All posts tagged silver

Robert Kiyosaki has a column on why he’s buying in gold. I don’t know why it has tomorrow’s date on it, but its pretty interesting nonetheless.

Bet on Gold, Not on Funny Money
by Robert KiyosakiTuesday, July 25, 2006

Gold recently dropped more than $100, or 14 percent, after hitting a 26-year high of $730 in mid-May. With that drop in price, I became a buyer of gold once again.

Can the price of gold go lower? Absolutely. If it drops to $500 an ounce, I’ll buy more. Let me tell you why.

But first, to give you some background, I’ve been in the gold market since 1971, when then-President Nixon took the U.S. dollar off the gold standard. Back then, gold was pegged at $35 an ounce, and ran to a high of $850 an ounce by January 1980. In the same period, silver hit approximately $40 an ounce.

Today, as I write, silver is around $13 an ounce. So I’ve seen the price of precious metals go up and down.

Mining a Hunch

In 1996, I founded a gold mining company in China and a silver mining company in South America. Both companies eventually became publicly traded on the Canadian Exchanges.

I formed gold and silver mining companies then because I believed that gold and silver were at “lows” and were set to come back up. At the time, gold was around $275 an ounce and silver was around $5 an ounce. If I’d been wrong, I would have lost the mines.

I was confident about gold and silver because I wasn’t betting on them. Rather, I was betting against the dollar and oil. In 1996, oil was about $10 a barrel, and that seemed low. My suspicions were that the dollar was strong, and I believed it would drop when oil went higher. I felt the conditions were right for a massive change in the markets. So far, I’ve been pretty accurate.

I’m confident that those conditions haven’t changed. With the current national debt, balance of trade, and ongoing war in Iraq, the dollar is growing weaker and oil is going higher. That’s why I recently bought more gold as well as more silver — to bet against the dollar and oil yet again.

Inflation or Recession?

In many ways, the conditions are far worse now than they were in 1996. Today, we have a slowing demand for the dollar. At the same time, it appears that the Federal Reserve is increasing the supply of dollars.

As you know, low demand and high supply means a drop in value of anything, including the dollar. And in order to save the dollar’s purchasing power, Ben Bernanke, the new Federal Reserve chairman, may be forced to raise real interest rates. By “real,” I mean an interest rate that’s higher than the rate of inflation.

(For example, if inflation is at 5 percent and interest rates are at 5 percent, the real interest rate is 0 percent. So, in this example, to increase demand for the dollar, the Federal Reserve would have to raise interest rates above 5 percent, to, say, 8 percent. That would means investors would receive a net 3 percent return on their money.)

So Bernanke has a tough choice to make: If he prints more money to bolster the dollar, inflation increases and the dollar may collapse. If he raises interest rates to slow inflation, the economy may go into recession.

The Oil Problem

Granted, if Bernanke moves to save the dollar by raising interest rates the price of gold and silver will probably decline — but so will our economy. If the economy begins to slow, the stock market often slows or turns into a bear market.

Personally, I suspect he’s more afraid of deflation than inflation. So for now, I’m betting that he’ll continue to increase the supply of dollars, which may be why the U.S. stopped reporting M3 in March of this year. (M3 measures how many dollars are in the system, and not reporting it is akin to not opening your credit card statement and pretending you’re not in debt.)

But oil adds another wrinkle. Oil producers are seemingly less and less willing to accept dollars because the purchasing power of the dollar keeps falling, precisely because we continue to print more money.

To compound the problem, we’re running out of easy-to-produce light, sweet crude. While there’s still a lot of oil to be extracted, it’ll be more expensive to produce, which makes $100-a-barrel oil very possible in the future. This, in turn, makes inflation more possible.

Historically, one barrel of oil has been worth about 2.2 grams of gold. Even when the dollar dropped in value, the ratio between gold and a barrel of oil remained pretty fixed. But recently, it has taken 3.4 grams of gold to buy a barrel of oil, which means either oil is expensive or gold is cheap.

I’m betting that gold is cheap, and that it’ll correct as oil goes higher and countries such as Russia, Venezuela, the Arab states, and Africa become more reluctant to accept the U.S. dollar. For a while now, we’ve been allowed to pay for the goods and services from other countries with funny money, but the world appears to be less and less willing to take it as payment.

Good Money Before Bad

Which way will the new Fed chairman take us? Will he be inflationary, which means printing more money, or deflationary, which means raising interest rates and tightening the flow of money? Does he save the dollar, or save the economy? Does he increase the money supply, or increase demand for the dollar?

My strategy remains the same as it’s been for years: I bet on real money, which is gold and silver. I also continue to borrow funny money to buy real estate. Since oil and gas are in high demand globally and appear to be going up in price, I also invest in oil and gas production.

Again, I’m not really betting on these assets — I’m primarily betting against the dollar, and the leaders who manage the U.S. economy.

Now you know why I buy more gold and silver every time they drop in value in the current economic environment. What smart investor wouldn’t gladly spend funny money to buy real money?

Regular readers will know that I’ve been investing in gold since gold was in $500/Oz. I advised some readers not to jump in at $720 but wait for a pull-back. Well it pulled back from $720 to around $570 and then jumped up a bit. Today it settled around $620 and I bought a little bit more. As I previously mentioned, I like the perth mint Lunar series for the 1 Oz Gold as well as the 1 Oz Silver coins.

This time however, I bought the US mint $50 1 Oz Buffalo Coins. Its the first time the US Mint has made 99.99% pure 24K 1 Oz gold coins. I bought them already certified by PCGS as “First Strike MS-69”.

PCGS is perhaps the most popular independent third party coin grading & certification service today. The grading scale goes from 0 to a maximum of 70. For example a grade of 10 would be a very poor condition. A grade of PF-60 (or MS-60) or above would be an uncirculated coin. PF-70 would be absolute “perfection”. Some experts say there is no such thing as a “perfect” coin. In fact, some grading services will not place a grade on any coin above MS-69 or PF-69.[PF or PR means its a Proof coin, where by the background has a mirror like finish and the fine details of the coin are more pronounced.]

A coin that was made within the first 30 days of issue are called First Strikes. These are the initial production coins and sometimes these become more valuable. Today was the last day that PCGS was grading coins as “First Strike” so I decided to get them.

GoldLine was selling these same coins today for a whopping $1044, but I got them from American Precious Metals Exchange for only $667. These same coins are already selling on Ebay for atleast $735 so at $667, it doesn’t seem like there’s much downside.

Gold is in a long term bull market so I really don’t think I’ll lose any money on these coins. However Silver might be a better play with more upside potential, but then who knows what will happen. I’d buy both but my wife inherited about 5 kilos [about 155 Ounces] of Silver a few years ago so I guess were done hedging with silver.[But I still bought a few Silver 1 Oz coins off Ebay. I’ll post the pictures once I get them]

Oh, and 5 kg of Silver is less than $2,000 worth!

[1 Ounce Perth Mint Lunar Series Silver Dragon]
Bought a 1 ounce silver dragon coin on Ebay. Its a beautiful coin, minted by the Perth Mint in Australia. [As I mentioned in a previous post, I’m a big fan of the Perth Mint’s Golden Lunar Series.]

Don’t know why I bought it. Maybe its because I like shiny things. I think silver prices might jump 50% over the next 3 years but the 1 ounce silver is current worth about $9.25 and the coin was just under $20 with shipping and insurance. I definitely won’t make my fortune with a $20 coin. But I guess its better than blowing money a DVD. Or is it??

Anyone else out there who likes collecting coins?