patrick.net

For all the "gold is useless people", the same logic cannot hold a candle to Silver. Silver is an industrial metal with incredible amounts of irreplaceable applications. As far as metals go, Silver is where its at for electronics. You won't make an alloy or discover a new metal to replace it. You also have its reflectivity properties and catalytic properties. It's never going away. We'll always need it and the best kept secret is that we are running out of it.

Silver is unique in that it is the only commodity that has had a giant stockpile to pick from to sell into industry. Gold would apply here too, but it's not used nearly as much and exhibits different supply/demand dynamics. Most metals are pulled out of the ground and sold into industry (like copper). If we need more, we mine more. If we need less, we mine less. Others, like Aluminum, are consistently recycled.

Silver, while it is mined, is almost always in supply shortfall. The annual mining consistently falls short of meeting the demand deemed by the marketplace. Fortunately, we have that 2000 year stockpile that we have been grabbing from. At some point, that supply shortfall will eat into the remaining stockpile that we've had for 2000 years. Most estimates say we've ate into about 80% of it already but there is no way to be entirely sure. What is definite is that, at some point, the demand for Silver, which never seems to go down based on its superior physical/chemical properties, eat into the remaining above ground stock pile of Silver and we will be forced to rely almost exclusively on mining operations to supply the Silver demanded by industry. There is going to be a supply squeeze. In my opinion, this guarantees some sort of parabolic rise in price either in anticipation of that shortfall or as a result of it. When it comes, nobody knows for certain. It could come in 5 years, 10 years, or 20 years. Regardless of anyone's opinions on gold, any bashing of Silver completely ignores the reality of the supply/demand fundamentals for Silver. It's a good investment and has already paid off to anyone who bought into it this decade.

The most promising potential replacement for Silver in electronics resides in the work that your most recent Nobel Prize Winners in Physics worked on. They took Graphene (a form of carbon just like Graphite, Diamond, or Carbon Nanotubes) and rearranged it so that the molecular structure, which is usually quite unstable, but showed remarkable stability. They created a structure which has more strength than iron and better conductivity than copper. If you ask me, it's decades away before they perfect their findings and bring this stuff to the marketplace. Their work was really accidental, but it shows amazing potential. I'm willing to bet that it does revolutionize the electronics industry at some point.

Normally I would think this looks like a bubble, but all the stuff I hear on the news I really don't know anymore.
If we are going to have a currency war with China, might as well buy gold or Euro's.

Anyone who trades regularly may use the COT (Commitment of Traders) report each week to determine the direction of gold and silver.

This is like riding the coattails of the big speculators who tend to be right most of the time. The COT measures put vs. call volume for a wide variety of commodities.

The COT has shown that gold has been nothing but a long (up) trade for several months, with a high ratio of calls to puts for all precious metals, for large speculators specifically.

I receive this report in my inbox for free... visit http://www.commitmentsoftraders.com/

When the large speculators begin moving into more puts than calls, that's your sell signal.

Gold won't dump overnight as the central banks of China, India and Russia have been buying gold reserves for the last few years in a row. All of them are still underweighted in gold, based on their own reports. The Chinese middle class have been buying gold like crazy, as their government has directed citizens to begin making these purchases.

Nomograph says

theoakman says

For all the “gold is useless people”, the same logic cannot hold a candle to Silver. Silver is an industrial metal with incredible amounts of irreplaceable applications. As far as metals go, Silver is where its at for electronics. You won’t make an alloy or discover a new metal to replace it. You also have its reflectivity properties and catalytic properties.

The industrial uses for silver would put it at a few dollars per pound, max. The other 99.9% of it’s price comes from people selling it back and forth among themselves (i.e. speculation and jewelry).
If all the silver and gold in the world disappeared instantly, life would go on more or less unchanged. After a couple of years, nobody would even notice. It has virtually no intrinsic value to humans.

