Posted by
Lucane01
11 yrs ago
If it helps you can think of it as an alternate currency. If you desire for your portfolio to have any allocation to currency then you can decide which currencies you wish to hold - silver has outperformed fiat currencies by leaps and bounds.
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You can pick and choose your data points as you wish, but the longest historical trend throughout all of history is that silver holds value better than fiat currency. If you'd like to pick a few blips over a 30 year period and declare silver risky rather than focus on the 5,000 year failed history of the thousands upon thousands of other currencies in existence, then be my guest. Not one single fiat currency has ever survived - they all eventually go to zero. So when you say that silver has dropped from $30 to $20, it does not phase me the slightest bit, especially since the ultimate destination of the dollar is the trash heap.
Silver has held its value so well that a US quarter can still buy a gallon of US gasoline, the only catch is that your quarter must be dated 1964 or earlier because then it is a US silver quarter. Melt that quarter at today's prices and you get just under $4.00, enough to buy a gallon of gas with a few pennies left over. Compare that to the face-value of that same quarter, $0.25 - you'd need about 10 of those same quarters to buy a gallon using the fiat value of it, otherwise known as a 90% loss of value.
If you are looking for a long term store of value that can last not only your life but multiple generations as a good savings for your kids and grandkids, then buy yourself some physical silver. But I would not "day trade" by lugging around physical silver into and out of storage to sell it at relative peaks (and I am being facetious by using the term day trade, I Know you are looking at a multi-year time frame, but in comparison to the generational time-frame it is kind of like day trading).
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Ed
11 yrs ago
My take on gold/silver is this:
Many (most?) people believed that the US would be able to reduce (taper) their 5 years of money printing... and return to some sort of normal policy...
As we saw when Bernanke suggested a couple of months ago that the Fed might taper... the markets did not like that... bond yields nearly doubled on the rumour... developing markets began to implode... mortgage activity collapsed... ON THE RUMOUR ONLY ...
Ben had peaked behind the curtain and he saw the demon lurking there... and he was frightened by what he saw... so he back-peddled... no taper!
Of course there can be no taper - without QE and ZIRP the global economy will collapse... QE ZIRP have not repaired anything - how could they? Name one instance where money printing has solved a financial crisis?
All it is has done is delayed the inevitable - money printing cannot go on forever... and when it no longer has any effect or the toxic side effects blow up the economy we will go back to 2007 - but this time there will be no bailouts...
So what what happens then?
- stock, bond and property markets will collapse - we will have a Depression and/or hyperinflation
- in Cyprus the government seized cash from accounts - and to this day I believe you can only withdraw 200 euros per day from you account
- currencies could be devalued so that one morning your HKD500k cash in your current account is revalued in New HKD - at say 10-1...
Who knows what will happen but without a doubt the writing was put on the wall by Bernanke when he said 'NO TAPER'
He has told you there is no way out... he will destroy the US dollar because he has not choice - collapse now - or collapse later...
There is no guarantee that gold or silver will retain value - however they have never gone to 0 - never.
Ask someone in Cyprus if knowing what they know now, should they have changed some of their fiat currency for gold or silver ---
I think we know the answer....
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Ed
11 yrs ago
I am looking at the very short term with respect to the USD (and other fiat currencies)... you cannot print a trillion dollars per year for long without blowing the currency out.
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Ed
11 yrs ago
Semantics ....
You will note that I did not say the world is going to collapse... I said the global economy is going to collapse...
The last time this happened you did not have a recession you had the Great Depression...
Gold and silver might deflate along with other assets ... but they won't go to zero... if you use history as your guide they retain their relative value (one oz of gold buys you what it bought you a hundred years ago - a good suit and a pair of shoes)...
Stocks, bonds and cash do go to zero... they vaporize and have done so many times...
As for property (or other hard assets such as fine wine, diamonds, art...) they too crash ... but they eventually do recover of course... the problem is that property owners are often unable to hold out because their liquid assets (cash bonds stocks) are toilet paper... so they are forced to sell property into a horrible market just to eat...
Now if they had a cushion of gold to fall back on.... then they could eat... then they would not have to sell their property...
