Saturday, December 25, 2010

The Case for Precious Metals

I hope you all have a wonderful Christmas Day!

Yesterday, I paid a visit to my neighborhood coin/precious metals dealer. I picked up another 7 oz. of silver. I have been buying gold and silver incrementally on dips in price.

I have done gobs of research on precious metals. I frequently post some of the funniest videos on here. I thought what I'd do is explain some things about precious metals that you might have not heard before. My chief reason for buying precious metals is that I don't think most people understand precisely what Ben "Bernank" is doing. I also don't think most people understand why he can't stop doing it. The last great act of hyperinflation is money printing. That has happened in Zimbabwe, Weimar, Germany and other places.

The last great store of wealth in the United States is private and public investment accounts. Virtually everyone's wealth is tied somehow to the stock market. Real estate has taken it's haircut. If the stock market tanks, we all tank. Thus the stock market becomes the holy grail. All other investment vehicles within the U.S. have become dead money. The Bernank has tried to create the illusion of fiscal health within our stock market by essentially giving free money to member banks to invest. Hedge funds, fund managers, and banks are all that is trading this market. Of course it has been rising with inflated currency. Retail investors have been fleeing in droves to the tune of 100 billion this year- the catalyst for that was the May flash crash. So while 100 billion has retreated, the Bernank has managed to offset that with 600 billion worth of QE2. QE2 runs out in May/June. What happens when the Bernank runs out of dough then? That's the dilemma. The market will capsize. Thus the Bernank will have to announce QE3. Then QE4. Our currency, devalued already, will take more of a beating. In an environment where the FED is essentially robbing savers, to bail out debtors with cheap money- your money becomes more and more valueless.

If bankers could destroy one thing on earth- it would be precious metals. That is their competition. Precious metals are not "money." Precious metals are wealth storage. There is never a "bubble" in price. Their price is directly proportionate and inverse to worldwide currency and debt levels. The more they print worthless fiat, the higher the price goes. It doesn't hurt that the Euro is screwed- and that European countries are all broke. China is experiencing inflation. In fact, I think all of this builds a perfect scenario.

It takes a lot of money to mine, load, transport, and smelt gold and silver. About 600 bucks an ounce for gold. Silver is by and large, just a by product of gold mining.

Do not let anyone tell you that gold and silver will hit any specified price level at any time. That is just bullshit and not predictable. What is more predictable is that central banks will not stop shoveling non existent money at debt levels. State defaults will require bailouts. As currencies dilute, more and more people will drive precious metal prices higher. That's why I don't concern myself with any percentage rise in gold and silver that has taken place already. Precious metals are not stocks. They are not obligated to adhere to any bullshit measurements of value that equities are submitted to. It just doesn't matter. They have that inverse relationship.  

You shouldn't panic buy either. Buy dips in prices, buy when you have extra cash. I buy 1, 5, and 10 oz bars of silver. Gold in small gram sizes. Buy coins or bars with assayed purity levels. I like Canadian Maple Leafs or silver from Idaho's Sunshine Mine. You are going to pay a 5 to 8% commission. I also don't concern myself with any predetermined allocation of my assets to precious metals. Ideally I am shooting for something in the 25-30% range...but that is subject to change.

I love it when bankers call for a precious metals correction. They try to scare money back into the market or bank. If the precious metals complex takes a 10% correction- I will simply buy more. With absolute confidence. Why? Because I am betting the house on history. The same shit, over and over again, produces the same results.

We have enormous debt levels already that can't go away. The check is now due. Interest rates can only go up from here. We cannot GDP "grow" our way out of this catastrophe. We will have to refinance debt into higher interest rates. The FED has fired every bullet in the gun. The economy has not budged, and structurally there is nothing that can change that. Any number of events, a war, a bill re-enactment such as Glass Steagall, failed muni bonds, failed treasury auctions, (China just had one) a euro collapse, oil and other commodity increases... and folks are going to start looking for cover. Banks like JP Morgan are going to have to cover their silver shorts. The bull in precious metals is ON. After suffering a 20 year bear market can you imagine what this bull market might look like?

I want to thank the Bernank. Dude, you said you would drop money from helicopters and you have proven it. Say what you mean, mean what you say. So many things to like. Precious metals just look like an absolute no brainer and currently the only real safe way to protect your wealth. See you at the coin store!


rawmuse said...

Last 3 times I have gone to my local dealer they have been sold out of silver eagles. I have been buying them in quantities of 2-5 per month for a decade now. I have never had trouble getting them until around October.

Brian said...

I've been buying maple leafs...I'm not even sure I've seen silver eagles there...Maybe JP Morgan told then not to mint any more.

rawmuse said...

The US Mint was out of them for a while. Could not keep up with demand.

Anonymous said...

I agree with your read on the situation. But what happens when the government pulls a Hugo Chavez and expropriates all the gold and silver mines?

Brian said...

That's an interesting question and though I don't think his scenario can occur here, I would not be surprised if the USG tried to intervene somehow. Not sure what piece of nastiness they will dream up next. Outlawing possession? Who knows...