Using the same reasoning, paper currency would have no value, either. But it does, because it's backed by the ability of taxpayers to pay government debts. Unfortunately, taxpayers of developed countries are being hit with a massive wealth redistribution effort by central bankers (purportedly for the purpose of creating economic stability and world peace). Gold and silver are backed by their history of 5,000 years.

Seems a few people here may be interested in erasing that history, for some reason though.

Nomograph says

Incorrect. The value of paper currency is derived exclusively from it’s use as a medium of exchange for goods and services. It has no other use. Paper currency was not designed as a store of wealth; only a fool would use it as such.
Economies run on the exchange of goods and services, not gold or paper. Focus on what actually has value to human life.

Perfectly said Nomo. Now what if this medium of exchange (whatever it may be) is under the control of a government that is already well steep in debt. This government decides to monetize its debt by 'quantitative easing', literally translated as printing more money. That would be debasing the currency, so people need to fall back on something that has lesser likelihood of getting debased.

Patrick - you're right that the price of gold is near the historical high, but where is the dollar debt headed and what is the likelihood that there'll be more quantitative easing?

I think you guys will enjoy reading this article then...

http://michael-hudson.com/2010/11/dollar-war-in-detail/

An excerpt for the lazy ones here who can't click on a link properly --

"The Bank of Japan has fought to stabilize its exchange rate by keeping its foreign-currency repayments into dollars, recycling $60 billion into U.S. Treasury bills. It is doing this in order to protect Japan’s export competitiveness by preventing the yen’s exchange rate from being forced up. But in the last few weeks U.S. officials have accused China and other countries of being aggressive currency manipulators indulging in “competitive non-appreciation,” when they simply are trying to keep their exchange rates stable in the same way that Japan is doing. This only infuriates other countries by accusing them of “manipulating” the currency, when they are simply trying to defend themselves against the $2 trillion onslaught of QE from the United States already, with up to a trillion dollars more threatening to be poured into the world’s foreign exchange markets.

This trillion dollar injection of dollar liquidity is a base for being multiplied ninety-nine times by putting down just 1%. So finance ministers are beginning to ask themselves what is to stop the United States from creating enough credit to buy up all the real estate, all the companies and every bit of stock in the world – and make the currency gain to pay off the loans in devalued dollars. Without isolating the dollar by imposing currency controls, U.S. banks have an infinite capacity to create credit and buy up foreign resources.

Sellers of foreign real estate, companies, stocks and bonds turn the dollars they receive over to their banks, which turn them over to the central bank – which tries to hold down their exchange rate by buying U.S. Treasury bonds that yield only 1% interest. So the U.S. is betting that it can flood the global economy with easy dollar credit and achieve what used to require an army to conquer: to obtain ownership of foreign land and property, mineral rights and other assets. This is now done by financial aggression, without the expensive overhead of an armed invasion. It is like a neutron bomb: it doesn’t destroy property; it keeps it in place for the financial aggressors to appropriate."

Hence, the true purpose of owning a world reserve currency. I think Nomo helped make my point here. Gracias amigo.

Typical bait and switch. Make a killing, destroy the dollar in the process, then switch over to a new world reserve currency. Who ever said central bankers were stupid?

theoakman says

We’ll always need it and the best kept secret is that we are running out of it.

We're not running out of anything except easily exploitable energy. That's mostly what mining is: using energy, in huge amounts, to find, extract, and purify raw resources. The smarts go into where and how to efficiently apply that energy for maximum gain, but the driving factor is energy. Given inexhaustible energy supplies, the supply of raw elements is inexhaustible. On the flip side: no exploitable energy source; no raw materials, and it doesn't matter how smart you are. The days of discovering oil in you backyard in Texas are long gone, and so are the days of just sticking a straw in the sands of Saudi Arabia and oil gushing up.

theoakman says

Silver, while it is mined, is almost always in supply shortfall. The annual mining consistently falls short of meeting the demand deemed by the marketplace.

