Investment / Personal Finance
A place to discuss investments and personal finances. It is well-understood that many people are living “on the edge” and cannot do any investing at all. This group is for those people as well, to discuss ways to try and improve their financial situations in small steps.
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I have spent the past six years off-and-on studying silver in my spare time. I am interested in silver because I believe that an average joe like myself can make a lot of money investing in it, with very little risk, and that it would be great to have some on hand when the apocalypse hits. 😉 What I am about to share here I do with the hope that nobody that I might hate if I knew them will read it and make money off it. But being a realist, I know that I can’t freely share it with JPR’s readers in a forum setting where they can give me feedback on it, without taking that chance.
If you go onto a website such as kitco, you will probably find charts such as these:
Bless their hearts. They’re in the business of making money off silver (and other metals) so it’s really not in their best interest to give us any useful information. What they’d rather do is give us as little as possible while making it look as though they’re giving us enough to make an informed decision about when to buy and sell. In reality, if we want anything that is truly useful, we have to download the actual numbers and work with them. A lot.
Silver and gold have been interestingly volatile since around 1967, and particularly after 1971 when we went off the gold standard. https://www.thebalance.com/what-is-the-history-of-the-gold-standard-3306136 In 1979, the Hunt brothers tried to corner the silver market, resulting in artificially high prices which caused much consternation and as a result some rules were changed so it couldn’t happen again. (It didn’t turn out well for the brothers.) https://en.m.wikipedia.org/wiki/Silver_Thursday
So much for the history lesson, now back to the numbers. If you combine the two charts above to create a single chart from 1968-2019, you’ll get something like this:
Slightly more useful, as it shows the first two instances of what could become a repeating pattern; but still not very useful in giving us good information on the actual value of silver over the years because it is not indexed for inflation. For that, someone would have to be crazy enough to convert each of those dollar values into their respective value in a single year. That crazy person would be me, and I’m absolutely certain that I’m not the first to do so. I chose the year 1986, but I could have chosen any year and ended up with the same graph (although the dollar values on the y-axis would have been different, the line graph itself would be unchanged.) If you prefer a different year, just convert my 1986 numbers into that year’s numbers with the bureau of labor statistics cpi inflation calculator https://www.bls.gov/data/inflation_calculator.htm. Anyway, here it is: Our first truly useful silver chart, made from the above chart but translated into the dollar values of a single year.
Now we’re getting somewhere! We can see the lowest price for silver over the past 50+ years, which is somewhere around $3 in 1986 dollars. If we plug that number into the bls cpi inflation calculator, it tells us that we would really love to buy some silver right now if we had the money to spare and it was selling at $7.04 today. Unfortunately, it’s currently selling for something like $17.04. So we’re screwed, let’s forget about the whole idea.
Our next step would be to divide the chart into sections: “Buy Aggressively”; “Buy Moderately”; “Buy Sparingly”; “Hold” (the area between “Buy Sparingly” and “Sell Sparingly”); “Sell Sparingly”; “Sell Moderately”; and “Sell Aggressively.”
By the way, you can see that the commodities exchange did manage to minimize the second silver spike to a little over a third the height of the previous spike with their new rules. The non-inflation-adjusted charts might otherwise lead one to believe that the second spike was higher than the first. In terms of real dollars, it wasn’t.
So now we have some green lines which give us an indication of when we might be able to start buying, and we don’t have to wait for $7 silver (we could wait forever and that might not happen). The actual 1986 dollar values of those lines are as follows:
So, we could buy below $6.60 in 1986 dollars, which translates to:
Hey, $15.49, that’s more like it! Silver went as low as $14.38 last May!