If they had a lot of gold they could buy more properties for pennies on the dollar...
Let's see how the various asset classes performed when the last major country tried to do what the US is doing i.e. print themselves out of an economic disaster:
The Nightmare German Inflation
One day everything was fine. The next day hell was unleashed.
http://www.usagold.com/germannightmare.html
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Ed
11 yrs ago
Met up with a couple last week who run a hedge fund in Singapore over dinner... discussing gold ... asked what her clients are doing...
She said they continue to keep cash in her fund and play the markets ... but many of them are putting large chunks of change into physical gold ... USD3-6 million going into gold held in insured vaults usually in Singapore or HK....
They refer to it as their 'insurance policy'...
I think the point is that nobody knows how this plays out...
Optima spera. Ad pessima para (Latin for hope for the best ... plan for the worst...)
I would note that I would under no circumstances put all of my eggs into the gold basket... that would be the supreme act of hubris...
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Ed
11 yrs ago
China’s London-Zurich-Hong Kong gold conduit — a major
financial coup d’etat
The United Kingdom’s gold exports to Switzerland jumped from 85 tonnes to 1,016 tonnes in the
first eight months of 2013 — a twelve times increase. Some bullion market watchers attribute
the huge increase to withdrawals or sales from ETFs — an explanation that covers only half the
story.......if that.
Switzerland, according to the Koos Jansen website, has exported nearly 500 tonnes of gold to
Hong Kong through July, 2013. Hong Kong, in turn, has exported over 1200 tonnes of gold to the
Chinese mainland over the same period. Now, with this report of ramped-up exports from the
United Kingdom, another piece of the puzzle falls into place and we begin to get a fairly clear
picture what these gold mobilizations entail. Switzerland and Hong Kong are acting as a conduit
of western gold on its way to China — and probably Chinese central bank reserves
To what extent this gold mobilization is the result of some yet-to-be-identified external
pressure on London’s bullion banks, or simply business as usual, remains to be determined, but
gold movements of this size usually do not occur in a vacuum. Hedge funds have been in the
gold ETF liquidation mode since April, at the behest, it seems, of certain bullion banks that
have issued generalized ETF sell recommendations to their clientele (which includes the funds).
The ETF selling has been blamed repeatedly for the rapid drop in the price. If all of this has
been a ploy to drive down the price on paper and channel substantial amounts of physical gold
to China, who is the winner in this game and who is the loser? And why is it being done?
The gold market is incurably opaque (no matter how diligent or persistent the arguments to the
contrary that it isn’t or that it should not be), and that is probably why so many are intrigued
by it. Yet, at the same time, those who innocently own gold for asset preservation purposes can
rest assured that they will never become collateral damage in these affairs as long as they do
not allow themselves to lose patience or forget the reasons why they purchased gold in the first
place.
Gold is never sought by those who think all is well with the world. It is sought by those who
believe that things could go wrong, or indeed, that things have already gone very badly.
That true believer might be someone of incredible private wealth, as was the case with Bernard
Baruch in the 1930s, or it might be a great nation-state like Germany or China today.
When the sitting Secretary of the Treasury asked Bernard Baruch why he was buying so much gold, the reply came quickly that he “was commencing to have doubts about the currency.”
China and Germany, no doubt, are acting on doubts of their own. Up until today, we were unaware of the degree to which those doubts had manifested themselves in the hidden corridors of the world
gold market.... Now we know. In the first eight months of 2013 China produced 270 tonnes
of gold from its mines, and theoretically almost four times that amount through its London —
Zurich — Hong Kong gold conduit. In future years, this will likely be considered a major financial
coup d’eta
http://www.mauldineconomics.com/ttmygh/pdf/an-empty-forest-full-of-trees
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Y&H,
Fiat currency has existed for nearly 1,000 years and has been present in all cultures across the globe. They all have gone to zero. That the current round of fiat currency, Dollars / Euros / Yen / RMB, is not yet at zero does not mean that this time we have magically fixed all of the fiat errors of the last 1,000 years, but rather just that these currencies have not yet existed long enough to go to zero.
