Time to Accumulate Gold and Silver?

[Ares]

Time to Accumulate Gold and Silver

Do you own enough gold and silver for what lies ahead?

If 10% of your total investable assets (i.e., excluding equity in your primary residence) aren't held in various forms of gold and silver, we at Casey Research think your portfolio is at risk.

After speaking at the Cambridge House conference last month and talking with many attendees, I came away convinced that most investors fall into one of two categories: those that hold an abundance of gold and silver (which tends to be physical forms only), and those with little or none. While both groups need to diversify, I'm a little more concerned about the second group. Here's why.

Regardless of what you think will happen over the remainder of this decade, one thing seems virtually certain: the value of paper money will be affected, perhaps dramatically. Even if the economy slips into deflation, the deflation wouldn't last long. A panicked Fed would print to the max and set off a wild rise in prices. This is why we're convinced currency dilution will not only continue but accelerate.

Let's take a look at what's happened so far with the value of our currency vs. gold, after accounting for the loss in purchasing power.

http://www.caseyresearch.com/images/TheValueofWealthSavedinPaperMoneyvsGold.png

Both the US and Canadian dollar, after adjusting for their respective CPIs, have lost about a quarter of their purchasing power just since 2000. Concurrently, gold has increased dramatically in buying power, far outpacing the effects of inflation.

This is the core reason why I'm convinced we should hold our savings in gold and silver instead of dollars. Let's take a brief look at how gold and gold stocks might perform if the economy takes a turn for the worse…



What If We Enter a Recession or Depression?

Mayan prophecies aside, many of our panelists last month, including most of the senior Casey staff, believe economic, monetary, and fiscal pressures could come to a head this year. The massive build-up of global debt, continued reckless deficit spending, and the lack of sound political leadership to reverse either trend point to a potentially ugly tipping point. What happens to our investments if we enter another recession or – gulp – a depression?

Here's an updated snapshot of the gold price during each recession since 1955.

http://www.caseyresearch.com/images/GoldHasRisenasManyTimesasItHasFallenDuringRecessio ns.png

Clearly, one should not assume that gold will perform poorly during a recession. Even in the crash of 2008, gold still ended the year with a 5% gain. And with the amount of currency dilution we've undergone since that time, it seems more likely gold will rise in any economic contraction than fall. Indeed, if the response of government to a recession is more money printing, precious metals will be a critical asset to have in your possession.

Even if the gold price ends up flat or down this year, the CPI won't. Gold's enduring purchasing power is why we hold the metal.

How about gold stocks?

http://www.caseyresearch.com/images/GoldStocksRoseMoreThanTheyFellDuringthe1970sRecess ions.png

In spite of the debilitating 1970s that suffered from stagflation, price controls, three recessions, and the Vietnam war, gold producers rose over 600% while the S&P was basically flat. And that includes a roughly 65% fire-sale correction, much like we saw in 2008. To be clear, gold and silver stocks won't be immune to selloffs if a recession or worse temporarily clobbers our industry. But in the end, we're convinced they will prevail.

Don't lose patience with, or confidence in, your gold holdings. What happens to the price over any short period of time is only one chapter in the book of this bull market, and we think you'll be happy by the time that last chapter is written.

http://www.zerohedge.com/news/guest-post-time-accumulate-gold-and-silver

[Serpo]

Robert Mish: Front-Line Evidence That We are Nowhere Near a Gold Bubble

Robert Mish has been a precious metals dealer for nearly 50 years and knows what a gold bubble mania looks like. We are nowhere near that stage, in his opinion.

Instead, he sees a US populace largely unappreciative of holding precious metal as a store of wealth, and engaged in a slow process of dis-hording their gold and silver to eager foreign buyers who are more than happy to take the bullion back to their shores.

In terms of where we are on the gold mania spectrum, he sees us at a "2" out of 10.

But he foresees a very rude awakening ahead as the populace eventually wakes up to the increasing damage our over-debted global economy is doing to the purchasing power of world currencies. Because when the general investor finally realizes the protection the precious metals offer against currency debasement, much of the retail supply will already be out of the system in very tight hands, and largely overseas.

Moreover, when supply gets tight, there will be more challenges to obtaining physical bullion during a buying mania than there were during the last one in 1980. There are many fewer local sources to exchange bullion these days as much of that business is now transacted by online vendors dependent mail delivery to ship product, which are more vulnerable to supply chain disruptions.

