Precious Metals Volatility: Buying Opportunity or Early Crash Warning?
May 10th, 2011 | By Andrew | Category: Financial, Precious Metals | Print This Article
Precious metals prices have been quite volatile over the last few weeks. The spot price of silver has been more stable than the spot price of gold, but for those who were looking for a straight path up to higher values, both metals have been a disappointment. What’s going on? Is this just the beginning of the precious metals price crash some are predicting, a massive buying opportunity, or something else entirely?
The answer may well depend on your reasons for being in precious metals. Are you looking to grow your wealth, protect your savings, or hedge against multi-national currency issues? Depending on your motivations, precious metals price dips have a different meaning for your investment choices.
Growing Your Wealth?
If you are trying to use precious metals investments as your primary platform for growing your wealth, dips and volatility are a concern. You want the security of tangible assets driving your wealth, but there is no denying that the speculative money of the major banks and national interest groups does have an impact. In this case, to stay calm and find the right course, you need to consider the long view.
The late, great American economy has been hamstrung by special interests and those intent on running our fiat currency into the ground. To grow wealth in this environment, you need to be locked onto the things in this world that are real assets. In this sense, dips and price fluctuations represent a chance for you to buy more gold, and the possibility of a crash in prices simply represents a greater opportunity to stock up. On the other hand, if you are having a hard time sleeping easy watching the metals prices fluctuate, trust your gut instincts telling you there’s a limit to what your system can handle. Redirect your next investments into other real items of value, like heirloom seeds, quality farm ground, or survival skills training. This will help you diversify your wealth while still keeping you in value-added assets.
Protecting Your Savings?
If you are using precious metals as a means of protecting your savings, you may want to consider the current market fluctuations as a warning to mind the balance of your portfolio. Gold has been more volatile than silver, and so if you are weighted heavily into gold, you are taking on more risk for your nest egg. Moving some of your money into silver will give more stability, as silver has industrial and medical uses that drive prices and consumption levels, uses that gold doesn’t have at the moment.
This isn’t to imply that gold will crash in the future. It’s more that gold’s price is driven by different factors than silver. For example, in China, which is currently poised to overtake India this year as the world’s largest gold buyer, spends 80 percent of its gold purchase funds on jewelry buying. In contrast, industrial uses of silver are the largest consumers of silver bullion and bars, providing a different underpinning for the spot price that may make you feel more secure as a saver in silver.
Hedging Your Bets?
If you are using your precious metals investments as a hedge against multi-national currency manipulations, then price dips are simply a part of the game. As central banks around the world struggle to prop up the perceived values of their fiat currencies, metals prices respond. Some days, metals respond with a strong rise in response to central bank moves; other days, metals prices fall as central bankers successfully convince large investors their currencies are stable.
Dips in this case are a sign that currencies are looking strong. If you believe in the inevitable decline of fiat currencies, you can look at dips as a chance to buy more gold, silver, or even platinum. You’ll be bolstering your hedged position against world currencies while others continue to put their hopes in printing presses and paper.
Given the state of the world markets, precious metals prices will likely continue to be quite volatile throughout the year. It’s not a straight path up to wealth, but depending on your motivations for buying precious metals, wealth in the eyes of the world may not be the most important consideration. Look at your own goals for growing wealth, protecting your savings, and hedging your bets against the world’s fiat currencies to decide what you want to do next with your precious metals holdings.
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There is a fourth consideration, regarding why to buy metals. Most of us on this site are particularly interested in metal’s role in our preaprations for an economic or other disaster. I wrote the following on another financial thread yesterday. But, it also pertains to the fundemental reasons for owning metals.
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I believe each person should invest in some gold and silver – at the proper time!
If you haven’t dealt with food storage, OTG water needs, self and family defense, shelter and bug out plans, etc., then you have no use for gold and silver, yet. Once your preparations are in place… THAT is the time to worry about storing the value of your excess wealth into something that will hold it’s value.
Let’s keep in mind, a TEOTWAWKI event will follow several stages: (Of course we cannot know the particulars, but…)
1. The Hunker-down Period: The period after the crisis begins, but before the Schumer Hits The Fan. This is when you or your survival group decide what level of crisis it is, and put the appropriate Plan into effect. (Again, my example is TEOTWAWKI. So, it’ll be your worst-case scenerio.) This period may last a couple of days, up to several months, depending on the nature of the triggering event.
During this time, many or most social structures (electricity, water, food distribution, business and govt. availabilty, employment, etc.) will still be available. But they’ll be starting to noticeably crumble, followed by an eventual collapse.
Junk silver MIGHT briefly be useful in this timeframe; if fiat currency becomes devalued BEFORE TSHF.
