Metals, a Hedge or Investment Depending on Your Views... or a Sucker's Bet?

[Don Alaska]

One might think that an ounce of gold or silver is an ounce of gold or silver. But several things enter into the picture to make the situation a lot murkier.

One is numismatics, the "coin collector" mentality that gushes over appearance, rarity, unusual features, historical significance, etc. Very much like regular coin and stamp collecting, but leaking over into the bullion market to distort things. Yet you can find a price on a given coin that has been numismatically "graded" highly and even packaged into a plastic "slab" with incorporated certification documents... that is cheaper than a raw commercial coin even from the same dealer. In theory though graded coins carry higher premiums.

Another is liquidity. In the US it is easier to sell or trade a US Minted coin (Eagle, Buffalo) than other forms of gold or silver. Next comes Canadian coins (Maple Leaf), and then UK (Britannia). Below that comes other coins from those 3 countries, then coins from Australia and South Africa, then "medallions" from the US Mint and others, and down and down in a loose hierarchy.

Another factor is premiums. Different forms of gold and silver have different markups, usually higher for the most liquid coinage. These can also fetch a bit more on buyback too of course. Premiums are not constant. There have been times when American Silver Eagle coins have had 100% premiums.

Buy your metal from established dealers and make sure they will buy it back from you should you decide to sell. As has been said, "you can't eat gold or silver", but you can certainly sell it and trade it to others for other commodities.

 

[Jacob Petersheim]

I suppose once one has reached an advanced age precious metals "investing" can have different goals than for younger people.

One might be socking away value to be passed on to relatives and/or charities. Another might be using metals as a piggybank outside the system during times of devaluing currency, bank savings interest rates approaching zero or even negative, and the risk of bank bail-ins that give your savings to the banks.

The "piggy bank" route requires liquidity to be functional. One also has to realize that you can't expect value appreciation that will make you rich. Over time it does better than stuffing paper money under the mattress and anything better your metals do would just be gravy. Of course as always, beware the tax man.

 

[Jacob Petersheim]

Metals are taking another price beating, though they are still above Summer levels by a significant amount, and well above January levels.

But it sounds like a lot of people jumped in and bought toward the end of price increases near the tops. Now many are trying to sell off, out of panic, need for the cash, or whatever. This seems to be leading to altercations and even arrests when people run in and their coin shops offer them so little on buyback.

Not only is spot price low, most dealers have already absorbed as much bought-back inventory as they can use. Since distributors don't want it back, and even refiners won't take a lot of it for melt (they are well stocked and can afford to be choosy), dealers have to hold and try to sell anything they accept back.

This is of course all to be expected. The angst and drama seems more focused on silver and the working poor who tend to buy it exclusively since on the surface it is more affordable.

People should know that silver, gold, etc. aren't mechanisms to get rich and if you are clumsy you will lose money. There is the dealer's profit on both buy and sell, and in some States sales tax on the buy, and there is always the State and Federal Capital Gains taxes on any profit you might turn.

 

[Jacob Petersheim]

Subcultures sure get weird.

Right now the cryptocurrency (Bitcoin, et al.) fanboys are attacking the precious metals fans. It isn't all one-way, but the crypto guys seem as nasty and snotty about it as we see at the extremes in politics.

The weird part is that it looks like just a couple year ago they were cheering each other on and maybe were substantially the same people.

 

[Don Alaska]

Subcultures sure get weird.

Right now the cryptocurrency (Bitcoin, et al.) fanboys are attacking the precious metals fans. It isn't all one-way, but the crypto guys seem as nasty and snotty about it as we see at the extremes in politics.

The weird part is that it looks like just a couple year ago they were cheering each other on and maybe were substantially the same people.

Crypto is just another fiat currency, and, although it has advantages, especially for criminals, it could all vanish with a nuclear detonation or solar storm. There is nothing physical that says you own it or ever did.

 

[Jacob Petersheim]

I think some rushed in for the novelty, the idea that it was "high tech," etc. Then it went viral for a time and in theory at least the early players "got rich." They probably dumped more into it and now find themselves committed and trying to wish it into being something.

But there are now enough fingers in the pie and money dumped into it that people are taking notice. It proved a great money laundering tool for crime gangs, so much that the US has a bunch of it seized in raids on them.

 

[Jacob Petersheim]

There are now a few "banks" that accept cash deposits and these buy increments of gold held in your account. You can spend this using a debit card, a phone app for peer-to-peer transactions, or withdraw either cash or physical gold. There are limitations due to legislative impediments, but these have been falling one by one over the last decade.

Some of these banking products are structured so your balance on deposit earns interest in gold as well.

This is longer than most will want to sit through, but maybe skipping through it might help describe the scenario.

 

[Jacob Petersheim]

Precious metals came off an exponential climb in value really abruptly. Now prices are wiggling around new baseline values.

It is funny to watch hobbyist investors start celebrating and within a day fall back to long faces. Then there are the usual chartists and numerologists mixed in with market observers. One crazy prediction after another and all over the place from "expert" to "expert."

It serves to remind me why I never took an interest in market trading. Gamblers have to be incredibly superstitious with short memories.

 

[Jacob Petersheim]

Another oddball thing I wasn't expecting: holiday rounds of fine silver.

Here is a Santa with a back that can be engraved to order or bought blank. One Troy ounce of .999 silver.


There are also Christmas Trees and all sorts of odd stuff from unicorns to demons. Weird.

I think the Santa might look good in pure copper though. I'm surprised they haven't thought of it yet.

There are also clear acrylic "capsules" that fit these with a loop-tab for inserting a wire tree-ornament hook.

