I'm not going to bore you all to tears talking about how all the currencies are fiat, they're printing us to hyper inflation, the debts are too large, economies in shambles, unemployment at depression levels, and all the normal economic gore we show you each week. What I want to focus on today is the 1) supply and 2) the reasons for ownership for metal.
I received a particularly well written email this week from someone that tends to read our Financial Intelligence Report; despite vehemently disagreeing with just about everything I write. I say well written because although he spent the bulk of his letter mocking me for believing that gold and silver were anything but "adornments for women's ears", at least he didn't misspell anything or use any foul language. Some hate mail gets pretty colorful to say the least. In what could be described as a "talking point presentation" given by maybe someone at a bucket shop telling customers why they should buy overpriced stocks instead of metals, I found it interesting enough that instead of replying personally, I figured that it was well worth presenting to all of you. Especially with the metals being dragged through the mud so to speak as far as pricing goes. So, let say we pull up a chair and have a one on one chat, eh?
I was a jeweler for almost 15 years. I went to school for it. I have a masters certificate of "horology" and no that doesn't necessarily make me a horror...it is the study of time and timepiece mechanics. Before the advent of electronic watches, a good mechanical watch was in my view a masterpiece of technology. I have used a mini lathe to create a "balance staff" which the balance wheel is affixed. I have created a Breguet overcoil hairspring. I have taken 7 jewel pocket watches and turned them into a 21 jewel watches. I have cut gears for grandfather clocks, fixed the bellows in a cuckoo clock. I was pretty good at it. But, it was a dying art. People would rather buy a battery powered Seiko, than a mechanical marvel.
From watches and clocks I went into Hand engraving. No thanks. I can't draw a stick figure properly, let alone lay out a beautiful engraving design. Although I could master the "gravers" which are the hand powered cutting tools to do the engraving itself, I'd always have to have someone else do the artwork. So, engraving wasn't for me. But, it wasn't until I went into the jewelry design and repair phase that I felt I had found a real home. I was playing with the worlds most respected metals. I was surrounded by Gold, Silver, Platinum, and Rhodium. I found a deep respect for their purity, their uniqueness. Without patting myself on the back too hard, I can honestly say I ended up being a darned good jeweler. Interestingly enough I didn't enjoy the design aspect as much as the repair aspect. I became the jeweler that other jewelers would bring their toughest jobs to.
In one instance that stands out in my mind, a woman brought me in a mashed up, twisted, mass of 14K gold, Sapphires and Diamonds. She asked, "is there any way you can fix this?" To which I replied, "uhm, what is it?" She then told me it was a bracelet that she'd been given by her boyfriend. But they broke up and during their break up fight she threw it on the ground and ran it over a few times to "show him" that they were over. Problem was they made up and she wanted her bracelet back. I told her I didn't even know what it looked like, and it would cost a fortune for me to operate on it. She didn't care. Please try. It took four solid days, but I did it for her. When she opened the envelope when she came to pick it up, she burst out in tears. "It's perfect!". I had indeed gotten "pretty good".
So as you can see, the metals do have a place in my emotional heart as well as my logical mind. So when I talk about Gold and Silver to you folks, I have to do my best to separate the emotional admiration that I have for the metal itself, from the logical side that influences "investing in it". I don't take that lightly either. I have some pretty long winded conversations with my self that would make any multiple personality disorder sufferers proud. I need to test myself and make sure I'm not suggesting buying Gold and Silver because they're "Neat" metals. I need to know they're a good parking spot for our money.
I need you all to consider something for a minute. We can get into the whole scheme of the mechanics of things in a little while, but go with the flow here for a second. Depending on who you want to believe, if you add up the entire worlds above ground availability of silver, you come up with about 1 to 1.5 billion ounces. With the price at say 22 bucks a share, you could literally buy all the silver available for sale in the entire world for 25 billion dollars. Every last ounce. Granted the price would soar as someone/anyone tried to corner the market, but you get the point. There just isn't an unlimited amount of this stuff lying around any more. We'll come back to that point in a few minutes.