2. Basic Survival Period: TEOTWAWKI has happened. Your survival community (whatever it’s size) has carried out it’s plan, and you are in place. Externally, society has collapsed into a violent place; when those who have not prepared to survive are dying at the hands of their more ruthless members.
This also represents the greatest danger to your survival community. If your preparations were inadequate, then you must adjust on the fly. But, if your preparations were fatally inadequate, you will simply become an unrecorded statistic of the maelstrom – just like those who didn’t even bother to prepare.
This winnowing phase could last for years, depending on the nature of the event. It is here that your gold and silver will do you NO GOOD! You can’t eat it, drink it, or shoot it! When basic sustenence is all people care about, having gold and silver is worse than useless. It was a waste of your best chance to survive – putting your wealth into food, water, security, and shelter preparations. No one will take your junk silver for their last week’s worth of food. And, you will only be a target for the well-fed roving gangs who are taking everything that isn’t VERY WELL defended.
3. The Early Recovery Period: Most of the gangs will have killed each other off, or been dispatched by the well-defended survival communities. Some will still exist, but communities will be banding together to go on the offensive to eradicate them. Thus, people will be meeting outsiders again.
In the process, people will match their needs with the excess stocks of others, and barter to their mutual advantage. Again, few will be interested in metals. They will want foodstuffs, gardening equipment, AMMUNITION, etc.) That is why it is important to lay in excess stocks of bartering items. If you have a batlle rifle, but get a better one; don’t sell the other. It will either be a good backup, or a good barter item. If you want to stockpile something particular against this phase, choose ammo. Lay in extra stocks of common rifle and pistol calibers. You can never have too much ammo. It may save your life, one way or another.
4. The Late Recovery Period: Society is now stable enough to use currency for transactions. A very likely first currency will have intrensic value, and be recognizable to buyers and sellers. Therefore, IF CONDITIONS PERMIT, lay in a small amount of junk silver before the crisis. I would not suggest that it IN ANY WAY diminish your other preparations. It is simply a strategy for EXTENDED survival. Only in this period (or the other mentioned BRIEF period) will it do you ANY good.
ONLY lay in large stores of silver and gold wealth if you want to maintain the value of you wealth when fiat currencies become devalued. It is a good hedge agaist inflation. But, a better store of wealth might be a fully stocked survival retreat, on some land that will also not devalue.
So, some junk silver as a currency option during the intitial crisis and the late recovery would be wise. But, large amounts of metal are simply something to be defended with other resources that may be too strained, because you chose to sink your money in something that will not help you stay alive to spend it.
This scenerio more closely reminds me of Jesus’ parable of the rich man who stored his wealth away in barns. Jesus said, “This night, your life will be required of you.” Useless preparation.
Be wise, folks. Metals are the last item on your list.
This event that is described above will happen in New York, Paris, Los Angeles, Chicago, London etc.
But the world will keep turning. There will be commerce, trade, barter, buying and selling. The currency we use now will be near collapse so silver and gold will be needed. Yes, prepare for the worst. Protect yourself and lay in a large, pratical store of food, ammo and all the things any alert survivalist already know about. Many of us have a plan to buy that house or plot of land with the gold and silver wealth one has accumulated over the current and past years. And finally, when TSHTF, anything goes! So make sure to have a bit of everything you will need because the chips are gonna fall where they may. Then we all will have to dance to the music whether we like the song or not.
I don’t agree that, as you seem to indicate, TEOTWAWKI will be confined to a few financial centers around the world. A societal collapse will occur if the “system” collapses. And, if the system collapses, it will collapse everywhere.
Remember: Different TEOTWAWKI scenerios will have different characteristics.
But, let’s take the most likely current scenerio, a hyperinflation of the dollar, as an example. [This progression is from The Patriots, by James Wesley Rawles]
When the money hyperinflates, it will drive up – not just the cost of retail goods but – the cost of raw materials, production, and shipping of these goods.
The value of your paycheck will not match these price increases. Eventually, there will be runs on banks, as people try to remove their savings, IRAs, etc., to store it’s value in something tangible. This will cause the Fed to have to print money to keep up with their FDIC promises; which will excelerate the inflation. The world markets will see this and divest themselves of dollars just as Americans will – through buying up anything in the U.S. that is tangible; which will dump trillions more dollars into the economy. The definition of inflation is: more money chasing fewer goods. After awhile, there won’t be anything left to buy that will store intrinsic value.
Meanwhile, bank and food riots will start. People who realize that the infrastructure of society cannot survive losing the prop of a sound currency will form into impromptu mobs, and strip grocery stores, gun shops, etc., clean. The worst of these will form gangs, and move out from the cities into the countryside looking for food and other loot.