As far as I know, there is no such thing as "falls short of meeting the demand deemed by the marketplace" in the silver market. That only happens when some force like a government intervenes with price controls. Where are the price controls?

You seem a bit starry eyed by silver. Then again maybe I'm just kicking myself for selling for a small profit in Sept. before it really took off.

M8R-0dxnlp says

I think you guys will enjoy reading this article then…

http://michael-hudson.com/2010/11/dollar-war-in-detail/

An excerpt for the lazy ones here who can’t click on a link properly –

Ah, yes, Eric Janszen, AKA iTuilp. My God, that article is completely absurd, I don't even know where to begin. Pick a random sentence:

"So finance ministers are beginning to ask themselves what is to stop the United States from creating enough credit to buy up all the real estate, all the companies and every bit of stock in the world – and make the currency gain to pay off the loans in devalued dollars"

This is so mind blowingly stupid. What was to stop it from doing this 10 or 20 years ago? And who is "the United States"?

M8R-0dxnlp says

It is doing this in order to protect Japan’s export competitiveness by preventing the yen’s exchange rate from being forced up.

M8R-0dxnlp says

So finance ministers are beginning to ask themselves what is to stop the United States from creating enough credit to buy up all the real estate, all the companies and every bit of stock in the world – and make the currency gain to pay off the loans in devalued dollars.

You and the author have it completely backwards. Japan, China, et. al have been manipulating their currency to keep it weak so their exports remain cheap in the US. That is the root of all the problems. The dollar needs to fall to bring the trade deficit back to par. And it would without the manipulation by other countries... Further, if they let the dollar fall, then there would be no fears about the United States buying up all the companies and stock in the world--the purchasing power of the dollar would be severely reduced, making it impossible.

Other countries crying foul is the height of hypocrisy.

tatupu70 says

M8R-0dxnlp says

It is doing this in order to protect Japan’s export competitiveness by preventing the yen’s exchange rate from being forced up.

M8R-0dxnlp says

So finance ministers are beginning to ask themselves what is to stop the United States from creating enough credit to buy up all the real estate, all the companies and every bit of stock in the world – and make the currency gain to pay off the loans in devalued dollars.

You and the author have it completely backwards. Japan, China, et. al have been manipulating their currency to keep it weak so their exports remain cheap in the US. That is the root of all the problems. The dollar needs to fall to bring the trade deficit back to par. And it would without the manipulation by other countries… Further, if they let the dollar fall, then there would be no fears about the United States buying up all the companies and stock in the world–the purchasing power of the dollar would be severely reduced, making it impossible.
Other countries crying foul is the height of hypocrisy.

Well, given Michael Hudson's track record as an economist and advisor to countries that are being financially ransacked by the IMF, I have to think he knows what he is talking about. He is in the middle of the action, unlike most armchair economists. He helped Iceland recently by convincing their government to tell the IMF to phuck off. Iceland is rebounding quite nicely now (unlike Greece, Ireland, etc.). Check out the public's posted Michael Hudson's videos on Youtube for easy access to more information about what he does and why he does it.

Your response seems to be a regurgitation of the financial media's explanation of things, which is usually propaganda or a flat out lie. I've been daytrading for more than 12 years and I can tell you from direct experience that the explanations that appear in most (corporate-owned) financial news is an outright fabrication or lie. To defend such explanations is absurd.

Most financial bloggers in fact appear to be paid-for propagandists whose job it is to further the agenda of the central bankers. Very few of them ever openly discuss the Bank of International Settlements, for example, or the BIS's Financial Stability Board. In fact, if you do discuss these things in a neutral tone, you will be banned from their forums.

Of course, I don't expect you to have this type of direct experience. The tendency of such an individual will be to defend their beliefs at all costs without ever examining where these beliefs originated from, or who funded the source of the information.

Given that the mainstream media is now owned by five corporate conglomerates that all participate in the same privately-owned pro-communist thinktanks, I'd think you might think twice before going down the propaganda regurgitation path and then defending it.

