Precious Metals 101

If you are going to purchase physical precious metals, gold, silver, platinum, be prepared to ride the short-term ups and downs.  Understand what it is you are buying, and why you are buying it.

The first lesson is to always buy authentic.  Unlike stocks and bonds, there is no shortage of imposters and bad investments in coin offerings.  One of the most common imposters are coins labeled as U.S. Mint coins clad in gold leaf.  Many of these coins are offered in commemoration of an event or in memoriam of a political, military, or entertainment figure.  These coins are usually very ornate and are beautiful mantle or cabinet pieces.  The catch is in the base layer of the coin as these coins are actually less than precious metals coated in a thin layer of precious metal.  Although they are good for aesthetic pieces, they are not typically investments. Golden Eagle now has the ability to see exactly what your coin is made of, more on that here.


THE BIG 3


GOLD

Let’s talk about gold.  Gold is one of two elements that is easily identifiable when it is brought out of the Earth.  It is malleable, virtually indestructible, and, like all precious metals, is in limited supply.  It rarely loses its luster and is the primary metal used in jewelry.  Coins have been made of gold for as long as history can date the use of money for trade.  Gold remains the standard in politically unstable regions as well due to its intrinsic value.

Gold has many more uses than just coins and jewelry.  Think about what you are doing right now.  Without the conductivity of gold the computer, tablet, or phone you are using to view this site would not operate.  Your television would not receive high definition signals, and your surround sound system would not carry rich, digital clarity.  It is for all of these properties that gold has always been in high demand and will always be in high demand. 

Doug Casey said it best when he said that gold remains the only financial asset that is not simultaneously someone else’s liability.  Gold is the ultimate store of wealth and a hedge against inflation.  It is the world's only true money. Gold can never go bankrupt because it has no liabilities against it. In a world swamped with debt, doesn't it make sense to hold onto gold?


SILVER

Silver lives up to its heritage in being a close second.  There are many jewelers who still fashion fine jewelry out of this shiny metal.  Many historic coins were once stuck from silver to include the famed US Silver Dollar, and is still minted by smaller economies to this day.

Silver is also widely used commercially.  Much like gold, it conducts electricity quite well and is used in a wide array of household items.  If you have a water purifier, conventional photographs, or a battery you are probably holding a small amount of silver in your hand.  In fact, more items use silver commercially than gold.  So, why the difference in price or in investment value?  Supply and demand.  Silver is typically found nested with other ores that are mined commercially, so injections into the market are more frequent and usually larger.  

Much like gold, the wide demonetization of silver has boosted and stabilized its potential as an investment.  As a metal advisor, I would highly suggest having a stockpile of silver with your gold as a hedging and leveraging strategy.


PLATINUM

Platinum is the new kid on the block, at least in terms of investments.  It is highly lustrous and strong, however it is in very small supply.  Platinum just started showing up in a surplus position, however small positive price movements still mean big changes in bullion value.  With such a high entry cost, many investors have a hard time justifying its addition to their portfolio.  This metal should be watched closely as it has potential for great growth, but with any investment should be researched and evaluated versus your other positions and opportunities in the market.


GOLD TO SILVER RATIO

In a nutshell, the gold-silver ratio represents the number of silver ounces it takes to buy a single ounce of gold.  The essence of trading the gold-silver ratio is to switch holdings when the ratio swings to historically determined "extremes."   Note that no dollar value is considered when making the trade. The relative value of the metal is considered unimportant.

 Since January 2011 the Gold to Silver Ratio has been as high as 70:1 and as low as 32:1.  By simply trading one metal for another at the right time, you can amass a significant amount of metal without having to spend any additional cash.  We provide several resources to help you track and quote the current ratio.  Checking back often will help you maximize your buying and selling power in our markets.


WRAP-UP

Since Nixon closed the gold window in the early '70s, cutting the dollar's link to the metal, we have been using dollars as our ruler. I don't want to get into the details of monetary history, but suffice it to say that many of us alive today have known nothing else. For this very brief period of history we have not used gold as our measure. I suspect that the last 10 years have been a gradual realization of this and that we still have another decade to go before everyone will routinely use gold weight (or a currency convertible into gold) as the measure of value.

For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets. This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar's valuation. Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars. The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon.

Now, if you believe that the politicians and bankers are going to end their recklessness and restore value to the dollar, then gold probably isn't for you.  However, if you are of the opinion the supremacy of the dollar is not nearly as solid as most Americans believe it to be, precious metals should be in your portfolio.