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Thursday, November 4, 2010

Financial Balloon

As expected, gold and silver have soared after Bernanke told the world it was his intent to purposely devalue the American dollar.  At this moment in time, gold is up over $44 an ounce the day after his announcement.  It is rapidly approaching my guesstimate for a year-end price of $1400 an ounce (it's at $1392 right now).

Take a look at this screen shot from  It shows where the price spike is coming from (click to enlarge):

Seven dollars of the increase are due to the dollar being sold - weakening it.  The remainder is due to gold buyers gobbling up everything they can get their hands on.

I got a call from a woman today that had taken one of my gun classes.  She wanted to know where gold was selling.  This was around 11:30 this morning, and gold was only up $30 an ounce at that time.

I told her that we can't keep PM's in the store.  For the last two weeks, people have been going nuts.  Silver especially.  Our PM biz has been open just over a month, and we're already on our third Monster Box.  These are boxes from the mint, each with 500 Silver Eagles.

Technically, we're on our 4th box, as one guy bought an entire box.  He came in, gave us the cash, and we ordered him the box.

This is what we're having to do with our customers that want large orders (and most gold purchases over 3 ounces).  They come in the store, we contact our wholesalers, lock in a price, and have it delivered in 3-5 days.

For some reason, our competitors aren't offering this service to their customers.  God Bless 'em for their short-sightedness!

I wrote this on August 28th of this year -
Also, the price multiple between gold and silver has been narrowing. Just a week ago, the multiple was 68:1 (68 ounces of silver cost the same as 1 ounce of gold). As of today, that ratio has dropped to under 65:1..
As of this moment, that multiple has dropped to 52.82 ($1392.90/$26.37) in 9 weeks.

Dollar for dollar, right now, silver is a better bargain.  It's appreciating faster than gold.

I'd expect to see some profit-taking in the next few days - maybe even tomorrow.  Or maybe not.  It's impossible to tell.

What I do know is that the underlying cause of the devaluation of the dollar will continue.  Taxes and inflation will continue to rise.  We may see price spikes and valleys on a day-to-day basis, but the trend will be upwards.

Best "bargains" - at least here in Northern California:

1 oz gold Canadian Maple Leafs.  They'll cost you about $30-$50 less than a gold American Eagle, and are virtually as easy to resell (if need be) as the Eagles.  Krugerrands are another $25 below the Maple Leafs, but are a little more difficult to resell.  Not by much, though.

90% silver.  Very low premium over spot prices right now.  This stuff disappears within a day when we get some in the store.  Here's a tutorial I did back in January ("Buying 90% Silver Coins") on how to buy the stuff.

Volatile:  100 oz silver bars.  Early last week, I was buying them at a pretty steep discount to spot prices.  As I told a customer, it was like they had leprosy!

This week they're on fire.  One of my partners had a customer for 3 of them.  He called one of our wholesalers for pricing, then he called back the customer who placed an order.  When my partner called back the wholesaler, 9 of the 10 bars had been sold!  Ten minutes had elapsed...

My personal outlook is to stay with silver bars of no more than 10 ounces or one-ounce rounds/bars.  Prices and demand for both of these are much more stable.

Accept The Challenge

Has the "Financial Balloon" gone up?  I don't know about that, but they're clearly hooking it up to the helium tank.

Let's assume so.  Remember:  Even if it hasn't, nothing we do prep-wise will harms us, as long as we're using our heads.

> Get your housing, food, supplies and equipment squared away.  Then add a bit more.  Exchange the money you were going to spend going to the movies and dinner for some preps.  One month of no "date night" won't kill anybody.

> Get yourself as healthy as possible.  Dental work, doctor's visits, elective surgery - anything you've been putting off "'til later".  Later has arrived.

Again, even if the Financial Fairies magically fix everything, you're no worse off for getting yourself patched up now.

> Look hard at your monthly and annual budgets.  What services do you pay someone to perform for you?  Oil changes?  Tire rotations?  Lawn mowing?  Housekeeping?  At the very least, make sure you know how to do all of these things yourself.  Better yet, start doing them yourself, and put the extra cash you're saving into debt payment acceleration, prep supplies or PMs.

> Take some sort of safety awareness or personal defense class.  If you remember, the Administration just froze the payments for Social Security and other entitlements.  The states are freezing welfare payments as well.

With the dollar being devalued, a buck is not going to go as far.  If you're a "lifer" on the welfare system, you don't have any skills to support yourself.  When your CocoPuff money runs out, you're going to need to fill that gap somehow.

Guess where they're going to be looking to make up the difference?

Get Thee To A Class and then to the range on a regular basis.

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Copyright 2010 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Russell said...

I would first like to start by saying what I'm about to post isn't to make me sound like a braggart...

I'm trying to figure out the best course of action.

My wife and I have too much cash...

We have saved up about 6 months worth of mortgage/bills etc. as a emergency fund.

I also have a couple of other bank accounts that I 'stash' money away in unbeknownst to my wife.

We both have 401k accounts that we've been building over the years as well.

A lot of our money is tied up in the bits and bytes world.

I've bought silver and gold over the pass couple of years as well.

Food: 6 ~8 months for 5 people.
Bullets: More than needed.
Bandaids: A lot (former military medic)

I don't want to drain our accounts buying more preps. I also don't want to dump all our cash into PM's. Basically, I don't want to panic buy...

Obviously, as the dollar's value declines, so will our 'wealth.'

Should I gamble and hope that things will work out in the end?

Or, move our cash to something more stable?

Decisions, decisions...

Ryan said...

The usefullness of huge silver bars has always escaped me. The advantage of gold is that it is an increadable compact, universally accepted non dollar denominated store of value. The advantage of silver is all of the same things except instead of being compact it is affordable. Just about anybody can buy a one ounce silver round/ bar or a bit of 90% every so often. There is a reason it is called the poor mans gold.

To me the idea of hundred ounce bars misses the point of that affordability. If you want to drop that much into a single bar of precious metals, at least from a preparedness perspective I would get gold just because it is so much more compact. Like you said getting sstuff under 10 ounces makes sense. Really I would get a whole bunch of 90% and or 1 ounce bars before looking to the big stuff. I know someone who has a couple of those 10 ounce bars and they are pretty cool. Wanted to get one for awhile.

The only role I can see for 100 ounce bars/ rounds is precious metals speculation because they drop the cost over spot a little bit.

Chief Instructor said...

Russell, I can only tell you what we did. Honestly, it was painful at the time, but I sleep at nights.

My wife and I had a number of 401ks from past jobs. The ones that were limited to investments only in the stock market were cashed out. We took a huge hit tax-wise. Huge. The majority of the money went into PMs.

We have more than recovered that taxation from the appreciation of our PMs in right around a year and a half.

Should I gamble and hope that things will work out in the end?

If you consider something a gamble, it's not an investment or a plan IMO. When I "pulled the trigger" it was after looking at my options and my beliefs as to what was going to happen to the economy.

My approach may have been a bit unorthodox, but I never felt it was a gamble.

PMs may crater, just like stocks or the bond market might crater.

Right now, at this point in time, I think it's better to have my money in PMs, in Cash-in-hand and small amounts in the bank.

Ryan, we had a guy call the store about selling a 1000 oz bar. I called our wholesaler, and the market was VERY weak - about a buck and a half per ounce under spot.

He asked me exactly how much the bar weighted. I said I didn't know. I asked him why that was important. He said that if it was over 1050 oz, his price would be lower, as it would exceed 70 lbs (!), and the price per oz would be lower because his shipping costs would increase.

That's a big 'ol brick-o-silver!