MasterPo says: This blog is about topics and issues that are of importance to me. I am not one of the countless blogging lemmings that are tripping over each other scurrying down the hill and off the cliff of blogging oblivion trying to write the greatest blog on the latest topic de'jour. Your comments are welcome.

October 13, 2010

Rethinking Silver

MasterPo has been very clear on this blog and other sites that physical ownership of gold is a vital item in the current uncertainty of economics and politics. Not gold certificates or ETFs and certainly not TIPS over gold.

MasterPo is not a “gold bug”. Stocks, bonds and mutual funds is much more MasterPo’s speed. MasterPo thinks he has made it abundantly clear that his push for physical ownership of gold isn’t for the investment growth per se (it is nice!) but for the fact that, historically speaking, economies come and go but gold has been an item of value for thousands of years of human history. And, short of a Mad Max end of the world scenario, it will continue to be.

Over the years MasterPo has passed on silver purchasing seeing it as a cheap metal. Certain it is a less expensive metal cost wise even after the huge rise of the recent period. To make any usable money you would need to trade a large quantity of it compared to gold (or platinum).
For example, presuming you purchased 1 ounce of gold at $1,000/ounce and 1 ounce of silver at $20/ounce. Both go up 20%. Your gold is now worth $1,200 and your silver $22. That means a $200 and $20 profit respectively (not including the spread between the bid and ask when you sell).
$200 is useful.

You can do something with $200.

You can buy groceries.
You can buy fuel for your car or home.
You can buy clothing.
You can pay for maintenance or repairs.
You can pay bills (at least in part).
You can pay for medical treatment.

Now, what can you do with $2?? That will get you a coffee and newspaper – maybe.

But that isn’t the point of this article.

MasterPo has decided to reconsider purchasing silver, even at the current price (about $20/ounce as of writing this). As with gold, not so much for the investment of it but for the uncertainty of the future. Silver, being cheaper than gold, lends itself to being able to purchase more ounces (at $20/ounce $1,000 buys 50 individual ounces!).

MasterPo’s change of heart comes from an article posted on another site.

MasterPo has stated here and elsewhere that maybe the economic and political situation could deteriorate to a point where the dollar as a currency is, for all intents and purposes, worthless (see Weimar Republic or Chile in the early 1970’s). Hard assets like metals maybe traded for daily essentials of life. Perhaps even on a black market if it comes to that (and MasterPo surely prays it doesn’t!) The article mentions as an example trading five silver coins to a farmer for a bushel of produce when the dollar is seen as worthless.

MasterPo can’t say if this is a realistic scenario or not. MasterPo has no idea how it would actually work to trade metals of any kind for food and other supplies (though MasterPo is sure your local Pathmark won’t be taking silver and gold at the check out!). Nevertheless, MasterPo intends to add some physical silver to the investment portfolio.

As with the gold, this will be an investment MasterPo would be happy (well, almost) to be wrong about. The consequences of being right are worse than just loosing value.

Stiff upper lip.


Janette said...

Make sure you buy your coins on the market. You will quickly find that a silver dollar is not worth all that much unless it is in mint condition.
Since I don't think the US economy will get to bartering in gold or silver- if I invest it would go to silver mines. But I am not investing there:>) The run is up and now buyer are just making Glen Beck and Rush Limbaugh more wealthy.

Suburban Survivalist said...

Gold vs. silver profit example should be $1,000 of gold and $1,000 of silver, rather than 1oz of each, in which case a 20% increase in value is the same.

IMO the main advantage gold has over silver is size; a few hundred dollars face value of silver coin (or equivalent amount in bullion, rounds, etc.) gets hefty fast.

I've been buying silver since early last year and am putting some away every couple of months.

MasterPo said...

MasterPo doesn't know either if things will get that bad (and prays it doesn't!).

But most reasonable people have been in gold or silver (or platinum) for many years long before now to at least some extent so you can't blame Beck and Limbaugh.

MasterPo said...

SS - Mathemtatically you're right.

However it's very difficult to buy exactly $1,000 (or any denomination) of metal. Much more common to buy by the ounce.

MasterPo isn't suggesting gold coins for the face value. A dollar is a dollar is a dollar. If the U.S. curreny is down the tubes it won't matter if your dollar is in paper or metal - the dollar is still worth trash. But the value of the metal will be more than the paper. That's the point.

Suburban Survivalist said...

Gold is most often purchased by the oz, but (junk silver) not so much. I wouldn't buy silver (or gold) for face value or post-SHTF barter either. Rather as a hedge against inflation. I have a couple of posts that expand on that;

Bottom line; silver (and PMs) are a good hedge against inflation, right up until TEOTWAWKI. Then, IMO, they won't be worth much for a long, long time. Have to unload before TSHTF and convert into something that will be needed (food, fuel, med, etc.). Also praying we don't go there.

Silver dollars (and junk silver generally) are well recognized and draw a slight premium above spot price. I've been going with Franklin halves, which have a small fraction less silver content but are recognizable and retain value well.