Saturday, November 10, 2012

Silver and Gold For Dummies

The investment of the decade...drumroll here....was gold. Up 1600%. I am sure there were some individual equities, maybe Apple, that out performed gold. The problem with that is my human nature- I never sell at the right time. The reason I say that is as an investor, I have always taken money off the table as my winners run. I never get the purest return.

But what if there were an investment that was guaranteed to only go up? One where you weren't particularly worried about management shake-ups, competition, bankruptcy, or any of the other problems associated with publicly traded corporations?

Is silver the investment of the next decade? Probably. Eric Sprott thinks so and he puts our money where his mouth is. The best 30 minute sales pitch.

I have been buying gold and silver, on and off, my whole life. I made my first 1000 dollars buying a 100 oz bar of silver back in the late 70's- early 80's. That bought a decent used car then. No reportable sales or capital gains tax.

I buy gold and silver bullion from local coin dealers. On a 10 oz bar of silver, I pay 10.00 or 15.00 bucks premium. That's it. No sales tax. So if silver is at 32 bucks an oz., I am out the door with a 10 oz. silver bar for 330 or 335 dollars. Gold is more expensive. I generally can get an oz. bar or maple leaf for about 50 bucks over the spot price. When I sell, I get spot minus 25 bucks. So the dealer makes 75-100 bucks or about a 5% round trip (selling/buying back.) That's a fair price for him and for me. The problem tends to be storage. I don't mind the safety deposit box fees of around 25 dollars a year. My problem is access. I want 24/7 access. If you don't actually possess an item- you can't exert control over it. I want to be able to get my gold and silver anytime. So bank storage is a problem. For now.

Let's talk about Eric Sprott's PSLV for silver and PHYS for gold. Sprott manages trusts. These trusts actually go out and buy gold and silver bullion and store it for you. Unlike other precious metals investment vehicles (ugh, bankers) there is 100% gold and silver backing your investment. The metal is unencumbered meaning that there are no claims or secret loans on the stuff. No tricks. In fact, Sprott is out looking to buy another 900,000 ounces of silver right now to keep up with the demand in PSLV. Units in each bullion trust are priced fractionally lower than the actual price of gold and silver. I think silver is around 13, gold is at 14 a unit. I want to support Sprott because he is taking gold and silver out of the supply side. That tightens and increases demand.

Unlike the alleged gold in Fort Knox, auditing at Sprott is done transparently. Your units are redeemable for actual bullion. Gains are taxed at 15% rather than 28%. That unfortunately, is a big drawback. The government can easily see and track your gains in the fund as you enter and exit it. Currently the government does not have that ability in the coin shop bullion trading that goes on in every decent sized town. More info on Sprott here.

I own physical bullion. I also plan on buying both funds, primarily PSLV. I do all of this from the comfort of my mother's basement while I sit here in my undies drinking cocoa. Just so you know.

Gold and silver miners. I hate buying miners usually. Let me tell you why. The first problem is assays. I have never met a gold or silver miner that underestimates the value of a claim or ore body. The second problem is overhead. It costs a shit ton of money to buy claims, trucks, plant and smelter, equipment, fuel, men, and benefits. Many miners hedge production or sell at prices less than current prices just to have stable cash flow.  Most miners, even at todays huge prices, are not making that much. The reason is simple. The easy gold has been found.

Any moron telling you that it only costs 5 bucks to mine an ounce of silver is an idiot. Personally, I think break even occurs near 20 bucks. It would take a giant, rich, and easily accessible ore body to make money at less than 20 bucks an oz. If I ever thought that price was going to be broken on the downside- I'd be out.

I own long term options on gold miner and producer, Kinross. Just so you know. I also own shares in a mine and I plan on buying a producing silver miner.

I will never understand why miners refuse to hoard or store their product when prices are down. It's not like gold or silver have some definable shelf life. It ain't sugar beets. Perhaps all of the miners are simply undercapitalized. Weird.

There are other ways to invest in gold and silver. There are futures markets, there are mutual funds which presumably have precious metals "backing" them- a term that I do not trust. I do not trade futures because I do not want to get in bed with the bankers who manipulate those markets nor do I want to support fraudulent exchanges wherein actual trades are never settled in the actual delivery of metal.

One last thing. The world is running out of gold and silver. Really. There is no "silver shale" waiting to be discovered by geologists in North Dakota. If silver ever returns to it's historic ratio to gold (20-1) we are going to make a shit ton of money.


You cannot trust anything made of paper. Not anymore. If you want to let banks use your money for free, making loans at 5 or 6% while paying you 1/2 of a percent, you are experiencing a negative return. Only people with too much money and people who know nothing about money can accept negative returns. If inflation is a true 5%, and you are getting 1/2% interest on your money- you have a real and negative rate of return of -4.5%.

I have been making a very easy 7% in precious metals year after year. I sell some occasionally. I sold 25 ounces of silver at 40.00 over a year ago. I bought it back at 26.00. That little transaction made more than 25k sitting in a bank account making 1.5% all year. Once you have a core holding, I think its ok to sell a little now and then.

One last thing.

Economies around the world are collapsing. Inflation is going to take off. This scenario is very well precedented. It has happened before. The problem is that people always forget. They trust a government who has every motive in the world to lie to them.

Until the world's unbacked fiat money system collapses, we can't lose. Look at Japan. They've been broke for 25 years. Our country is going to do the very same thing. This year, 2013, promises to be a real hum dinger.

Unlike those thieving government bastards, I have no motive to bullshit you. Frankenstein Government is still 100% advertising free. I don't even have a tip jar.


Unknown said...

Perfect way to work on writing a book

Anonymous said...

Just happened to see a interview with James Turk. Turk is a respected metals analyst and his call for gold is $8,000 by 2015. I believe that once the Euro zone fails, end of 1st quarter or early 2nd quarter of 2013 we will see both gold and silver move higher very quickly. The wealthy are begining to buy and once gold breaks $1800,you will see a flood of buying come into the market.

Anonymous said...

Brian, I don't know if you had a chance to read the comments on your Guest Saturday post yesterday. This was the comment from Cheryl:

"True, RM…just like Brian can! I think I’m too stupid to play this game. Hording gold at my house doesn’t seem feasible somehow. I can’t eat it, so the farmer up the road who has chickens would be rich from my buying eggs, I guess. I don’t doubt Brian’s plan…probably very smart. I just don’t know how to do it."

I think there are a lot of people like Cheryl. They read what people like you say abput buying PMs to protect themselves from thecoming crisis and it makes sense to them. The problem I think they are having is that when the monetary system cillapses and they are sitting there with their accumulated mini-bars of gold and silver, how will theu be able to trade bits for eggs and milk or whatever they need to survive. This is a long way of asking you if you would write a post explaing how you see commercial transactions occuring during hyperinflation. To whom to you trade you PMs for currency or do you trades bits directly for the things you need. If you could address that I would post at my pñace too even if it insn't Saturday.

Unknown said...
This comment has been removed by the author.
Anonymous said...

I don't envision a prolonged period of us running around bartering without some conduit of commerce. The problem is...what currency you have, the old stuff, will be worthless. When they issue a new currency, I doubt it will be convertible...especially if the world's bankers back the new currency with gold and silver. If that occurs, all that old currency will be zeroed out. Sorry.

So I am gonna go eat some breakfast using the old currency this a.m. I will give this some thought and maybe come up with a Sunday collage. Thanks Jim.

Brian said...

Chase! Good to see you around these parts. If you get into the big city, like a democrat I am always looking for a free lunch!