This is Why NO $50 Silver

It's not much of a factor. Industrial usage may dip ever so slightly if people buy less cars and iPhones, but the fact of the matter is that the currency is going to collapse, not the entire global economy. And the investment/monetary demand will so massively overwhelm the equation that any dip in industrial use won't affect anything. It certainly won't make iPhones more difficult to make if silver costs $500/oz than $5/oz because only a fraction of a gram is contained in each one. Industrial demand for silver is not dependent on the price of it until it goes to par with palladium, gold, or platinum, which may be substituted in some applications.

Silver is money. They will hold it as long as they have liquid wealth. Silver will not be significantly dishoarded in the next generation or two until everyone alive has forgotten the ills of fiat currency and hyperinflation. Then we'll repeat the cycle. People will certainly exchange silver for other things of value in the future -- food, housing, stocks, bonds, etc. -- but it will not cease being a monetary instrument again for a long time, and thus its value will be intact.

 

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I would rank this with " The world is flat" type of statements. By stating is is a fact rather than an opinion, shows a lack of underlying economic factors. I would not say the "fact" is the opposite, as that would be just as far fetched as your statement above, as the future can not reliably be determined by anyone nor any process. Your premise may have some supporters, but so does the "Flat Earth Society". I would be happy if fear drives the price of PM as high as you say it will, but I will be very happy to sell for those fiat dollars. IMO.

Jim

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[FONT=&quot]In 1964 (silver)you could buy a loaf of bread for a dime, 40+ years later with that dime you still can.
[/FONT][FONT=&quot]In 1965 ( non silver) you could buy a loaf of bread for a dime, 40+ years later that dime buys almost nothing[/FONT]

[FONT=&quot]Looks like silver has done not much more than keep up with inflation…That why I buy it.

[/FONT]

 

You could put it that way, or is it more accurate to say
In 1964 10 cents of silver weighed .07240z
today 10 cents of silver weighs .0026 oz
In 1964 you could buy a loaf of bread with 10 cents, today 10 cents will not buy a loaf of bread be it Cu-Ni or silver.

 

.0724oz ($2.80) silver still buys a loaf of bread, nothing has changed.

 

I think something we keep missing is that inflation rises with wars. That's why some historians view wars as stimulus from major recessions. The problem with the "46 years" argument is that it's very dependent upon the time frame AND the size of the loaf. I don't know what size loaves were in the 60s, but my guess would be that, like most things, they were larger than they are today. Also, $2.70 doesn't buy a loaf of bread where I live. So... 1 1964 dime might have bought a loaf in 1964 (which I'll take your word on), but it takes 2 1964 dimes to buy a loaf of bread that's smaller than it was just five years ago. If you really want to track inflation: food and energy. If we enter hyper-inflation (which it appears some are claiming specifically because of large jumps in bread prices over the last two years), holding PMs won't matter. People will still peg it at some exchange ratio to the dollar, and most individuals would hesitate to accept it as tender... even in the face of knowing the dollar you hand them might only be worth $0.93 equivalent in six months.

Anyone who claims silver is money chooses to ignore the concept of liquidity. I can go into any store in the US and pay with USD. The same can't be said of silver. I can go to many (and most of the mass retailers) in Japan and pay in USD. The exchange rate may be unfavorable to do so (the haircut runs 5-15% in some cases), but they'll still accept it. The same can't be said of silver. If I go to WalMart or whatever superstore and walk in with $2 in silver coin and $50 in cash in my wallet, the likely outcome is I'll walk out with $2 in silver coin, $0 in cash in my wallet and $50 in goods. The non-existent outcome is walking out with $50 cash in my wallet, $0 in silver coin and $50 in goods. Heck, it's even unlikely that I'll be able to walk out with $40 cash in my wallet, $0 in silver coin and $50 in goods.

The key in all claims of what constitutes "money" lies in the acceptance of said item as currency. Without liquidity, the greatest store of value would never be viewed as money. And in line with that... a silver dime would supposedly buy a loaf of bread in 1964. In 2011, a silver dime + $3.87 in other monetary instruments will buy a $3.97 loaf of bread.