As for your 1/4 gallon comment - how many gallons could a 1965 quarter purchase you? 1/12 a gallon. A 1964 quarter? 1/4 a gallon. So silver still better preserved your purchasing power as compared to the fiat counterpart.
Think of the pound sterling, which used to literally mean one pound of sterling silver. How much can a pound of sterling silver buy today? About $300 USD worth of things. How about a pound (as in the fiat British pound)? About $1.50 worth of things. So the British pound sterling suffered a near 100% loss in value as it went off the silver standard to a pure fiat basis.
How about the US dollar? The US dollar used to literally be defined as $20 USD = 1 troy ounce of gold. Back then you could buy yourself a fine tailored suit for $20. What can you buy today with $20, a Gap T-Shirt? But if you owned the gold rather than the $20 fiat counterpart then you could still walk into a luxury tailor and buy yourself a nice suit (or more realistically, several suits).
So once again I think your focus on the "short term", where I define short term as several decades, is fully irrelevant if you are considering owning the metals. The big picture is crystal clear - fiat currency always goes to the rubbish bin, the metals approximately hold their value.
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Y&H -
You are comparing apples to oranges. As I mentioned earlier, if you are looking to allocate part of your portfolio to currency, then silver, which is a currency, should be a part of your portfolio. Within the currency allocation you can compare one currency to another, but don't bring in a completely different type of asset class and begin comparing them - it is an erroneous comparison.
If you want to compare bonds to currencies then that is a broad based portfolio decision - i.e., do you want 70% bonds 30% currencies, or 70% currencies 30% bonds? But once you select that 30% currency allocation is your target and then begin choosing which currencies will make up that 30%, don't then come back and say "hmm well do I really want this silver of should I go 75% bonds now?"
Anyways, as to your question:
Property: 1963 median US home price about 20k, today it is about 200k, so 10x increase. During that time the silver value in your 1963 quarter has increased from 25 cents to $4.00, so 16x increase in value. Hence you were better off holding your silver quarters than purchasing a US home (although I state that once again this is an erroneous comparison, you shouldn't compare silver to housing but rather silver to dollars / yen / euros. If you want to compare silver and housing then you should only look at it from the broad based view of "currency vs property, which do I want?")
Bonds: ridiculously complicated calculation to make because of the reinvestment of coupons at whatever prevailing rates were and the added complication that the dollar lost like half of its value during the same time. But if you bought a 30yr treasury at peak in the 70s and held it to maturity without reinvesting the coupons you'd have made about 6x your money. During the same time silver increased by even more.
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Y&H,
I don't recall saying it should be stored at home - if I did say that though, it was not my intention.
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Ed
11 yrs ago
Gold vs fiat question....
"Suppose that you now have let's say 13 100 $ notes and a single gold 1oz coin. You put them in a drawer in your house and forget about it until your son, 15 years from now opens that drawer and finds your stash. Do you think he'll be happier to find the paper banknotes ot the gold coin."?
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Y&H,
Hopefully one would not need to pay a 100 years of vault fees because presumably one day we won't be on a fiat standard. If one investigates long term monetary history across the globe you'll find that fiat standards generally only exist for a few decades before they implode and the governments are forced back to hard money.
A lot of people forget that in the 20th century the US already had three different currencies, albeit all with the exact same name and design. But we began that century with a true readily exchangeable hard money, then FDR stole all the hard money and issued a quasi fiat / hard money currency that was only exchangeable between central banks, and then Nixon took us fully fiat. So in one century we already had three majorly different monetary systems, of which the most recent has only existed for 40 years now (about the average lifespan of a fiat currency). It is no surprise to an Austrian economist that the US is undergoing excruciating monetary and fiscal problems now - they predicted all of this would happen 40 years ago, and now it is coming to fruition.
My point is that there is a non-zero probability that in the near future the world governments will be forced back into hard money. If that is the case then anyone who owned physical metals could then exchange them back into the new hard-money-backed currency and thus no longer be forced to bear any storage fees. Of course if this were to happen it would be critical to periodically examine the health of the bank that issued your currency because the the banks have an unyielding tendency to debase their currencies steadily over time. Key would be to exchange your currency back into the hard money before the eventual debasement is announced.