 

[Jacob Petersheim]

I guess I'm not so clever after all. Here's a copper Christmas round:

 

[Jacob Petersheim]

People have done the math for years, and there just isn't enough silver above ground or in accessible mines to ever go back to a silver standard for coinage. For one thing world population is too large, for another more of the world competes for a share of the money.

One way or another we'll probably see change itself entirely disappear before much longer. Pennies are going extinct and nickels are even on the chopping block in coming years.

If currencies ever go back to backing by precious metals those would be large bricks in vaults. But either way now even paper money seems headed toward extinction. Digital currencies pegged to a tiny fraction of vaulted metals would be the best scenario. It isn't clear even that will likely happen.

I'm not sure that people have the power any more to resist a scheme imposed where we all end up on SNAP cards. Mass unemployment and a resulting Social Security collapse might make a "UBI World" inevitable for the masses.

Is there a limit to this? Could we see private land confiscation "For The Greater Good" with a phaseout of private transportation? In places like the UK and the US coasts and other dense cities this doesn't feel very far off.

 

[Marie Mallory]

Ok, this video encapsulates my reasons for starting this thread in July. Everything else I've been writing was more or less "gingerbread" - hoping to draw out a discussion of the real issue.

While nominally about what China is doing, it is really about global financial system changes that will impact us all. The last 10 minutes might mean the most to those of us in the Western nations.

China Is Using Gold To Replace the U.S. Dollar

We never hear about Fort Knox anymore, wonder why?
I don't worry about it, the robots will be in control soon anyway. Or its looking that way.
I know they took over the factory's in America decades ago.
Although I must say, I do like the way they correct my spellings and typo's here.

 

[Marie Mallory]

I'm not sure how many remember this old TV show, much less this particular episode.

I skipped thru it. I wonder if they will use gold in the future?

 

[Jacob Petersheim]

I skipped thru it. I wonder if they will use gold in the future?

It seems to come in and out of fashion with the public, aside from jewelry.

But oddly enough it always seems to be coveted within high-level banking so there is clearly value in it as a scarce and valuable marker of wealth.

 

[Jacob Petersheim]

It was interesting to hear that in some recent years the US Mint was ordered to produce fewer American Silver Eagle coins than market demand supported. This puzzles me, since they don't mean much economically and serve as a profit center for Mint operations. Why would politicians or the Fed even care?

No specific mention of Gold Eagles or Buffaloes, so I don't know whether the ordered limits applied to those as well. But those of course sell and circulate in far smaller volumes anyway.

I'm not sure what any of it means, but it seems pretty odd. These coins are legal tender, but their legal face values are far, far below their value as bullion.

 

[Yvonne Smith]

I was just reading that we have minted the last penny, so whatever pennies are in existence is all of the penny’s that will ever be. I wonder if this will start more people saving their pennies, and they will become in short supply eventually ?

 

[Jacob Petersheim]

I was just reading that we have minted the last penny, so whatever pennies are in existence is all of the penny’s that will ever be. I wonder if this will start more people saving their pennies, and they will become in short supply eventually ?

Well for quite some time some people have been "buying" pennies by the box from banks and then going through them to pull out the more collectible items. Often that's determined by quality of the state of the coin, its minting date, and the specific mint when marked S or D.

Then for a time it was about pulling out the "wheat" pennies where the obverse side didn't have the Lincoln Memorial building on it yet. Now it is often people looking for the early-1982 pennies and earlier that are close to 100% copper (actually an alloy though) instead of copper-plated zinc as started sometime in 1982.

The "culls" they do not want usually went back to the bank to buy another box.

I'll bet a lot of people still have jars or even old socks full of pennies, since they hated to carry them to spend. AS the value decreased this got worse, resulting in a broken cycle where stores almost only sent pennies out the door.

 

[Jacob Petersheim]

With price rises from insurance to food and energy people started taking advantage of higher gold and silver prices.

So much "dumping" is going on that coin shops keep dropping the rates they pay well below the value of the metal. But they also keep their buy prices high, so the glut of stock piles up there.

This probably won't adjust until the economy shakes most of the precious metals out of the bottom of the market. Some places won't take scrap Sterling any more, others are paying out quite low on things like scrap gold jewelry. The old 90% "junk silver" coinage (pre-1965) has been getting hard to sell at all in some places, and when it does it is often at reduced payout rates.

 

[Yvonne Smith]

I remember way back in the mid 50’s when I was growing up, my mom would go to the City office and buy their parking meter coins, which were pennies and nickels , and maybe even dimes, I don’t remember for sure. She would do just what you said, @Jacob Petersheim , and go through the change, saving the ones she wanted to keep, and probably taking the leftover ones to some store to spend. Since we had a small grocery store when i was younger, she might have just used the extra coins right there.
The store had a large counter of penny candy, so she probably got a lot of pennies just from selling candy.

 

[Jacob Petersheim]

Observers are now suggesting that silver will "explode" in monetary importance.

The reasoning is that banking is in such trouble at every level worldwide that gold will be the anchor everything clings to. But that will push gold's valuation very high and its limited supply would mean that silver becomes necessary to "dilute" gold.

Probably not literally, as in electrum type alloys, but to provide some kind of coinage in increments more easily handled. Not so much "silver dollar" coins as "silver hundred-dollar" coins... or more likely we're really talking about large bars used for inter-bank transactions as large gold bars are today.

The global financial scale has grown far faster than the supply of gold.

I suppose the figures they have in mind for valuation would be so high that very little gold would remain in private hands. Cashing it in would be too tempting, and holding it might pose serious risk of robbery.


I hate to imagine what this does down here in the trenches though. It sounds like hyperinflation is exactly what is on the table.