I'm not going to bore you all to tears talking about how all the currencies are fiat, they're printing us to hyper inflation, the debts are too large, economies in shambles, unemployment at depression levels, and all the normal economic gore we show you each week. What I want to focus on today is the 1) supply and 2) the reasons for ownership for metal.
Gold is pretty much "gold". By that I mean it literally. It doesn't have a ton of industrial or even medical use. It has one very main purpose that being pretty, and thus makes the most gorgeous of jewelry, and secondly it functions perfectly as money. Now the person that wrote me gave me the whole standard anti gold hate points such as "it doesn't grow interest", and it isn't used in transactions, and the supply limits expansion, and why should it be better than tree bark, or seashells, and it doesn't do this and doesn't that...to which I say "Good!". Because anything they can print and use as a derivative gets manipulated, rehypothecated, repo'd, and churned through so many financial blenders what is left is diabolical soup, not "money".
But "man" is an interesting creature and by either divine intervention, or just plain common sense, he has decided that Gold works just perfectly as money. For well over 5000 years of history man has been awful happy judging his wealth by the amount of gold and silver he owned. Sure, cattle and sheep helped, but the real "wealth" was usually boiled down to the metals. Likewise, it was uncannily universal. To this day you can go into the deepest jungle in Borneo, and find gold used for purchasing things. You can see it in the Amazon, you can see it in outback Australia. You can see it in Alaska, to Mexico. It is universally and historically accepted as "money". So, we know that "gold" has and always will be worth "something". The value might change depending on the times, but it will indeed always have value.
Dollar bills, Yen, Krona, Yuans, peso's, and all the other replica's of money are NOT money. They are currency. They're the stuff we use to transact business because they're supposed to represent real "money" held in reserve. Well, Dollars don't represent anything any more. Read the darned Federal Reserve Note you have in your pocket. What does it say it is backed by? Gold? Nope. Silver? Nope. Diamonds, rubies, sapphires? Nope. Moose horns? Nope. It doesn't say it is backed by a single thing, nor can you "trade it in" for an equal value of anything. In years gone by we lived by the adage that it is backed by the "full faith and credit" of the United States, but they don't even put that on them. Nope, just a little blurb saying that it's "legal tender". Big deal.
So, gold gets purchased for usually just one of two reasons. To make chains, rings, bracelets, earrings, etc, or to "store value". All throughout history we've seen gold elected as the "go to" hiding place when things get ugly. But now back to silver... silver is a different animal completely. It gets used in electrical circuits. It is used in solar, it is used in aerospace. It found a home on the space shuttles, and on electrical contracts. Each day it is found to enjoy more use in the medical profession. It has been shown to be a very effective antimicrobial and antibacterial. Many don't know this, but remember how the old time royalty was called the "blue bloods?" That's because years ago the rich would put silver coins and spoons in their mouths to ward off colds, and infections, and it would turn their blood a pale shade of blue. Their tongue and mouth would be quite blue.
The point being that Silver is in demand, NOT just to make Southwest Indian jewelry, but for the space business, the tech business, and the medical business. We actually "use it up". When you put a half an ounce of silver into an electronic component, and the component dies or is no longer relevant, it gets tossed in the scrap heap. The silver is "gone". Over and over, millions of times... millions of ounces of silver have been mined, used in industry and discarded to the junkyard. Some gets recycled, but not nearly enough. Then add in the investment angle. The mints are printing millions of ounces and it is getting gobbled up. Now go back to what I said earlier. According to people smarter than I, there's only a billion to 1.5 billion ounces of silver above ground that we can use immediately. Give that some thought. At 22 bucks an ounce, you could corner the entire silver market for half of Bill Gates worth. One man has twice as much money than the amount of silver that can be bought. One man. What could possibly go wrong?
As you can see, there's going to have to be a "meeting in the middle" at some point. If silver gets too inexpensive, miners can't afford to mine it. Hey, you might put up with mining 15 dollar silver if gasoline was a buck fifty a gallon, but in 2013 with diesel fuel going for 4 bucks a gallon, and all the environmental issues, they need more than that to go through the trouble of pulling it out of the ground. If the silver mines go quiet, then we start to cut into the "available" silver quite quickly. What do you do if you need silver for your high-end radar assemblies for the Navy, but there is none?
