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Friday, December 30, 2016

Gold and Silver - Buy or Sell?

If you watch gold spot prices, for most of 2016 - February to October -  they were in a fairly tight band that ran between $1250 to $1350 per ounce.  Silver had a similar tight range as well.

Then in October, all hell broke loose.  Prices took a dump, then made a feeble comeback, and have now been all down.  This final quarter of the year has seen a drop in the neighborhood of $200 per ounce (it's sitting at $1151 as I push these keys).

For the year, things aren't too bad.  For other time frames, ouch!  As of today:

So, is it time to abandon gold, and jump into the hot stock market?  Maybe into some foreign exchange EFTs as there is a VERY realistic chance that interest rates are going to jump up.  Higher rates equals a stronger dollar.

Are ya in or out?  I can tell you, that business at our precious metals (PM) store has been brisk on the bullion side - both buying and selling!  Half think precious metals have peaked, and they want out.  The other half think we've hit bottom, and are squirreling away PMs like, well, squirrels.


I don't buy PMs as an investment, per se.  I buy them as a hedge against a whole bunch of things - to maintain and protect my ability to purchase things - food, energy, shelter - in the future.

This is important to understand:  The price of gold and silver is basically irrelevant to me.  I understand that if gold and silver soar to new heights, my cost of living is likely doing the same - soaring!  The converse is true as well.

I believe that in the short-term future (next couple of years at least), the price of PMs is going to decline.  I believe that the Federal Reserve Bank will indeed raise interest rates multiple times next year, making the dollar stronger.

I believe that Trump will actually do SOME of what he promised during the campaign, and we'll get more jobs created, the economy will come out of its coma, and that too, will make the dollar stronger.

Despite the dollar (Federal Reserve Notes) being a flaming piece of crap (being able to buy 6 cents worth of what it could buy when it was introduced in 1913) , when compared to most other world currencies, it has big, brass balls.  It's absolutely crushing other currencies right now.

When the dollar gets stronger, PMs get weaker.
So, despite this belief that PM prices will be declining, every single month, I buy some gold and/or silver.  I only spend money that has no short- or medium-term obligations.  My bills are all paid, I have a nice emergency cushion, and my income earning investments are funded.

Here are 5 reasons I keep buying precious metals.

1.  Maintaining Purchasing Power

I use this example when explaining this concept to new customers to our store:
When I was a kid in 1964, for some reason, I have this memory of being at a Phillips 66 gas station buying gas with my mom, and gas being $0.26 per gallon.  Let's call it a quarter a gallon.

Back then, the quarters were made of 90% silver and 10% other metals.  One silver quarter has about 0.18 of a troy ounce of pure silver in it.

Doing the math, with spot silver today at roughly $16 per ounce:  $16 x 0.18 = $2.88, OR ABOUT THE COST OF A GALLON OF GAS TODAY!  The silver maintained its purchasing power.

So, a dollar in silver quarters would get you about 4 gallons of gas.  If you had kept a paper dollar bill from 1964, today you could get about 0.4 gallons of gas. The fiat paper currency dollar has lost its purchasing power.
Ya get it?  I didn't "make money" by holding the quarter, I simply maintained my purchasing power.  Precious metals are money.  Fiat currencies and bank accounts are representations of money that can be manipulated or confiscated by governments.

2.  Government Demonetization

You heard what India did at the beginning of November, right?  Their two largest bills were "demonetized" - made worthless - over night.  Bam!, the paper money wasn't worth squat.  You had to go into a bank and swap them out for the new and improved versions.

The problem - and the plan - was, they didn't have enough of the new bills available for the swap, so you had to put the money into an account, and get your cash at a later date.

The public reason for the demonetization was the usual bullshit:  terrorism and tax evasion.  Well, the soft-heads in the government didn't patch up all of the loopholes, and the effect on terrorism and tax evasion was precisely ZERO!  

People sold their bills at a discount to money changers.  The money changers shipped massive quantities of the bills to some remote tribes or to farmers - both of which are tax exempt - and the old bills were swapped without any consequence at all, other than screwing the guy on the street for the vig he had to pay to the money changers.  The people were willing to take a hit in the form of a discount to the money changers instead of paying tax to the government.  I love it!

This is a perfect example of why you shouldn't have "all of your eggs in one basket".  You never know what will have value in the future.  I keep "money" in gold and silver, cash, other hard assets, businesses and in trade/barter goods, as well as in retirement plans, savings plans and bank accounts.  If one or more are devalued or confiscated or made illegal, I'm not flat on my ass broke.  I may be hurting for a while until I figure things out, but I won't be broke.

Along the same lines, I've also got skills, and am continually learning more.  As an example, I can turn damned near any sugar source into an alcoholic beverage that you'd enjoy consuming. 