Gradually, police, military, and other government services will topple, as the people who report to work will stop doing so; as their paycheck is worthless; and as protecting their family becomes their greatest concern. Businesses will close for these same reasons. Add the communication and electrical grid to that (which the government will maintain as long as possible), and you have TEOTWAWKI.
This cannot be localized to a few cities. It’s a snowball effect that, once started, cannot be stopped. And, bartering silver or gold in excange for scarce commodities will be unheard of. Too may people who now attack the Second Amendment will be looking for guns and ammo, to protect themselves from from the looters (since, in this scenerio, when seconds count, the police will be only days, weeks, or years away). It would be best to at least have extra ammo.
I’ve asked myself this question: Since so much of this happened in the Great Depression, and society didn’t totally collapse, why couldn’t it just be bad like that today; but not TEOTWAWKI?
Then, I realized the reasons why:
1. Society is much more insulated in First World countries then it was in the ’30s. Too many people don’t know how to farm, or hunt, or live close to nature; or even to survive without Air Conditioning. We are no longer a hardy lot.
2. Society isn’t nearly as Christian as it was 80 years ago. There were morals and standards then, that simply were rarely transgressed. That isn’t the case, today.
3. There is a sense of entitlement that people have, to avoid the consequences of a cruel world. People feel that they are owed a home, an education, or even their next meal. When the government cannot provide it during TEOTWAWKI, they will become angry, and then viscious.
If the currency collapses, it will not be a modified business-as-usual. Prepare to survive the worst, and you MAY survive all other scenerios.
This is an ugly scenerio. Some people may not even want to survive a collapse like this. And, I assure you, they will not.
Thanks for the above story line. I have a question,as a kid we collected old coins,not really worth much when we we’re collecting. We have some old wheat penny’s and eisenhower silver dollars,we would go to the bank and asked the teller for silver dollars or silver half dollars. When I was working during the summers I stocked the vending machines and counted the monies collected. We could change out the old coins if we found any, so we collected some old coins that way. My grandparents collected Mercury head dimes and Ben Franklin half dollars,we’ve got some old marks from Germany and some sen from Japan. We thought we would sell and get what silver was going for that day,however after reading your story we’re thinking about keeping what we have and use it to trade with. Question, would it not be easier to trade with coins that had silver in them,then trying to break off a piece of gold from a gold coin. Enjoy reading and learning what you think. All of the decisions we’re thinking about making, have at some point, life threatening consequences if you get them wrong. So what would you do, sell today and get what ever one can or hold on for that rainy day. I’ll be listening for your response. Thanks and God bless
It would be a VERY good idea to trade your collectable coins (wheat pennies, post ’69 half dollars, foreign currency, etc.) for actual silver coins. These others will have no trade value, because they either won’t be recognized, or they have little or no intrinsic value. Remember, during TEOTWAWKI, no one will be “adding to their coin collection”.
You may know that any dime, quarter, half, or “silver dollar” made before 1965 was composed of 90% silver metal. One dollar face-value is 9/10 of an ounce. 1965-69 half-dollars (plus limited numbers of 1970 halves) are 50% silver. This is commonly called “junk silver”. Since this is recognized currency, and it has intrensic value, this should be stored as part of your survival plan in reasonable quantities. But, as I wrote above, make your other preparations first.
At this stage, my wife will grudgingly allow me to buy silver coins, but not stocks. I can show
her that the coins have gone up in value while she knows that the stocks have gone down.
Silver has doubled from what I was paying for a roll of 90% silver Roosevelt dimes just last
June. Right now, I’m buying food instead of more silver.
We have enough guns for each member of the family to have a rifle, pistol and shotgun.
I reload rifle and pistol ammo and I have stocks of components. The garden is 3/4 planted.
I have 2 big blue barrels ready to create a rain-water harvesting system. Currently that is
not allowed in Colorado, but if I need the water…..screw the man, it fell on MY roof!
Other precious metals to invest in: brass & lead
I’m betting ‘gneal’ has read the James Wesley Rawles novel TEOTWAWKI or now titled
as PATRIOTS. It’s a fictional account (so far) of a societal collapse and members of a
group retreating to a ‘compound’ in Idaho. I’ve learned quite a bit from that novel.
You guessed it about Patriots. I cited it in my later post, above, before reading this.
It’s a worst-case scenerio. But, I honestly don’t see (knowing what kind of people our society is composed of) an easy path through a hyper-inflation. I’d like Rawles to be wrong. But, I’m a Christian, and I know how far down the road to serfdom our society has gone. And, it scares me to the point of getting off my fat a** and preparing; and doing everything I can as a citizen to stop it from happening.
Prevention is the best cure.