Precious Metal Prices - It's impossible to predict the upside...
by Jonas Parker
(Deep East Texas)
A week ago, I would not have hesitated to answer the question "what will be the prices of precious metals in the future?". But not today! I just finished reading the book "When Money Dies" by Adam Fergusson published in 1975. Back in mid-July of this year, it was widely reported that Warren Buffett had been giving copies of this out-of-print book to friends. The prices for used copies soared (a hardbound copy was offered on Amazon.com for in excess of $1200).
The book has since been reprinted in paperback and is now available through various sources at a reasonable price. I purchased a copy and have been reading it for the last three days. I plan to re-read it next week again. This book is definitely a "must read".
History does have a tendency to repeat itself, invariably inconveniently and at the most inopportune time. History is usually predictable as well. If a person (or a country, or a central bank) does "A", the results will generally be the same as the last time a person (or a country or a central bank) did "A". The same action or series of actions generally will have the same result.
So why won't I predict an upside price to precious metals? Lets go back to 1923 and the Weimar Republic in Germany. The German central bank tried to "control" and "boost" the economy of the country, which was quite weakened after the defeat of the Central Powers in WWI, by printing massive quantities of paper currency, backed by nothing more than the paper and ink on which the currency was printed. Ultimately, the value of the German mark (previously traded at 4 marks to 1 US dollar) had sunk to 1 million millionth of a US dollar... a number I find difficult even to comprehend.
we move forward 78 years, we see that Argentina attempted the same process, with pretty much the same results, with the exception that the Argentine central bank didn't wait as long as the German central bank did before stopping the printing presses. None-the-less, the Argentine economy pretty much collapsed. Fernando Aguirre tells the story from a first-person middle-class perspective in his excellent book "Surviving the Economic Collapse", which, in my opinion, is another "must read".
Fast forward to the present. The US Federal Reserve Bank, under Chairman Ben Bernanke,is doing exactly the same thing - using digital 1s and 0s instead of paper and ink. What will be the result? Probably the same as in Germany in 1923 and in Argentina in 2001. So where does that leave us today? Actually in a position to make a fairly easy decision.
Let me put this as a question. Five years from now, would a person be better to have $10,000 in $20.00 Federal Reserve Notes or $10,000 in silver at the current melt value in US pre-1965 90% silver coins? Each individual has to answer this question on his/her own. For me, the answer is simple.
So what will the price of gold and silver be in the future? I don't know, and truthfully, it doesn't really matter. I do know that regardless of the eventual price in US dollars (if, in fact there is a "US dollar"), the "buying power" of the gold and silver will remain pretty much the same as the day I bought the gold and silver. I'm not "investing" in gold and silver. I don't look to make a profit in gold and silver. I do look to preserve the purchasing power of those dollars I spend on gold and silver, regardless of inflation or even the eventual disintegration of the US dollar.