Unless, that is, you are on the payroll.

By "United States" I believe Hudson is referring to the central banking oligarchy, which owns several powerful institutions in the US including the US Federal Reserve.

M8R-0dxnlp says

Your response seems to be a regurgitation of the financial media’s explanation of things, which is usually propaganda or a flat out lie. I’ve been daytrading for more than 12 years and I can tell you from direct experience that the explanations that appear in most (corporate-owned) financial news is an outright fabrication or lie. To defend such explanations is absurd.

Huh? To which part of my response do you refer?

Do you disagree that other countries are manipulating their currency exchange rates?
Do you disagree that a weaker dollar reduced the purchasing power of the United States?
Do you disagree that the trade deficit leads to a weaker dollar?

In your expert daytrading opinion, where exactly am I lying?

tatupu70 says

M8R-0dxnlp says

Your response seems to be a regurgitation of the financial media’s explanation of things, which is usually propaganda or a flat out lie. I’ve been daytrading for more than 12 years and I can tell you from direct experience that the explanations that appear in most (corporate-owned) financial news is an outright fabrication or lie. To defend such explanations is absurd.

Huh? To which part of my response do you refer?
Do you disagree that other countries are manipulating their currency exchange rates?
Do you disagree that a weaker dollar reduced the purchasing power of the United States?
Do you disagree that the trade deficit leads to a weaker dollar?
In your expert daytrading opinion, where exactly am I lying?

Already explained in Michael Hudson's article. You did read it, didn't you?

M8R-0dxnlp says

Already explained in Michael Hudson’s article. You did read it, didn’t you?

OK--I get it. You don't really understand. You just read something that seemed to confirm your beliefs and didn't bother to actually think about it. Because if you did, you might realize that you are wrong.

It's OK--being wrong isn't a big deal. Better to just admit it and move on...

sundarrajan.b says

Patrick - you’re right that the price of gold is near the historical high, but where is the dollar debt headed and what is the likelihood that there’ll be more quantitative easing?

Even if the dollar were to fall to zero, that doesn't mean that the purchasing power of gold will increase yet further. Even if it sold for a trillion dollars an ounce, if an ounce of gold still buys the same amount of food, you didn't actually win anything. Though the holder of dollars did lose in that case.

Anyway, I'm convinced that the dollar cannot rapidly go to zero, because devaluing the dollar means investors will demand higher interest rates. And higher interest rates would cause yet more debt to default, destroying dollars, and therefore increasing the value of the remaining dollars. I think Japan had this problem with the yen.

Of course the Fed can continue to devalue the dollar slowly, and I expect they will. They just don't want to spook the elephant in the room (interest rates) because a spooked elephant can cause a lot of damage.

MarkInSF says

theoakman says

We’ll always need it and the best kept secret is that we are running out of it.

We’re not running out of anything except easily exploitable energy. That’s mostly what mining is: using energy, in huge amounts, to find, extract, and purify raw resources. The smarts go into where and how to efficiently apply that energy for maximum gain, but the driving factor is energy. Given inexhaustible energy supplies, the supply of raw elements is inexhaustible. On the flip side: no exploitable energy source; no raw materials, and it doesn’t matter how smart you are. The days of discovering oil in you backyard in Texas are long gone, and so are the days of just sticking a straw in the sands of Saudi Arabia and oil gushing up.
theoakman says

Silver, while it is mined, is almost always in supply shortfall. The annual mining consistently falls short of meeting the demand deemed by the marketplace.

As far as I know, there is no such thing as “falls short of meeting the demand deemed by the marketplace” in the silver market. That only happens when some force like a government intervenes with price controls. Where are the price controls?
You seem a bit starry eyed by silver. Then again maybe I’m just kicking myself for selling for a small profit in Sept. before it really took off.

