Two pet peeves

I have two pet peeves when reading about the silver market. First, I'm sick of hearing how silver has outperformed gold last year. Because, when you compare the market crash that happened in 2008, silver was taken to the shredders, while gold held it's value. So, it only makes sense that silver "outperformed" gold since it has so much catching up to do. Here's another way to think of it......If silver outperformed gold 2 to 1, then why is gold at an all time high and silver still lags behind it's highest price......Because it crashed harder in 2008, which isn't included in any of these stupid reports. For a bullion buyer, nobody actually bought the physical silver for $9 an ounce. The premiums earlier this year were so outrageous that bullion buyers were probably more in line with paying $15 or $16 an ounce. At the current price of $17.40 an ounce, that's not much of a profit.

Second pet peeve is the talk about gold and silver not being a good inflation hedge. Of course, people purporting that usually go to 1979 and compare gold to treasuries and stocks. Funny that they choose 1979, the year when gold and silver were highly overvalued. So, yeah, if you bought gold or silver in 1979 and hung onto it all those years, you made a bad investment. However, if you compare 2000 to 2010 you see that gold way outperforms both treasuries and stocks. So, I have a pet peeve on this one sided view of data. Can someone who talks about 1979 to 2010 also include a chart showing 2000 to 2010, to show that this last decade gold and silver are good inflationary hedges.

Idea? Comments?

 

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Just pull your hair out, It would be easier...LOL... Then to try and
Figure out this market

 

Actually gold and silver don't do well during times of inflation - it's a common misconception. If you look at the 1980's as a whole - inflation was higher and gold and silver did very poorly. In the 2000's when gold did well - inflation was fairly low. Looking back at the last 50 years - stocks and bonds were better investment choices.

Gold does well during times of currency depreciation and overall economic instability - like now.

 

Please take a look at these charts.

http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/

http://bigpicture.typepad.com/comments/2005/11/chart_of_the_we_2.html

http://soundofcannons.blogspot.com/2008/01/m1-m2-money-supply-chart.html

So that we can discuss the same inflation that is taking place. Inflation is defined as a devaluation of money by the printing of more. An increase of prices isn't inflation.....it's the effects of inflation. The effects lag the cause by anywhere from 2 to 7 years. Discuss.

 

I completely agree with you on both those points. I'm ALWAYS hearing about 1980, as if no one knows any other year but 1980. You're probably much more educated on silver/gold than I am, but generally I am hearing the same things. I also bet people who say these also don't own any PM's. Just a hunch.

I kick myself for not having awaken fast enough in 2008 so that I could have picked up silver at a much cheaper price than what I paid for last year.

If silver ever does happen to crash again, be sure I will be picking them up even more....I won't be running away....

 

I agree technically yes - inflation is defined as an increase in the money supply. Your belief is that gold and silver are good inflation hedges - based upon that I thought you were referring to price inflation and thus gave counter examples to show how gold does not track price inflation very well.

There's a great analysis on seekingAlpha that examines the correlation between the price of gold and the money supply. The author concludes that " moves in gold price appear to come before moves in the money supply" and also that "the money supply can expand now without gold necessarily increasing in value."

http://seekingalpha.com/article/108718-gold-price-and-the-money-supply

My point is to simply show that there isn't a correlation between inflation and the price of gold - and therefore by definition cannot be a good hedge against inflation.

 

Lets check.

On 1/1/1960, gold was $37 and now it is 1,121, about a 30 fold increase.

On 1/1/1960, the DJIA was 679.36 and now it is 10,583.96, about a 15 fold increase.

 

I just chipped a tooth.

 

As I have come to understand it, both gold and silver are "manipulated" meaning that there are excessive short positions in the futures markets. A bill just passed in the House which would place regulatory limits on the number of short positions that can be held. It would need to pass the Senate as well naturally and then Obama would have to sign it. I came across this info in a correspondence from Investment Rarities today.

If the existing open naked short futures positions in silver are closed or bought back presumably the silver price can resume its path upwards. Industrial demand is such that the Mint may be obliged to cut back on its extraordinary minting of silver eagles which is eating up millions of ounces of silver industry wants.

Hold on tight!

 

I forget who, but someone mentioned at one time that our military needs silver for their explosives or something like that. Everytime a bomb goes off, that's about 500 ounces of silver.

Perhaps someone with more military knowledge can go into more detail but that's the general understanding I got...

