Dec 02, 2011, 11:05 AM
Puts PM prices into perspective
I read recently that the Bank of Korea is increasing its gold reserves. One interesting fact is that the bank now holds 54 or so tons of gold worth just over $2 billion. In today's financial and gov spending world, $2 billion is really nothing, yet it can buy 54 tons of gold. I wonder what 54 tons of gold even looks like?
My point on this issue is that with all the many trillions and trillions of paper dollars and digits floating around out there, there are not enough PMs above ground to buy if just a fraction if that money wanted to leave other investments and head to PMs. This is why if things really do go south with the EU or here, we could see PMs rocket to prices that now we cannot imagine. Having said that, I believe such high levels would probably not last for a long time, but could create an opportunity to sell at a very high profit and convert the proceeds into something else, like land, real estate, etc. Such frenzied parabolic moves never last forever, but if you get out when everyone is clamoring for such asset, a nice profit could be had.
I have seen different estimates of the outstanding amount of $$$$$ now invested in derivatives, anywhere from over $700 trillion to over a $1.2 quadrillion ($1200 trillion). That's alot of cash out there that could one day look for a more secure "home", like PMs. In a crash though, it is possible a large amount of such money could evaporate before the underlying investment can be liquidated. But I believe that there will always be "smart money" that will flee in time and will look for a new place to invest, and PMs and other hard assets will be what they go for.
There are many possible events looming that could bring such a situation: if Iran's nuclear facilities get bombed, large banks or a gov crashes in the EU, possible repeat of 2008 here with some of the big banks, etc. With so many looming disasters on the horizon, I feel there is a strong probability PMs are going up much higher than now within the next 5 years or less (even if they don't hit the crazy high levels some predict).
Because there are the big ETFs and futures markets, much $$$ going into PMs could go there instead of direct bullion purchases. I believe such ETF and futures purchases would cause PMs to rise, but not cause the crazy high prices that would happen if for some reason the buyers wanted their own physical bullion instead. If for some reason the PM demand were to be for physical bullion only and not ETFs and futures, then some of those crazy high prices some pundits have predicted for gold and silver would become a reality fast. This is because it would not take more than a couple hundred billion dollars or so to make available inventory vanish fast.
I stopped dollar cost averaging a couple months back thinking we were going to see 20 dollar silver, but that has not happened. I plan to start buying again this month in small increments, in that I don't want to wake up one day and see silver shooting back to 50 and me not have enough silver in my stash. I went through that back in May when silver almost got to 50 and I "knew" I was not going to buy anymore silver ever again (at such high prices) and wished I had bought more when it was cheaper. Low 30s now doesn't look bad to me compared to the high 40s, even if it does drop down to 20 again.
All just my opinion.
Dec 02, 2011 11:05 AM
Dec 02, 2011, 06:34 PM
Re: Puts PM prices into perspective
Very, very good info Jim ! I've been a silver goof since 1981 when silver was going down due to the Hunts' folly. Actually, it wasn't the Hunts that did themselves in.....it was the U S guv'ment by requiring a larger payment for contracts. Back then, I paid an average of $12.50/oz and at the time, I should have put that money into a C D or something. Figuring things out, silver has to get to around $34/oz for me to break even over the last 30 years. The time will come.........within a year?
I still buy off of ebay.....normally U S and foreign proof sets AT below melt price.
Dec 03, 2011, 09:25 PM
Re: Puts PM prices into perspective
Silver never sold for over 10.00 an ounce from about 1982 to 2006 24 years much of that time siver was under 5.00 an ounce, so if you are a long tream buyer your in great shape.