Maybe I should have worded it better? I dunno. Basically, at our current pace of consumption, we eventually plow through that above ground surplus of Silver that has existed forever. We are already 4/5 of the way there. At that point, we will still need just as much Silver, but mining operations, which will be the primary and nearly exclusive source of Silver, will fall short of meeting that demand. It's no different than peak oil. It's just that the supply/demand fundamentals have not materialized because, unlike oil, we've had a giant above ground stock pile of silver to pick at for the past 100 years. Once that is gone, there will be a supply squeeze.

Gold is useless as a trading currency. No one uses it as such. Go to a restaurant and pay your bill in gold, see how that works out. Give them a few flakes of gold and emphatically let them know at current values this will cover the bill exactly. Make sure you bring enough to cover say a $33.67 bill, make sure you've got enough lose gold to cover pennies and whatnot! See what they say. Keep doing this until you find a restaurant that will accept your gold. I'd like to see how that goes.

Dollars are based on the willingness of others to accept them. People won't accept gold, there is no way to prove it's value, it's purity, whether it's enough. No one has time to weigh small amounts of gold! We need dollar bills to keep our economy going. It doesn't really matter what the government does to the currency because it doesn't really effect us in our day to day lives, that is simply the truth of it. If our government prints off 3x the currency we simply won't notice it. We'll still value the currency here. Maybe other countries won't like it and will devalue it against their currencies, but that's pretty much what the government is aiming for anyways.

Now if no one trusted others, if there were solid alternatives and we needed to trade on a daily basis with other currencies it might be a problem, eg Zimbabwe.

SF ace says

There’s really no such thing as running out, it’s just a matter of cost. There’s no more silver that can be mined for 10, but there are plenty at 20 and even more at $30. It’s just the economic process. Of couse, no one in the right mind would mine the silver at 30 before the $10 ones are lifted out first.
Every drill that goes on the ground, there’s some sort of minerals that can be extracted of value. It’s really only a “gold mine” if the concentration is heavy enough to make economic sense, in which case, the Barricks and the RIO’s of the world will buy the land, invest in it and make that their next project.

Actually, there is, because Silver is a small byproduct from mining of base metals. Even in the face of rising prices of Silver, we won't be opening mines to get to it.

I woulda thought this thread would be littered with posts as a result of the pullback we are having in the metals. If Silver drops below $25, I'm a buyer.

theoakman says

I woulda thought this thread would be littered with posts as a result of the pullback we are having in the metals. If Silver drops below $25, I’m a buyer.

Same here - if premiums are too high for coin form, i'll just go with the generic bars. I'm having a hard time justifying $4-5 + over spot for an SAE.

Sold my gold coins about a month ago. Made some money. I'm happy.

I've never understood the gold and silver market. I guess it's worth whatever people will pay for it.

jvolstad says

Sold my gold coins about a month ago. Made some money. I’m happy.
I’ve never understood the gold and silver market. I guess it’s worth whatever people will pay for it.

Silver is a valuable industrial commodity. To write it off as "worth whatever people will pay for it" is pretty silly.

theoakman says

Silver is a valuable industrial commodity. To write it off as “worth whatever people will pay for it” is pretty silly.

Ultimately every commodity, industrial or otherwise, is worth whatever people will pay for it. So its the exact opposite of a pretty silly statement. Thanks, have a great day.

Jeremy says

theoakman says

Silver is a valuable industrial commodity. To write it off as “worth whatever people will pay for it” is pretty silly.

Ultimately every commodity, industrial or otherwise, is worth whatever people will pay for it. So its the exact opposite of a pretty silly statement. Thanks, have a great day.

Rofl, so, if that's your view, why even make such a statement if it applies to everything? The fact is, you were picking on gold and silver exclusively. The two metals are not equivalent and have entirely different market dynamics that will ultimately determine their price.

oakman,

with the drop to $26ish, and bounce back to $27, are you still holding for a lower number. I've got the itch to pick up a monster box of SAE's.

Last time I got this itch, I could pick one up for about $8k, but missed that gravy train. Now that they are running around $15k, the risk drastically increases.

