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Saturday, April 9, 2011

Entering The PM Pool

The price of gold and silver are up substantially this week.  Gold is up about 3% and silver is up around 10%.  This week (more thoughts below).  Whenever this happens, our PM store gets rushed.  People panic a bit, and buy whatever they can get their hands on.

Right now, our shop can't get American Silver Eagle coins from any of our wholesale suppliers.  The only ones we get are from customers selling to the shop.  Silver Canadian Maple Leafs had been available, but their supply is getting tight.

On Thursday, we put in an order for 500 ounces of Maple Leafs (a "Monster Box") - which won't  be delivered for 2 weeks - and all but 75 ounces have already been purchased.

These now sell for a premium equal to the American Eagles - $5 over spot.

Speaking of monster boxes, have you heard the (unsubstantiated) buzz about Tomahawk missiles?  Each supposedly contains the equivalent of more than a Monster Box of silver!

This makes sense, as silver has the best electrical conductivity of any metal.  It has huge industrial demand because of this trait.  Couple that with its use in coinage, and this helps to explain why silver increased in price by over 100% last year alone.

I've spoken about a post I wrote in August of last year where the gold-to-silver ratio was 68:1 (it took 68 oz silver to equal the price of one oz of gold).

As of now, that ratio is now 36:1.

So, let's say you're ready to jump into the PM pool.  What next?

Your very first step should be education.  Please take the time to read these articles I've posted on the subject -

Buying 90% Silver Coins

Buying Precious Metals - Part 1

Buying Precious Metals - Part 2

Buying Precious Metals - Part 3

The Inside Scoop

Then, get online or go to the library, and read more information.  Seek views opposing what I've said, then make a decision based upon how (or if) PMs make sense for you and your family.

With prices soaring as they are, the crooks are coming out of the woodwork.  We have never seen so much fake stuff come into our shop as we have over the past couple of months.  Literally every single day, counterfeit coins and jewelry is brought in.

Here's a posts on this subject -


Particularly if you are buying from a private party, YOU need to be able to verify that a coin or piece of jewelry is real.  For gold coins in particular, you should go buy a $30 micrometer from Home Depot so that you can measure the diameter of the coin.  There are a bunch of sites on the Internet that provide the diameter numbers for every coin ever minted.

This diameter test is in addition to verifying the weight.  You absolutely must weigh your coins or jewelry when buying from private parties.

In our PM store we have a very simple Excel page that has the size, weight and purity of the most common American and foreign gold and silver coins.  We just plug in the current spot market price, and it tells us the gold or silver content value for each coin.

You also want to have a magnet.  Remember:  Precious metals are not magnetic.  If they're attracted to a magnet, don't buy them!  With jewelry, the only thing that may be attracted to the magnet is the clasp.

Your magnet, if at all possible, should be a rare earth magnet.  You can get a decent sized one on the Internet for around $20.  Spend this money!

There is a cool new test (new to us) you can use to test silver with a magnet.  Silver and gold are diamagnetic.  Instead of being attracted to magnets, they're actually repelled by magnets. 

When you hold a silver coin in your hand and rub a magnet just above it (about 1/8 inch) you'll feel the coin move.  It works well with 90% silver dollars, halves and quarters, and somewhat with the dimes.  Pure silver rounds, Eagles, bars, etc., have a great deal of movement.

We test 100 oz bars by placing the bar at a 45 degree angle on a table, and setting the magnet at the top.  If it slides right off, it's not silver.  If it slowly descends, it's silver.

Now, other metals are also diamagnetic, so you should get a feel for what this feels like with known silver products.  Consider this one tool in your tool chest:  Weight, dimension and diamagnetism.


[What follows is my personal opinion.  Most folks know I am an owner of a Precious Metals shop in Northern California.  I doubt if anyone who reads this is close enough to use my PM store services.  We don't do mail order sales.  The point I'm making is, I'm not selling to anyone.  I won't personally benefit (via increased sales) by telling you what I think PM prices will do.]

How high will PMs go?  Anyone who gives you a specific number should be looked at with a bit of skepticism.  There are too many factors that can affect these numbers.  But projecting a general direction is possible - even easy.

Our government is falling all over itself, fighting over a paltry $40 billion dollars in cuts.  That is 4 days of federal operations.

Even the Congressman Ryan bill - $6 trillion in cuts - is over a 10 year period.  BFD! 

We're borrowing roughly $1.7 trillion a year.  Over 10 years, that's $17 trillion dollars.  If the Ryan bill is accepted, that means we "only" increase our national debt by another $11 trillion.  Par-tay!

Added to our current national debt, we'd be up to $25 trillion in the hole.

One problem with digging that hole is that no one wants to lend us money any more.  China is cutting back.  Japan is strapped for cash because of the earthquake, tsunami and nukes.

Enter, stage left, our Lender Of Last Resort:  The Federal Reserve Bank.  We'll just have Uncle Ben Bernanke and his cohorts create more and more Monopoly Money. 

We're half way through the Quantitative Easing II - $300,000,000,000 (three hundred billion) of the promised six hundred billion dollars to be digitally created.  This allows the fed to lend "money" [snicker] to the Treasury so we can keep the NEA, public television, and thousands of other non-constitutional departments, agencies and programs fat and happy.

The result of creating money out of thin air is that it will continue to devalue the dollars already in existence.  That means those dollars you hold right now will buy less in the future.

This devaluation of the dollar has an inverse relationship with the value of PMs.  When the dollar goes down, gold and silver go up.  PMs maintain your purchasing power.

Now, if you think our government will cut our spending by 40% this year, and every year in the future - only spending what we take in from taxes - then PMs might not be a good idea.

If you think that's going to happen any time soon, you need to have your head examined....

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Copyright 2011 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.

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