Monday, April 25, 2011

Quite Suddenly, The Silver "Experts" Materialize To Warn Us About Bubbles

The experts now warning about a silver "bubble."

I find it absolutely fascinating that so many people are now talking about bubbles in the price of gold and silver. These good Samaritans are trying to help us avoid disaster. Trying to warn us that silver is greatly over priced- as though the worthless fiat currency that we use to purchase silver- is somehow of far greater value. Wow.

First of all two disclaimers. I am no "expert." Secondly, I own gold and silver. Physical.

Historically speaking, gold and silver have ALWAYS been money. When fiat currency is on a "gold standard" it is worth something. When fiat is not on a gold or silver standard, it is just paper. It is backed by nothing of value and guys like Bernanke can simply counterfeit it. Print it. That is where we are today. The world's reserve currency is just fancy paper. Ass wipe. It is not backed by anything precious and the debt that we issue- is simply our promise to pay you. That's it. We issue no collateral other than the future taxes of currently non existent jobs with non existent workers. Our promise. And we print this worthless fiat currency and give it to you for your oil. And you take it. Perhaps just for a little while longer.

I have always loved walking into the silver and gold bullion dealers and saying, "Are you guys still trading precious metals- or real money- for this worthless paper?"

I can't ignore the fact that gold and silver are commodities. I understand that the physical price of these commodities are driven by paper speculators in futures markets. I get that. I also understand that gold and silver have doubled and tripled in price. I get that also. The price of pork bellies, soybeans, oil, wheat, cotton, Apple stock, Ford pickups, and health care have also doubled and tripled over the years. Were all of these things in bubbles? Or are we just talking about time?

Of course we are. When homes appreciate 3% per year- we think that's normal. Sustainable. The price appreciation is slow. However, when silver and gold shoot thru the roof- after 30 years of no price appreciation and do so quickly...we say they are in a "bubble." Yet how many people own physical silver and gold? Less than 1%. More people own guns than gold and silver. Are guns in a bubble?

So what bothers people isn't really the price appreciation- it's just that gold and silver have appreciated too fast. Unsustainable. Like loose credit driven housing in 2006. If gold and silver had appreciated 3% every year for 30 years- people or "experts" might have thought that was acceptable. Like house prices.

Is silver due for a correction? Probably. Yet if it didn't correct here, I wouldn't be surprised. I have seen stocks literally go straight up, day after day. I've seen oil do that also. At some point, all things of value stop appreciating. They run out of buyers or price themselves out of buyers. At least for awhile. That's normal. At what price point will silver stop appreciating? I'm not sure. And I am not stupid enough to try and predict that. 

The reason gold and silver are appreciating so quickly is because the worlds currencies are being devalued so quickly. An inverse relationship. There's that time thing again. That and there is significant evidence that there is no available supply of silver. So people are investing in real money (precious metals) and that has created a near term shortage which will get filled over time. The correction will occur when silver demand is met and brought back into balance with supply. Bubbles? No. Right now there are too many worthless dollars chasing a very limited supply of precious metals. This is just price discovery.

In the end, I might be able to live without a pork belly. Maybe I can even avoid using oil. But the one thing I can't live without- is real money.


rawmuse said...

Interesting times. I just got back from Hawaii, where I paid $4.65 for a gallon of gas. And it was still going up when I left. Lots of 15mph zones there too. And lots of tickets being written (no, I didn't get one). Ever try to drive 15 with an automatic transmission? The car wants to go at least 20, so you end up applying the brake a lot.

Brian said...

Oil is priced in collapsing dollars. We don't have a supply or high demand issue- we have a worthless dollar issue.

My best friend lives on Kona and reads this blog..RM..he snaps photos of gas signs and sends them to me. Hope your trip went well. By this time next year, tickets to Hawaii should be a couple grand.

Anonymous said...

As long as Bernanke refuses to recognize inflation, I'd say you are safe. The day that changes you wil need to pull the trigger. But you know that better than I do.

davecydell said...

"At what price point will silver stop appreciating?"

I know..... when USD=Zip.

Bought more siver an hour ago.