Most people think this will never ever happen, but I'd say that is just ignorant nearsightedness. 2/3 of the last century was spent on a hard money standard, so if anything it is the fiat currency that is the odd man out (which indeed it is the odd man out - there have been thousands of historical fiat currencies and they literally have a 100% failure rate).
Anyways, if you were to store it in your house, people in the old days would likely store it inside of the walls or under the floorboards and then never talk about it. Not sure how viable that is for HKers though - given that most people live in apartments and frequently move from place to place.
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Ed
11 yrs ago
Given that Bernanke is unable to stop printing money without collapsing the global economy... if you offered me 13 gold coins or equivalent value in stocks or bonds to be held for a 15 year period..
I'd take the gold coins
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"they retain their relative value (one oz of gold buys you what it bought you a hundred years ago - a good suit and a pair of shoes)."
This only works, sort of, because there is a great deal of variability in the prices of suits and shoe prices
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Y&H,
You are asking for impossible things, but I have no interest to get into a long discussion about why many economic measurements are bogus. But anyways...
I already gave you the oil scenario showing that it is still able to purchase about the same amount of oil today as it could 50 years ago. I also gave you the housing scenario.
Here are some more:
http://www.hotboots.com/catalog3.html 1950s boots cost about 1/3 an oz of gold. Today a 1/3 of an ounce of gold can purchase you $400 worth of boots.
http://searsmotorbuggy.com/Sears_history.php 1909 car for 20 oz of gold, which today can purchase you $26,000 worth of car (otherwise known as one new American car).
Ford Model T price was about 12 ounces of gold, which today can still purchase you one new Ford (in America).
Do your own research, it takes little effort for you to find old prices online (historical catalogs in Google Images), price it in gold or silver, and then compare to today's prices.
OTP,
So? All consumables have great variety in prices. I can buy a peach in PnS for $3 or buy it in Citysuper for $30.
The critical point is that whatever the price of a suit used to be, that amount of paper dollars today can not even remotely get close to purchasing you a suit today. If for example a suit used to cost $20 (1 oz of 1920 gold) then today $20 can purchase you a pair of socks, whereas the same gold coin could buy you a suit. Quibbling over whether the suit is Savile Row Bespoke or Marks and Spencer is missing the much much larger picture which is that the $20 cannot buy you anything today but the gold coin can still dress you in a suit.
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SUIT*:
Coat----- : $266.00
Trousers : $087.00
Shoes--- : $150.00
============
Total---- : $453.00
Gold---- : $1,350 /oz
Oz/Suit- : 0.335 oz
GoldPeak $1,920 /oz
Oz/Suit- : 0.235 oz
=====
*source: https://sslws033.alentus.com/suitsource/
Does this mean: Gold was (and is) 3X-4X too high in price?
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OTP,
I think that is an erroneous conclusion.
First, one generally should expect the purchasing power of a hard money to increase with time. This phenomenon is simply because usually productivity growth outstrips production of new hard money, hence there are more goods being produced each year with approximately the same amount of hard money chasing after it, hence prices go down, hence purchasing power of your hard money increased. This is indeed the case during the 19th century in the US as prices steadily declined over the decades. It's also interesting to note that the 19th century saw the greatest explosion in growth of all human history with the industrial revolution - kind of blows a hole in tired old Keynesian nonsense that deflation is bad for the economy.
So that you can purchase more suits today with the same amount of gold as you could a century ago is to be expected (as this is what had already been proven before one century prior).
Secondly that there are fluctuations in the price of a suit as measured in gold is irrelevant. For example if a store has a 50%-off sale do I say that my gold is now overpriced by 2x because it can purchase me twice as much as I could before? Or was my gold undervalued before and its now reached its proper purchasing power? I think it is too simplistic to look at it like this.
Besides, if gold is to return as the primary global form of money, then its "true value" is likely to be somewhere in the neighborhood of 10x+ its current price range. So whether it is up or down 30% from a year ago seems irrelevant when facing a probable 1,000% increase in purchasing power.