I know the long term fundamentals haven't changed - but I always hesitate on silver when the price is over $20. I paid around $12-14 for most of what I have.

joshuatrio says

oakman,
with the drop to $26ish, and bounce back to $27, are you still holding for a lower number. I’ve got the itch to pick up a monster box of SAE’s.
Last time I got this itch, I could pick one up for about $8k, but missed that gravy train. Now that they are running around $15k, the risk drastically increases.
I know the long term fundamentals haven’t changed - but I always hesitate on silver when the price is over $20. I paid around $12-14 for most of what I have.

I picked up the lionshare of my stack from $11 to $19. Long term, I still believe Silver will hit $50. In the end, I don't see a discrepency between buying in at $27 and buying in at $25. It's small potatoes in the grand scheme of things. As far as Silver goes, I have all I need. I won't buy more unless we touch $25. The absolute lowest it will go would be $23 in my opinion. I wouldn't bet on that happening but we have seen bigger drops in the Silver market like in 2008 when we saw it drop from $22 to below $10.

theoakman says

joshuatrio says

oakman,

with the drop to $26ish, and bounce back to $27, are you still holding for a lower number. I’ve got the itch to pick up a monster box of SAE’s.

Last time I got this itch, I could pick one up for about $8k, but missed that gravy train. Now that they are running around $15k, the risk drastically increases.

I know the long term fundamentals haven’t changed - but I always hesitate on silver when the price is over $20. I paid around $12-14 for most of what I have.

I picked up the lionshare of my stack from $11 to $19. Long term, I still believe Silver will hit $50. In the end, I don’t see a discrepency between buying in at $27 and buying in at $25. It’s small potatoes in the grand scheme of things. As far as Silver goes, I have all I need. I won’t buy more unless we touch $25. The absolute lowest it will go would be $23 in my opinion. I wouldn’t bet on that happening but we have seen bigger drops in the Silver market like in 2008 when we saw it drop from $22 to below $10.

That's my concern, is another one of those crazy plummets in the silver market. I know you can't time everything, but you at least want to get the most for your money.

I may hang on in the $25 camp as well. Palladium I almost jumped into around the $400 range, and I kick myself for missing that boat too.

Just as I typed the last comment, silver pulled back into the $26 range - think you might be right.

Thanks again.

Here's one prominent economist calling for Gold $874 in 2011

"China's economy will not overtake the United States any time soon, because the Chinese housing bubble is about to blow, doing the same thing to them as it did to us;

dire warnings about $4 a gallon gasoline are moot as commodity prices will fall amid China's sudden slowdown;

gold, that harbinger that all is not right with paper money, will plunge from its current heights of more than $1,300 an ounce to — get this — $874 an ounce as China gets margin calls.
"
http://finance.yahoo.com/banking-budgeting/article/111966/gloomy-economic-guru-says-america-is-back;_ylt=AmsiO_ddMoVRUY2WstUO0C27YWsA;_ylu=X3oDMTFhb2U4YmVxBHBvcwM3BHNlYwNzcGVjaWFsRmVhdHVyZXMEc2xrA2dsb29teWVjb25vbQ--?mod=bb-budgeting

jvolstad says

Sold my gold coins about a month ago. Made some money. I’m happy.
I’ve never understood the gold and silver market. I guess it’s worth whatever people will pay for it.

I am curious as to what other investment was so enticing that you gave up your US dollar risk hedge for it. Did you put your new investment choice through a screening process that's akin to the same analysis you put precious metals through?

I would suppose you bought equities in the US stock market. For the record, gold and silver kicked the stock market's ass last year, and will likely do it again. And again. You did factor that into your analysis, correct?

I would imagine you also factored in the headlines--
IMF calls for dollar alternative
http://money.cnn.com/2011/02/10/markets/dollar/index.htm

And these regular headlines overseas--
China buying gold at a discount
http://www.indiainfoline.com/Markets/News/China-buying-gold-bullion-at-a-discount/5069344126