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Silver and goldPosted Wednesday, August 18, 2010, at 7:04 AM
I have a jury trial that begins on Monday. My keyboard will fall silent for more than a week after this post. Thanks.
Silver and gold, silver and gold, everyone wishes for silver and gold" -- "Rudolph the Red Nosed Reindeer."
The television and radio airwaves are filled with ads about silver and gold. TV ads want you to sell your silver and gold. Radio and Internet ads want you to buy it. What gives?
Precious metals are currently up a large amount. Gold has been bouncing around at about $1,200 per ounce for the last couple of months. It spent all of the 1990s at about $300 to $400. Silver has been bouncing around about $18 per ounce. Silver spent all of the 1990s at about $4.50 per ounce. Why? Is the smart person buying or selling?
We have all heard the old adage, "buy low and sell high." But what is low and what is high? Should I get in now, or is it too late?
In my opinion, that depends on what your intentions are. I started collecting coins when I was 12-years-old. I had quite the collection until someone else desired it more than I apparently did. That said, I have semi passively followed the precious metals markets and collectable coins market for several decades.
Among the best pieces of advice I have come across is: Coins and precious metals aren't really an investment. Rather, they are a store of value. In something I read somewhere, a writer commented that an ounce of silver will buy as much food staples today as it would buy in Roman times. I don't know if it is true, but it is a plausible and interesting thought.
Suppose you had some money that you could save or invest. What to do? Interest rates are generally below 1 percent. The stock market has been up and down but unable to stay above 10,000 for the past 10 years. Real estate is down, and unoccupied property can eat you alive with taxes and other costs. Gold and silver are bragging that they have been steadily rising over the past few years.
The "experts" say that inflation has been somewhere between 1 percent and -1 percent. Apparently, these experts haven't been grocery shopping over the past couple of years. Inflation takes wealth from people who have cash (each dollar is worth less) and increases the cost of stuff making it more valuable (it costs more dollars to get). Inflation means that the value of real estate, stocks, and tangible assets will rise as the value of the dollar falls.
I am not by any means an expert. However, I don't know how a government can spend trillions of dollars it does not have without inflation showing up sooner or later. If inflation comes, it is better to have less cash and more stuff. People with cash savings, money markets, bonds, CD's, etc. will take it on the chin. People who have stuff like stocks, real estate, metals, etc., will suffer less.
Should you buy silver or gold? That depends on each individual. People with large amounts of money to invest who have a diversified investment strategy are probably fine. People who own profitable real estate are probably fine. But even "little guys" can save a few old coins.
If you have money that you do not need for your regular expenses and are willing to take the risk of loss, if it is something you can hang onto for a long time and are not expecting to "get rich quick," you may consider buying some silver or gold.
WARNING: In 1980, when silver rose to $46 per ounce, my mother bought a couple of ounces with the intent of selling when it went up from there. That day, a Friday, the price crested $50 per ounce. On Monday morning, the U.S. Treasury announced that it was selling some of its silver and gold reserves and the price tumbled. Mom still has that silver. The highest it has ever gotten since that day is $19.60 per ounce.
If you chose to buy some silver or gold, one expert I read advised the following:
Always take physical possession, don't buy commodities contracts. Never pay above market prices (No Premiums). Buy bullion for "business," buy collectibles for fun. Buy silver first, then gold. Buy small gold first, then large. Never buy exotic coins, modern rarities, or anything you don't understand. Know who you are dealing with; it is easy to get ripped off. If the government can't find it, they can't take it (like they did in 1933). Never swap bullion coins for U.S. $20 gold pieces. (They have a high premium because of their collectors' interest since they were largely seized by the government and melted in 1933.) NEVER break the law.
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