Personally, I am more conservative (when it comes to money) and I don’t want to buy any at all until the price drops below the “Buy Moderately” line of $5.05 which translates to $11.85 in today’s dollars. I may be waiting a year or two more. Also, I probably wouldn’t want to sell until the price went above the “Sell Moderately” line; if the past repeats itself again, that could be another 25 years from now. I’d be in my mid-seventies. But here’s the thing: In the meantime, my money is not being lost to inflation. If I really need to, I can sell some for cash and probably get the same price I paid for it (in 1986 dollars) or more; but that same price in terms of current dollars will have increased due to inflation. So, say I buy some silver for $13 in 2022 (let’s say that was the 2022 value of $5 in 1986) and then in 2028 I need to sell some. If the price has fallen below my buy price I’ll lose a bit, which is why I don’t want to buy at the first green line. If the price has stayed the same (as it very well could) I’d sell for the same $5 in 1986 dollars – but thanks to inflation, that could be $15 in 2028 dollars, giving me a profit of $2 per ounce and keeping up with inflation.
Now if I’d had that money in a savings account or cd instead, maybe I would have earned that much in interest; but maybe not. And if I had, I’d have had to pay taxes on that interest at my normal tax rate; instead I get to do the rich-person thing and pay at the lower capital gains tax rate since I held it longer than a year. But wait, I’m not rich. I’m poor, which is even better because my income is so low that the capital gains tax on that $2 per ounce is ZERO for me! True fact. Tax-free income. That’ll put some spring in my step and make me feel a bit like a billionaire even though I had to sell some silver before I really wanted to.
And of course the apocalypse could have happened in the mean time. Unfortunately I’m not well-armed and don’t intend to get well-armed. I do have a pretty good idea of where I’ll store the silver, and you’re gonna have a pretty tough time finding it if you know I have it. (I’ll make sure my daughter knows where to look, though.)
By the way, you can sometimes find silver as low as 15% below the spot price on ebay. Usually it goes for about 5% higher than the spot price though, due to the cost of postage etc. You’d have to spend a lot of time bidding on auctions to have more chance to pick it up at a bargain. That being the case, since my “buy” price is currently $11.85, if the spot price falls below $14 and I happen to have a lot of free time, and a bit of spare cash, I could be bidding $11.85/ounce on multiple auctions hoping to get lucky on one or two. I have purchased silver coins on ebay in the past as a test, and have been well-satisfied with the results. I have also re-sold that same silver, and lost a bit of money doing so because of ebay fees, paypal fees, shipping, packaging etc. Fortunately I live in a densely populated area with lots of coin shops, and when I re-sold some of the coins there, it was a very quick and pleasant experience. Your mileage may vary.
Oh, here’s one more pretty graph showing the same info as the last one – but translated back into non-inflation-adjusted dollars:
So that’s pretty much my take on silver. Gold is similar, but a topic for another day. Questions or comments?
January 1, 2020 at 8:15 AM #245086snotParticipant
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This is intriguing although more than I can absorb. But I’ve been wondering about metals – the rest of the market seems like hocus-pocus.
I happen to know some back story about the first spike – it was artificial. The Hunt brothers (sons of an oil baron) tried to secretly corner the market, and got busted. I’m not sure whether what they were doing was illegal, but in any case it was found out before they could cash out. They ended up having to pledge their oil wells as security for their loans, and later got into trouble with those as well.
Bottom line: the first spike can’t be counted on as indicative of much, except maybe the possibility of people trying to manipulate markets.
Destruction is easy; creation is hard, but more interesting.
March 20, 2020 at 2:28 PM #290046QuietYooperParticipant
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I bought silver pre and post Y2k and still hold it despite almost tripling my investment. I bought it as insurance for the zombie apocalypse. My goal is to bequeath it to my kids and hope I never have to sell it. But, if I do need it, it is much easier to sell or trade in a barter economy than gold or other metals. If you do go further, stick with well known mints like Silver Eagles or Maple Leafs. Engelhard is good too but only if you cannot find Eagles or Leafs. Stay away from Pandas and other mints cuz you will likely get lesser price in a stressed economy. I had a fair amount of junk silver but sold it at a profit because it takes too much space to store.
I agree with the coin shop angle, that is where I buy most. I avoid web sites including eBay. Pawn shops are a horrible place to sell metals and rarely a good place to buy them.
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