 

I remember the loaf size from the sixties quite well; anyway the bread is only an analogy, not the point. A dimes worth of .900 silver= $2.80 in today’s money, and with that $2.80 you STILL can buy a loaf of bread. (At least in my area) So buying silver has proven over 40+ years to be a inflation hedge, not much more, and for THAT purpose I buy it.

 

But it took the last five years to serve that purpose. If you bought silver in the 80s (the last bubble), it didn't work as a hedge. If you remove the last two years from the equation and view bread in 1964 v bread in 2009, silver would have bought you ~2/5 loaf in 2009. Again, the analogy is flawed because it relies on a very specific time frame. Commodities in general are good inflation hedges. When I called for silver to be bought into in 2006 and 2007, the reason was based upon relative value against other commodities. About two weeks ago, I started liquidating on any run above 10%+ with a pullback of 2%. I'm now down to ~27% of what I started out with. If silver pierces $40, I'll sell the rest of it. I just can't see buying a commodity as an inflation hedge when its fair value (accounting for inflationary pressure) is around 20-25% below market pricing.

 

First, all investment should have a purpose, and if you can’t wait out that purpose (in my case an inflation hedge) don’t bother starting. I never started buying silver thinking it was a money making scheme, I ONLY wanted to cushion the effects of inflation, and it has. This sudden surge in the silver price is directly proportional to our rapid decline in our buying power. (inflation) Now is no time to sell….. Unless you feel inflation has max-out, and we both know that’s not the case, so why sell?? I bought silver some time ago, for just what is happening now, the wreaking dollar and rising cost, (inflation) and it has served me well. My dime still is worth the price of a loaf of bread. (Luckily I saved my 1964 dime) Oh by the way, I spent my 65 dime a long time ago, while it still had some buying power, I guess I’m just luckly.
Furthermore if you have in-hand silver, getting near or full spot $$ is not that complicated. Use your imagination, it’s done every day.
Nobody likes whats going on, but it is.
Oh I forgot to mention, gasoline only cost me only 15 cents a gallon, silver that is…thats cheaper than 1964

 

So what you are saying is that the Billionaires are going to finance their hoarding of hard assets with the futures market long since in default using a failed currency (US Dollars)?

 

I follow energy pretty closely, and you are the only person I've ever heard talk about peak natural gas.

It is easy to say that there is a lot of oil and that production could increase a lot. What isn't mentioned is that it takes years to bring offshore wells online, much of it just goes to replace the 5M annual decline in production from existing wells, the decline rate on new wells is more rapid than the old giant fields, and most remaining oil requires much higher prices to make economical. Keep in mind too that there is an optimal level of production for an oil field, and producing beyond that level only damages the field and reduces the amount of oil ultimately extracted. I think asking whether people can afford $250 oil is the wrong question. The right question might be, if it is going to take $250 oil to entice more production in the future, what should we do?

 

Peak gas was predicted for 2013-2015 for US stocks 5-7 years ago, (cheap gas). International gas has always projected to ris, but this product is much more expensive and we didn't have good infrastructure to properly import large amounts.

So Clound where would you put Anwar on your list? Access to the pipeline, technology there, just need to drill the wells and hook them up. How about easy close to shore drilling off of Mexico, close to refineries. Cuba even has some rich fields trying to get developed. There are lots of relatively easy oil options, its simply governments in the way that are stopping production, just like in most economic discussions. Government is rarely a facilitator of economic growth, most often if the inhibitor.

Heck I just read about a field in Spain that converts carbon dioxide via algae directly into oil. They want to go into full production in 5 years, netting 1.5 million barrels a day per field. A Buffet is also working on converting organic waste, (turkey and chicken carcasses), directly into oil in the US. There are options Cloud, I guess I am just an optimist. I too follow energy news closely, and have even been to the oil fields in Kuwait, Saudi, Texas, and Mexico for various reasons.