Again I think its best to take a step back and look at this from the very big picture. Fiat currencies have been around for hundreds of years, there have been thousands of forms of them and so far they have a 0% success rate. Meanwhile the metals have been around for even longer and have always been used as money. Even when people shun the metals as money they still eventually one day return to it. No one ever says "Yah lets bring back the Continental" or "save up your Greek Drachmas, they'll be worth a lot in the future!" We're comparing fiat money and hard money - one goes definitively to zero purchasing power, the other retains some level of purchasing power (whether that purchasing power has increased or decreased seems irrelevant, at least it is not zero !).
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My only real point is that "one man's suit" is not a very reliable measure for the value of an ounce of gold.
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OTP,
Sorry, I missed the intent of your post. I agree that a man's suit in and of itself is not a reliable way to measure the purchasing power of a form of money.
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Y&H,
Not targeted at you but I loathe analysis like the one given in the blogspot post because it ignores all levels of fudging that goes into the inputs and thus leads to inane, misunderstood and deceptive results.
For example, take the poster's use of CPI in his model. First off why use CPI? Who says CPI is the proper measurement of inflation? By the way, what even is inflation anyways - is inflation expansion of the money supply, expansion of the velocity of money, expansion in the total quantity of money (if so, which money? M0 M1 M2 or something else?), increase in prices of consumption goods, increase in the price of investment goods, or increase in price of assets overall? Jumping to the use of CPI totally bypasses the entire concept of understanding what inflation is - a concept which is still hotly debated today and likely will be debated for the rest of eternity (because there is probably no definitive answer).
So the poster ignores tackling the entire notion of what is inflation and simply decides that CPI calculates inflation (whatever inflation is is irrelevant to him, even though his entire theory is based upon using the Real Rate which is calculated by subtracting Inflation from Nominal Rates). But what CPI? Base CPI? Core CPI? Which CPI equation, the one this year or the one last year or the year before that? The CPI calculation is determined by the US BLS, an arm of the Federal Government, and is changed frequently. When housing prices in the US increased during the 2000's the BLS decreased the weighting giving to housing because in the old equation it was giving results of high inflation, but that was not politically acceptable to the Fed Government so they simply decreased the housing cost weighting in the equation. When oil prices leaped from $30 to $120 they didn't just decrease the energy weighting, they removed energy from the CPI calculation all together ! And of course when the housing market crashed they put housing weighting back so that they could show deflation (perhaps to justify QE since Keynesians all believe deflation is the devil). When the price of steaks went up they dropped steaks from the calculation and changed it to ground beef. When salmon prices went up they changed the calculation to use a lower grade fish instead. John Williams of ShadowStats calculates CPI today using the formulas of decades before and shows CPI of 9-10% rather than the 1-2% that the BLS says it is. Being off by such a huge factor would surely throw a giant hole in any analysis that attempts to use CPI in its model.
So the poster's analysis completely ignores all the huge assumptions, fudging and political factors that go into the CPI figure and just uses it for expediency (probably because everyone has heard of it before).
Even if CPI was the "right" perfect way to measure inflation, his analysis is still likely to be wrong. To me it seems like the person collected a big batch of data and then ran it through an Excel regression analysis and let Excel calculate the relevant variables and weightings for him. Why else would there be this magical 8x factor floating around in his model? Its very easy to have a desired outcome, a big set of input data, and let Excel figure out how to model the inputs to get the output.
I've done my fair share of bullshit Excel regression analysis to know that I can match any set of data to any outcome that i desire, no matter how fully unconnected the two variables actually are.
http://24.media.tumblr.com/tumblr_lvuxc7mK4o1qa0uujo1_500.gif
I hope there is a special circle in hell for economists who use mathematics.
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Ed
11 yrs ago
"I remember someone estimated what the "correct" price of gold should be right now, and he concluded it should be $600. I guess that makes sense, looking at these data."
I suppose there is no knowing the correct price for gold or any asset for that matter... but here's a good indicator of a floor:
Barrick Gold Corp. (ABX) and Goldcorp Inc. (G), the two biggest producers by market value, have begun reporting “all-in sustaining costs” for the first time. The new measure averaged $941 an ounce between the two companies in the fourth quarter.
http://www.bloomberg.com/news/2013-02-27/gold-miners-come-clean-on-costs-after-lost-6-years-commodities.html
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Ed
11 yrs ago
Keep in mind gas fracking operations have been losing money as well because the market is glutted driving prices below production costs... but fracking goes on at a record pace...