Silver is simply too cheap. I'm don't mean the "gold/silver" ratio, because frankly that is stupid to me. Who cares if "historically the gold to silver price was 15 times??" Who cares? I want to know... how much of it is there, and how is demand holding up? Well if all we truly have immediate access to is a billion ounces, China could buy that in one night with one keystroke. Obviously supply isn't all that great. Demand however has been rising for years and each year we hear of someone else using it in some novel form. In almost any way you look at it, silver is a bargain. If you remove gold from being considered a commodity because it really isn't used up in any industry, can you think of any other commodity that is as cheap as it was in 1980? Not steel. Not wood. Not houses. Not copper. Not glass, not silicone. Not iron, not coal. Not aluminum, not orange juice or pork belly. You could probably mention natural gas since so much of it came online lately from all the new fracking, but overall... very little is cheaper now than 30 years ago. Something smells fishy about that to me, and from where is sit, it smells as bad as 5 day fish. It doesn't belong at 22 bucks, and I am firmly convinced that it won't stay there.
So, when I talk about gold and silver, I'm not talking about them from the emotional standpoint. I'm not hallucinating back to my jeweler days. I'm looking at them from a purely economic standpoint. I know I have said for the past two years that gold and silver are still good investments despite both of them coming way way off their highs. Not because I'm hung up on the stuff, or stuck in some bizarre romance with it. Not at all. Gold deserves to be where it is at because it wards off the inflation they tell me doesn't exist. I can buy the same amount of food in 2013 that I could buy in 2003 with the same half ounce of gold. I can buy the same amount of gas, or leather goods. In 2003 the base price of a BMW 325i was about 28000. Today it is about 35000. In 2003 gold was about 350 an ounce. Today at 1300+ it certainly guarded against the rising prices of other goods. Gold has kept my buying power for me and that is ALL it is supposed to do.
When gold broke over 1550 to the ounce I told my readers I wasn't buying any more and I didn't. I wasn't caught up in the "momentum" and all the newbies flooding into gold looking for a quick buck. It felt a bit "frothy" despite my view that eventually it will see 2400 to the ounce. But now as it is back down to the 1300 area again, I'm beginning to buy again. I feel that is a bit underpriced now and should find its way back to the 1600 level before ultimately "lifting off" to over 2000.
Silver doesn't belong where it is. It belongs considerably higher. There isn't that much of it, it costs more each day to mine it, and more people want it. While it sounds like a broken record, I'm still thinking that in the no too distant future, it will see 70 dollars an ounce. I'm not talking today or tomorrow or even this year. But I feel it's coming. So I told my readers I'd start scaling into more silver at the 22 level and I have. I'll continue to add on dips, and average into a nice entry price.
The person that wrote me to laugh at my constant talking about gold and silver obviously didn't have any. He didn't buy any in 2001 when it was 290 bucks. I find the only ones that moan about my "constant" talking about gold and silver are those that ignored it for 10 years and bought the near term high. If you sat on your hands and laughed at gold for ten years, then figured you'd get rich quick and bought near the top, please don't whine to me. We didn't buy it to "get rich quick" we bought it as an investment. Dollars are value less. Bernanke prints more of them every single day than you could ever physically count. Go ahead, try counting to a billion. Tell me how you do. Oh, and then multiply that by two because he's printing 85 billion of them each month or basically 2.5 billion a day. Not easy is it? Yet he creates them out of thin air. "Poof"
Gold, Silver, agriculture, and select Real Estate are about the only things I see as being substantially "safe" in this era of crazed central bankers run wild.( oh and of course guns and ammo have been big time winners too, you can sell 9 MM all day long at 100% markups if you can get it) Yes it is fun to tag along with the market and make stock gains, but it isn't fun to know the market is only "up" because it is being juiced all around the globe by maniacal central bankers. This has never happened in the history of the world where so many nations were printing so much currency. To think that it all ends just so perfectly and they engineer the ultimate recovery is too fairy tale for me. So, I'll be the dinosaur and continue to bulk up on the money of the Bible. If it ends up being completely wrong somehow, I'll obviously pay the price for the mistake. But, I'm in for over ten years and "so far so good"