 

Well, regarding silver, I was lucky enough to buy Silver Wheaton (SLW) in December of 2008 and my shares have gained 200%. Of course, in my limited investing experience, I'm no guru. I've made some wrong headed investments in Canadian junior base metal miners and paid the price.

 

flydl, I went to that link and looked at the first graph. Let's examine. Between 1995 and 1996, there was a modest decrease in the money supply. Two years later, the price of gold does down slightly. From 1996 to 2001, the money supply increased modestly. Five years later, from 2001-2006 the price of gold increased modestly. In 2001 to 2004 the money supply started to explode. Five years later, from 2006 to the 2009, the price of gold exploded.

So, what I'm saying is, the price increase is 2 to 6 years lagging the money supply. So, if you look at the chart, you see that from 2005 to 2009 the money supply increased modestly. So, we can expect gold to increase modestly for the next few years until that BOOM in the money supply catches up to gold....probably 2 to 4 years from now, when the price of gold should go BOOM!

 

I have read the same thing. Guided munitions and cruise missiles apparently use significant amounts of silver in the electronics because silver is the best electrical conductor. Apparently, copper and other metals aren't sufficient.

 

Interesting article I read today. Basically saying what I've been above. Take a look.

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=95224&sn=Detail

Something else interesting to note. During the X-mas holiday, there is reduced trading or the trading is very thin. Due to the limited amount of trading, prices can be more volatile. I think "manipulation" is getting more difficult to do, because when the price of gold is at an all time high, and going up.....who wants to short it? However, with the decreased trading this season, gold prices went down. And which market sold to make them go down.......The american market. Kind of fits with the "manipulation theory," as decreased trading would allow "manipulation" to be done more easily.

 

I like this line:

That's kinda funny that they seem to go out of there way to say PERCEPTION.

Anyways, I read so many articles it's hard for me to give credit where I read or hear stuff, but one thing I just picked up on is that you HAVE to invest your USD's somewhere.

Being conservative and just leaving them in your banks savings account earning roughly 1% is the worse thing you can do for your hard earned money. It's not safe, and it's losing value.

And if the rumors are true that Obama is going to sign some kind of bank run bill, that's definitely a BAD sign. You have your rights to your money. If someone is holding it for you, you should be able to access it.

I don't believe in US stocks anymore. I played that game from 1999 - 2006 and made absolutely NOTHING. So that's why I pulled out completely and my retirement plan are my PM's...

My only saving grace was the fact I pulled my loot out in 2006. If I kept them in 2007-2008, I probably would have nothing right now...

 

If you go to your bank and demanded all of the money in the account that moment....what do you think they would tell you? Most banks have a $2000 cash back limit. Basically, if everyone went to the bank today and demanded their money in cash, there wouldn't be enough to give to everyone. If you want the electronic money to be actualized, so that people like you and me can get access to it, instead of just banks, we should organize a mass money withdrawl on a certain day this year. This would force the money to be put into our hands and out of that of bankers.

 

Right. And that's what's scary. I'm not sure what the limit is, I know I've been able to withdraw at least $3,000 in cash, since I've done that last year.

But for arguments sake, I'm sure there's some limit $2K - $5K range, depending on the banks policies.

"It's a wonderful life" provides a classic example of how the banking system works. The people always seem to get the raw end of the deal that's all, and I'm just tired of it.

I'm keeping just enough cash at the banks to do my daily/monthly transactions. If there's ever a bank run, I won't have to worry about doing any running...

 

nailed it!

You nailed it! In the end when the dollar is gone and not worth the paper its printed on u will be glad you got silver/gold. If it sounds like i am a dooms dayer i am it not like are dollar has lost alot of it value ooops it already has!

 

Your calculations fail to take into account dividend yields. The DJIA return you cite is 5.65%. The return of gold is 6.91%. With dividend yields of about 3-4% during this period the return for stocks is much greater.

 

I understand, my skepticism is that I just don't know that there's enough evidence linking the two - I see the correlations you are pointing out but they could statistically be unrelated to each other.

I see it as supply and demand with a lot of external factors that influence it. For example, you cite the explosion in the money supply but the majority of that is sitting as excess reserves at various banks. That is not money that is in consumers hands - and there's a strong argument that it will never reach the consumer - it will more likely be used to cover future defaults or as some say be recycled into the treasury market and be used to purchase gov't bonds.