You may be saying, "BFD, Chief!  I can head to The Walmart and get all of the hooch I want!".  Yeah, you can do that now.  But if we were in a situation like they're going through in Venezuela - where the government is so broke it can't release foreign reserve currency so that the largest brewer in the country can make beer, and the brewery closes down!  No mas cerveza, amigo mio!  How valuable would beer, wine or hooch be in that circumstance?

I'm now in the process of learning how to grow food on a larger scale.  This coming season, I'll be starting with 3 raised beds, all 8x4 foot, expanding to 6 beds the following season if things go as planned.  I'll also be putting in a small orchard with fruit trees that thrive here in northern Nevada.

3.  Insolvent Retirement Accounts

This is a biggee.  My wife and I have Social Security accounts, private retirement accounts and 401(k) accounts.  Many of you have similar account, including public pensions for government workers.

Every (and I mean every) government-run retirement system in this country is underfunded.  Many (most?) are flat broke.  Social Security, military pensions, police and fire pension programs, federal, state and local government worker pensions systems simply do not have the cash or assets to pay their retirees what they were promised.

Some of the retirees see the writing on the wall, and are trying to cash out by taking a discounted lump sum payment, and they're being rejected.  Why?  The plans don't have the cash. 

I would GLADLY take a lump sum check from Uncle Sam for the amount of money that was forcibly taken from me for SSI - no interest, just the principle - and I would forgo any and all future payments.  I think many Americans would do the same, because I don't believe I'll ever get back what I put into it, let alone the lost interest I would have accrued on my own.

In fact, I believe in my lifetime, the Social Security Administration will institute some sort of "means testing" whereby they look at my assets and other retirement/savings plans, and determine how much is "fair" for me to live on.

So I make my pile of visible assets as small as possible.  PMs are one of many ways to do this.

4.  I Don't Trust Banks

Having been in the banking industry for 31 years - going from the lowest paid clerk to Executive Vice President - I know that banks have turned into de facto agents for the state and federal governments.  Banks are no longer there to protect your money and privacy.  They are there to do as the federal government tells them.

That is not hyperbole.  There is nothing you can do with your account that can't (or isn't) reported to a government agency.  The government granted itself these powers under the assumption that everyone is a criminal or terrorist.  If the banks disclose to you that they've disclosed your (formerly) private transactions to the government, they have broken federal law... and they're not going to break federal law for little ol' you.

This should make you sick to your stomach.  You are presumed guilty of .... whatever they wish, but you do nothing about it.  Their campaign of, "Only criminals and terrorists have anything to hide from the government," propaganda program has been a success.

As equally important, they are getting very lazy with the security of your accounts.  I don't know if they just don't care, or if they've got so many resources devoted to reporting you to the various agencies, they don't have money left for security.

The SWIFT system - think of it as wire transfers between banks in different countries - has been cracked open like a papier mache piggy bank on numerous occasions in recent months.   The hackers hack a small foreign bank, and use its credentials to get into SWIFT, where the real money lies.

They are successful stealing money 20% of the time!

A US bank getting hit wouldn't directly affect you, as your accounts are covered by the FDIC.  Oh wait... Unless..... the regulators forced a failed bank to pull the "bail in" trigger, and they consider you an unsecured creditor of your bank (which is what you really are), and instead of giving you your money back, they issue you stock in the failed bank.

Try buying bacon with that.

5.  An Economic Hit or Collapse Is Coming

I seriously have no idea when.  Next month, next year, next decade.  I don't know.  I just know that you can't build government programs on borrowings forever.  Eventually, the bills (as in Treasury Bills and notes) must be paid.

The federal government will continue to pay SSI, and pensions, and welfare and all of the other bullshit by either borrowing more money or printing more of it up for as long as it can.  Eventually, they won't be able to borrow any longer, or the hyper-creation of dollars will make them worthless.

I believe that paper currency will go away, maybe within the next 5 to 10 years.  To me, THAT will be the sign that the serious shit is about to hit the fan.  Requiring every single transaction to be recorded electronically (debit card, credit card, Apple Pay, Paypal, etc.) will give government the ability to manage every aspect of your life.

Every deposit into your account will have a known source.  If it's not an approved source, they'll just take it until you can prove you paid the taxes before you received it.  You know, like asset forfeiture works right now, only without the happy face.

Every use will be monitored.  "Mr. Chief Instructor, your expenditures on food are significantly below those of your peer group in your region.  Why is that?  You're not growing your own food without reporting it, are you?  An audit will be conducted and until these allegations have been disproved, there will be a reduction in your monthly food stipend from Socialist Security.  We'll be in touch.  Have a collectivist day!"

In these cases - where the PMs would be illegal - they would be kept buried for my kids or grandkids in the future - like what happened after the 1933 gold grab.  Eventually, sanity would return, the socialist/collectivist machine dismantled, and life might return to normal.

Or they could be used as fishing weights.  Ya never know.....

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Copyright 2016 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.