And be sure you're aware of how the form you hold your bullion in will affect the price you get during a buying frenzy, when refining capacity is overwhelmed. You may find you gold or silver sells at a hefty discount because it's not in a preferred format for trade.
On What A True Gold Mania Looks Like

The phone calls were ringing so much we could not answer them. We had to just put all our lines on hold so we could service the customers, and our own customers we wanted to service first.



We world come in to open at nine in the morning and there would already be a line out the door and down the block. Sometimes the line was mostly buyers, sometimes there were sellers. We would run out of metal. We would run out of anything. And we would have to divide the line into two lines. We would take the sellers in first, get some product, and sort it before the buyers were let in.



And people were not very discriminating then; they were panicking. By the time it peaked in January 1980, there were people out there who did not even understand free market economics or precious metal economics, they were just buying because it was fashionable or because it was going up forever. Those are more the makings of a bubble, today most people are coming in to sell.

On Today's Typical Seller

The typical seller today is really the opposite of who they were 30, 40, 50 years ago. People used to save either through a bank account to keeping some coins around, putting away silver dollars when they came back from Reno or Lake Tahoe. They would be buying some interesting furniture or jewelry and then they had income in excess of their expenses. Today, so many households are stressed having expenses greater than their income or servicing a lot of debt that they are starting to sell the things, the heirlooms that they so prized before. So we are seeing people sell their Rolex they do not want anymore or cannot afford to keep, their old jewelry, their parent’s jewelry and belongings that they inherited. The coins they collected when they were a kid, it is sad in a way because what we are seeing is the dis-hoarding of a culture.

On Today's Typical Buyer

Well in the United States, the typical buyer is perhaps someone who has taken the Crash Course and has studied what is happening to our nation and understands that they have to protect themselves from the coming inflation and social ramifications of that inflation and the debt burdened economy. Big money is buying but for every one buyer there has got to be five sellers here and I am sure that is similar among my colleagues around the country, maybe even more so. Because over here we are in a wealthier area and I still have more sellers than buyers.

A lot of it is going overseas. A lot of the coins that came to America over the decades, over the generations, either through the fact that we had the money to buy them or through immigration or through the spoils of war, it is all going back now to the home countries. Especially if it is a home country, where their economies are rising and the people are saving rather than spending.



Just last night we had two visitors from China, colleagues of mine in Shanghai, they flew here just to see me, and they flew back the next morning. They cannot get enough coins in China; they are buying everything back that came here when the people in China could not buy their own coins. Next weekend I have more visitors coming. Coin shows, which have been all over America, are now appearing all over the world. There are now major coin shows in gathering marts in Singapore, Tokyo, Beijing, Hong Kong. It used to be once a year, now it is three, four times a year. Big auctions that used to be held in the United States are now organizing in Hong Kong and other countries.

So we are seeing a movement back in the opposite direction and it is sad [for the US market]

On The Importance of Physical Form

Chris Martenson: So you mentioned refinery problems. What is a refinery problem?

Robert Mish: A refinery problem is where dealer buys the scrap gold and the scrap silver and his refiner cannot get it processed for several weeks or months. And that squeezes his cash flow so he has to pay less and less to the public.

Chris Martenson: So if I walk in with a bag of junk silver, it is 90% silver, it has always been trading well. But if we are in a real heyday, your refiner says "I am backed up 11 weeks. I can take that in 11 weeks". Meanwhile prices are gyrating. You are going to look at me and say what?

Robert Mish: I am going to say "Mr. Martenson, I wish you had come in here with pure tradable silver or something that is exchange ready."

The marketplace determines the choice for medium of exchange. If you have silver in any other form; if it is in odd form such as coins, broken spoons and knives, or whatever and I have to have it refined in order to get it back in a marketable form, it is going to suffer a discount. And that discount is going to be greater the longer it takes to turn that around.

Chris Martenson: So anything that has to cycle through a refinery has that refinery risk. What was the discount that got applied at its most maximum in the 1980’s?

Robert Mish: In the 1980s, when we were about eight weeks backlogged and not everyone even had a refiner relationship and had to rely on other dealers who did, it got to about a 30% discount for having the wrong form of silver versus the right form.
http://www.zerohedge.com/news/chris-martenson-interviews-robert-mish-front-line-evidence-we-are-nowhere-near-gold-bubble
http://www.youtube.com/watch?v=sEb_i0v0vJU&feature=player_embedded#at=194
http://www.youtube.com/watch?v=sEb_i0v0vJU&feature=player_embedded#at=194