'm not aware of any silver- or gold-denominated vehicles, comprising actual metal rather than paper shares, that grow on their own.

No, I think you're making his point.

Assume (safely) that fiat money loses value over time. This doesn't mean that PMs gain value over time -- unless you're valuing them in fiat terms! PMs, along with every other commodity, fluctuate in response to supply, demand, and external factors.

As I've said before, I saw silver's price drop by 50% during a six-month period in 2008, but I didn't see a corresponding doubling of my dollar's purchasing power. Since then, I've seen its price quadruple, but I haven't seen a corresponding 75% drop in my dollar -- even when I buy gasoline.

To put things in even starker terms, inflation from 1901 to 1964 reduced the dollar's purchasing power by more than 75% (according to this inflation calculator). That means four silver quarters in 1964 bought you less stuff than one silver quarter in 1900.

Silver does not protect against inflation, even when you use it as money.