Our physical silver and gold market is in a precarious position…… and this worries me. The great paper PM (precious metal) sell-off of 2013 started in April and showing little signs of reprieve as June fades into July. The hard asset faithful patiently wait for a bottom all while questioning the wisdom of owning physical silver or gold. All this while today’s media wastes little time casting disparaging remarks for those practicing sound money practices and prudence. Even with all the aforementioned, this is not why precious metal has me worried.
Thank you so much for joining TPS (The Prospector Site). This post, like the hundreds before, is all about translating monetary fact from fiction, sound money from paper promises. I have no doubt our world of financial rhetoric confuses many, maybe most. Hopefully we can clear the air of confusion that clouds the judgments of so many.
Even though the US Mint will sell more Silver Eagles in 2013 than any year prior, our physical silver market is on the ropes. Demand for silver is great but nowhere near equal to today’s level of economic turbulence and fiat uncertainty. The great alternative currency experiment is nearing an end.
The PM volatility we’re experiencing as you read this is beyond the expectation of this writer. Honestly, I expected to see paper silver, and gold, dip but did not expect physical PMs would follow in such waterfall fashion. It’s easy for me to say prices will stabilize, then rise, because I understand the equilibrium between inflation (consumer prices) and physical PM.
After all, it was only after abandoning the gold standard we realized a rapid rise in consumer prices. The many decades before realized little, or only slight, inflation because the ability to print fiat did not exist. From Egypt to Brazil, the conflicts we see today are all a derivative of fiat currencies out of control.
Why I’m concerned:
Let’s take a closer look at this from a businessman’s viewpoint. A business expands as demand generates profit. This includes leasing or buying more equipment and space, growing a workforce, and so on. The goal is to generate enough product or service to match the market’s pace and trend. Simple enough I’m sure you will agree?
Today’s companies in the PM exploration and mining industry are in great trouble. Mining stock is in far greater decline than paper or physical PMs, even with rising worldwide demand. Why you ask? Because an ounce of real metal sells for less than the tangible cost to extract PM from the ground.
A company in the mining business doesn’t view silver or gold as a safe haven. They view PM as an avenue of business growth and profitability. The problem is we have reached a price point to where the return is not worth the investment, not to mention risk.
Each person considering owning physical silver or gold should expect to see an interruption in precious metal availability sometime in the near future.
The mining industry has yet another problem, as well. Today’s environmental challenges are complex and litigation is extremely expensive. Each passing day brings the threat of yet another environmental related regulation that requires new or updated compliance. It is only worth fighting through such regulation if the trouble equals profitability.
This tandem threat, environmentally motivated regulation and lack of profitability, is far more concerning than a temporary waterfall drop in PM prices. A mining bust will not return to a boom overnight, regardless if PM prices rise in the meantime.
TORONTO, June 24 (Reuters) – Barrick Gold Corp will lay off about 30 percent of corporate staff at its headquarters in Toronto and in other offices in a downsizing plan triggered by problems at major mines and a drop in the price of gold. Read it here.
So what does this mean for those of us living outside the complex world of PM mining? It means a growing market of PM buyers will soon compete for smaller piece of the pie. If current PM physical demand weren’t as great I would say declining output is in nature order, but this is not the case.
The collapse within the paper silver and gold market has caused adverse effects far beyond what most comprehend. Please take a moment to read the Q & A segment if you’re contemplating adding more metal to your PM stack.
QUESTION: DC, are you buying now?
TPS Reply: Thanks for the tiny question. My answer is “no”. I’ve suspended my purchasing plan until prices stabilize because I refuse to buy new metal only to watch prices free-fall soon after. Remember, this is all about ounces….. not price. If I can buy more ounces tomorrow with the same amount of money then why buy now?
I’m not a financial adviser, this means I’m speaking for myself and each reader can take it for what’s worth. I do offer consultation for those who’ve made their mind up to buy metal but want to make sure they’re buying the best metal possible, at the lowest price, but from a reputable source.
It’s easy for me to suspend my purchasing plan because I’m already PM protected. I own both physical gold and silver; my PM plan is on cruise control. Please don’t confuse my temporary action as a loss of PM faith, far from it.
If I were yet to own physical silver or gold I would buy immediately, regardless of today’s PM market volatility. Who knows when the economic shoe could drop leading to an overnight depletion of an already thin inventory of PM?
I will resume buying physical PM when prices stabilize, not before. Thanks for the question.
QUESTION: After reading Storing Silver & Gold I would like to add my two cents. I’m looking to purchase a standup style safe but a little conflicted over investing money for a block of iron when I could invest the same money into PMs. Right now a $1000 will buy a couple rolls of silver bullion!!! What about a compact safe instead? What is your opinion on PVC storage?(edited)
TPS Reply: Thanks for the comment and question, as well as making the effort to properly store your PM. You’re correct, a thousand bucks will buy a substantial amount of bullion these days, but. Someday soon this silver will rise in value and your ability to safely store this stash is imperative in order to protect your family’s financial future (this is the goal, right?).
I’m not against using a compact style safe, depending on the situation, but prefer something weightier and less mobile. The important issue here is how it’s mounted more than size itself. Regardless, insure the safe’s contents just in case the unlikely worst-case scenario happens to you (the book’s last chapter provides private PM insurance information).
Also, you must consider that money spent on a good safe is also an investment; investing a $1000 bucks for peace of mind sounds very reasonable to me when we view such an expenditure as an asset, too. Since you read my book then you also realize safe manufactures, like Liberty Safe, can’t keep pace with consumer demand. I doubt this trend will do anything but compound – especially when we have an administration taunting gun control.
Now let’s discuss PVC storage. For those who are unfamiliar, storing PM inside a buried section of large diameter PVC pipe is extremely effective. This process includes capping each end to ensure all contents stay dry and airtight. The PVC section is usually buried vertically just long and deep enough to allow access as needed. My only concern with storing metal buried in the ground is who will know where to look if something were to happen to you? Be sure to let someone trusted know of your PVC storage plan.
Thanks for the comment and questions.
DC Carlton is founder of The Prospector Site and author of the Amazon Kindle #1 Bestsellers Why Silver and Gold Will Go Higher and Storing Silver & Gold. If you’re looking for trustworthy PM assistance feel free to contact DC regarding his personalized consulting service. TPS doesn’t sell silver or gold; we represent you, the buyer, looking for affordable precious metal from honest trustworthy sources. Feel free to register here for his free online newsletter that provides precious metal insight rarely mentioned from mainstream media sources.