Saturday, October 17, 2009

Investment Potential of Gold versus Silver

Should a person wanting to preserve wealth buy gold or silver? Which one has the best investment potential or multiplier, or are other factors in the choice between the two more important? Most people I talk to want to buy silver because they say it has a greater multiplier than gold or a better investment potential. They always site the numerous big name silver advocates when they say that silver has a multiplier of 11 to l, whereas gold will only multiply at a rate of 5 to 1.

No doubt, in the natural, what they are saying has some validity, that silver will outperform gold in the long run. And when the dollar finally collapses and becomes worthless, silver and gold values will find their final resting places dictated by world-wide supply and demand. For example, using the arbitrary numbers of $10 per ounce for silver and $600 an ounce for gold, silver could easily reach $110 per ounce ($10 per ounce times 11 = $110) and gold could easily reach $3,000 ($600 per ounce times 5 = $3,000).

Besides silver having a greater multiplier or investment potential than gold, many people site the second big reason for buying silver as the much greater industrial demand for silver than for gold. No doubt that argument has some validity also, but both of these major arguments totally collapse when the dollar collapses. Why? First, when the dollar collapses and has no value, and silver reaches that hypothetical $110 per ounce, and you have a mountain of silver in your living room, who are you going to sell it to, and what kind of currency are you going to get in exchange?

Now realize, when the dollar reaches worthlessness as the German Marc did in Germany after World War II, our country will be in physical and financial chaos. People will use dollars to light fires to keep warm - - that will be about the only useful function of the dollar bill at that point. Bottom line - - there will be no currency for you to make money on your silver.

Again the second big reason for buying a ton of silver, industrial demand, with no currency, and consequently no more commerce, manufacturing will shrivel up like a grape in the scorching sun. The investment potential of silver will be useless. Long ago, with the government’s introduction of trade treaties like GATT and NAFTA, we have already sent to shipped over 90% of our manufacturing overseas or to Mexico. About the only manufacturing this country has left are the big three car manufacturers, General Motors, Ford, and Chrysler - - and all three of them are stumbling like blind men, dying of thirst in the desert, looking for a well of water.

As I have mentioned before in my paper, 90% junk silver, that is the dimes, quarters, half dollars that were minted in this country up until 1964, are essential for barter. When the dollar collapses, people are going to need small denominated silver coins to buy smaller things like a loaf of bread, a dozen eggs, or a gallon of milk, and those dimes, quarters and half dollars will be ideal for those barter situations. You can’t use your gold coins for those situations - - they are simply going to be worth too much per ounce to be practical. For example, how will people make change if you give them a half ounce gold coin worth $1,500 to buy a loaf of bread that costs $10? It just won’t work.

My basic recommendation is that people buy up to a half bag or a full bag of 90% silver coins for barter. A full bag weighs 55 lbs, and a half bag is about 28 lbs. But silver, along with its benefits, must be purchased in moderation for it has some very obvious disadvantages: weight, bulk, volume, storage, and portability. In the days that are soon to be upon us, we will be faced with financial and physical calamity that we have never experienced as a country or as a people.

First, where are you going to store or hide hundreds of pounds of silver so a robber won’t find it if he breaks into your home? And in the midst of the imminent financial chaos we will probably have to be mobile, and we need a practical plan to take our loved ones and our wealth with us if we have to leave quickly. None of the big name silver advocates address this problem. They think our country will never be in that kind of place, but they don’t look at history, and they don’t look at the reality of where our country and our dollar are headed.

That said, what are you going to do with literally hundreds of lbs of silver in your house if you have to leave in haste, and on foot at that? What about its investment potential then? I have talked with many people over the years who have bought into this silver investment potential, carrot-in-front-of-the-horse scenario, and they have 5 bags of silver (275 lbs), 20 bags of silver (1,100 lbs) 37 bags of silver (2,035 lbs). One man bought 44,000 ounces of silver (2,750 lbs) and had it stored in a depository 2,000 miles from where he lived. Do you think he will ever see an ounce of it when the government closes the bank doors?

On the other hand, if you have a good bit of wealth, you need to put the bulk of it into gold coins. Gold is a very compact store of value, and it is easy to store and very mobile if you have to leave quickly. As history teaches us, many Jews bought safe passage during the Holocaust to the United States or to Great Britain with a gold coin they had hidden in their clothes or on their person somewhere. Don’t be duped into getting rich by buying a mountain of silver -- you might have to leave that mountain and all its investment potential to someone else.


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