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Y&H,
I am similarly skeptical about all things numeric unless it is in the realm of mathematics and physics. So I share your skepticism regarding numbers that come from governments, businesses, economists and sideline analysts.
There are many ways that businesses can use accounting to adjust the cost per ounce of gold mined figure however they would like it. Although a partial explanation for why that cost has skyrocketed in the past few years is because the majors purchased a lot of useless exploration companies a few years back at the peak of the bubble - my guess is that today they are expensing those losses to their current operations. Nothing wrong with doing that, and in fact it makes sense to do so, but they did buy at the peak and prices of exploration companies have since collapsed, so going forward it would not surprise me if those mining costs come down.
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Ed
11 yrs ago
Agree - difficult to work out the actual production costs... and most definitely if gold or any other commodity sells below production costs that cannot go on for long...
Interesting article I posted on another thread... Texas Instruments profits have been tumbling for 5 years now and are down again this year - yet their stock price has doubled...
We are in the twilight zone ... nothing makes sense
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Ed
11 yrs ago
Amusing take on the fiat vs gold issue
http://www.mauldineconomics.com/ttmygh/pdf/let-it-be-fiat-monkees-golden-beatles
"But, are Indians fools to have invested in gold as the economists would have us believe?
No. Actually, gold seems to have fooled the economists.
The RBI working group study finds that gold has outperformed stocks and bank deposits in the last five years — more than three times over Nifty, six times over bank deposits and 10-year government bonds.
Only gold, no other asset, has so consistently beaten inflation
The average inflation during 2001-02 to 2005-06 was 4.7 per cent but gold yielded 9.2 per cent — almost double. The average inflation for 2006-7 to 2010-11 was 6.7 per cent but the yield on gold was 23.7 per cent — three times plus. Average inflation for 2012 is 9 per cent but gold returned 33.5 per cent — almost four times.
Traditional India intuitively seems to understand the value of gold"
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Ed
11 yrs ago
I think that most Indians take a long term outlook on protection against inflation .... if you carve out short periods not doubt you can demonstrate inflation outpaced gold...
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Who cares about inflation in the short term? People only care about inflation over the long run.
Prices went up by 10% this year? Who cares. But prices are up 100% over 10 years? That we care about.
Dollar lost 99% of its value (prices up 10,000%) during the 20th century - that's what matters, not the comparatively minor fluctuations over any couple year period.
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Anybody suggest best place in HK to walk in and purchase Maple Leafs or similar for cash ?
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Lpm sell gold for cash. Google it.
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Ed
11 yrs ago
Hang Seng Bank head office Central sells gold coins... I think you can buy up to 200k without an account...
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World's largest gold coin on display in HK: http://www.scmp.com/news/hong-kong/article/1401530/worlds-largest-gold-coin-display-hong-kong
Unfortunately, the general public will not be able to see it.
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No big loss. I wouldn't travel all the way from NT to Central to watch some stupid gold. It takes 1 hour.
(Joke meant for those who say that NT is very far from the action)
But this coin is 33 million bucks? Someone should steal it :)
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I would go and see it (it's right next to where I occasionally work) if I could but since I'm not a client of Hang Seng, I can't.
As for stealing it ... it weighs one tonne, which makes it a little less portable than a Maple Leaf.
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Since there is about 1,555,210 kilograms of gold in the world, these 1,000 kg is almost a noticeable percentage.
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I understand there are 5-6 Billion ounces of Gold,
versus 7 Billion people.
In other words, less than one ounce per person on the planet.
Does the fit your figures, Conte-Riccardo ?
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Different sources give different numbers. Here the BBC says it's 171,300 tonnes: http://www.bbc.co.uk/news/magazine-21969100
Anyway it doesn't matter. I will never own all of it :(
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"the BBC says it's 171,300 tonnes:"
171.3K x 32,150 = 5.5 Billion Ounces
And 0.5% of that is held by the SPDR Gold Trust:
> http://tinyurl.com/SPDRholds
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