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Dumb investors buying silver because it went up in price

Posted by John T. Reed on

I look up the price of junk silver every ay in the WSJ. Today, it was $15,107 for a bag with $1,000 face value. That means those pre-1965 dimes, quarters, and half dollars are worth 15.107 times their face value.
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Jeez! That is the highest I recall in some time. It was only a few months ago that I wrote about how LOW that price was here. It was below $10,000 which I did not remember seeing in a long time.
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Then I turn to the next page in the WSJ and read the headline “Soaring Silver Prices Lure Haven Seeking Investors.”
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Anybody ever hear of buy low sell high? If so, then why do mobs often run to buy assets that have reached historic highs. Have they ever heard of regression to the mean, which is big in my new book How To Spot Dishonest Arguments?
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If silver is now a haven, it is because it is a commodity, not because it is silver. If you want to buy a commodity, buy one that is NOT currently at a historic high. A million dollars worth of silver = a million dollars worth of gold = a million dollars worth of nickel.
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Precious metals gains are actually taxed at a punitive 28%. Base metal gains are taxed at normal, lower gains rates.
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The Journal article said investors want silver because it holds its value in “times of economic uncertainty.” That’s not true. Commodities hold their purchasing power during INFLATION. People today ought to buy a whole hell of a lot more commodities because the government is implementing one inflationary policy after another.
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But if the “economic uncertainty” is deflation, better known as depression, you are an idiot to trade fiat money like the US dollar for a commodity because fiat money is the top investment in deflation. Commodities plummet in dollar value in deflation/depression.
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So the meaning of silver prices soaring is that investors fear inflation, NOT that they fear “economic uncertainty” of all varieties. It is not a matter of my opinion versus that of Amrith Ramkuvar, the author of the Journal article. It is by definition arithmetic. Commodities like gold, silver, and nickel have NO virtue as investments other than during inflation. They earn no interest.
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I like to compare commodity prices to their long term real average. Real means adjusted for inflation. Here is that graph:
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https://www.macrotrends.net/…/historical-silver-prices-100-…. The 1980 peak in silver prices was an anomaly caused by the Hunt brothers trying to corner the market. As you can see in the graph, the current price is well above the long-term average. The only sensible purpose to buy them if you are not an industrial user is as inflation hedges.
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Whenever the price is above about $15 an ounce, you are, by historic standards, a buy-high guy, a.k.a. a dope.
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I know that gold and silver are “cool” and base metals are not. That might have been important to me when I was, say, ten. But at 73 in a career as a financial writer, I do not do cool anymore. Buy low sell high is smart. Buy high is dumb.
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Gold/silver guys also dismiss base metals as taking up too much space compared to base metals. Who cares? $100K of gold is 55 gold eagle coins; of silver, seven bags of junk silver; and two million nickels (20,000 $100 boxes of nickels).
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I just googled the dimensions of a $100 box of nickels. The first Google result was an article written by John T. Reed. Each box is 138.3 cubic inches x 20,000 = 2,766,000 cubic inches ÷ 1,728 cubic inches per cubic foot = 1601 cubic feet. That is about the size of an SUV bay in a garage (12' x 16'x 8.5').
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Not cool? I would not know. Bought at average long-term real price is smart, however.


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