Btw, yes, cracking a field is detrimental to long term production using historical drilling. Fortunately, there is a new US technique to allow more recovery from cracked fields, so hopefully someday we will be able to extract more from fields that have been abused.

 

I still don't know the source of your peak gas comments since I never heard that before. I believe I first became aware of peak oil after reading a National Geographic article in the late 90s.

I'm sorry but I just don't buy your easy oil growth thesis. Keep in mind that 5 years from now without new discoveries and drilling, world oil production would be 20% lower than it is now. So the first 15-20MM barrels per day of new production over the next 5 years will be required to keep production level. That's the piece that is frequently forgotten. And as Matt Simmons used to point out, Saudi Arabia oil production numbers are a state secret, and if Ghawar goes into decline the way Mexico, North Sea and other places are, there is no stopping the decline in world production. So natural gas is set to become more widely used as we get deeper into the 21st century.

 

We can disagree man, maybe we are boring people here. I will say that peak oil was predicted in the 70's, I read an article about it when I was 10, (I was a weird kid). Also predicted was a global cooling catastrophe that will destroy our world unless we took action NOW, (same dude now has global warming books on the bestseller lists).

 

No, it isn't. Since late 2008, the price of silver has nearly quadrupled. If your claim were true, bread, milk and other goods would have quadrupled in price, too. They haven't.

Some of silver's rise reflects a drop in the dollar's value. But using silver as your reference for "constant value" is even sillier than using the dollar -- the price of silver relative to anything else fluctuates wildly.

 

Just shooting from the hip here, but I think there are other factors to consider. Bread for example is easy to produce, does not last forever, and therefore must be priced to sell. I don't think that all commodities will necessarily rise with inflation. Wheat primarily is because of crop shortages; flooding in Australia and drought in China.

Silver retailers on the other hand don't have that extra incentive to drop their price, because it's not going to get moldy (some of us even enjoy the toning), and it's also a lot easier to flip your silver than it is to sell a loaf of bread to your neighbor who might ask what you've done to it. So I do consider PM's to be a more accurate gauge of inflation than just about anything else, especially considering that they are commonly known as a hedge against inflation.

I do think the love/fear factors involved in PM's make them rise faster than inflation though, and the true gauge is somewhere in the middle. Oil might be better for comparison, but there are obviously different things to consider for the different scenarios that make each unique.

 

I just don't agree Inflexion. You speak of inflation as if its some nefarious thing. Inflation, simply put, is price rise "of a basket of goods" that in some way mimics consumption of those goods in a society. That is all, so no one thing is a better gauge of inflation than another, it is their joint rise in total that IS inflation.

Now you can get into the "corrections" the government makes to the CPI, etc, but that is the base of inflation. I view all PM's as the commodities they are. Yes, they are exportable commodities, so their inflation rate in dollars could be higher than non exportable commodities prices in dollars, but they still are PART of US inflation.

Edit: One thing to remember. Those of us here are very much aware of PM prices, as we either invest in them or they affect our hobby prices. Remember that most people could really care less, and are as aware of PM prices as much as they are aware of soybean oil prices, cotton prices, or frozen concentrated orange juice. Oil is different since the price is advertised so clearly. Other than that, consumers simply do not follow these things, but we do, so we assume it is common knowledge.

 

I was in exploration and production for 10 years and do not know what "cracking a field" means. Maybe I've been out too long but can you help me out with this?

Regards,

Bluesboy65

 

Thanks for the insight medoraman. I am a seeker, not a professional in this arena, and always open to updating my thoughts on the subject. I don't view inflation as a bad thing, just hyperinflation which is where I feel we are heading barring a huge uptick in oil prices. I have always been of the impression that inflation is simply increasing the monetary supply, so maybe I need to reconsider that. Regardless, I do agree with you on everything else. I know there are different flavors of defining inflation so maybe that is something to consider here.

 

When all the razil-dazil is said and done, increasing the monetary supply is the problem, and will eventually lead to the dreaded hyperinflation. History has more than one example we could learn from. First in act socialism, then print more money to pay for it, nothing new.