By Stan Szymanski
At 8:47 A.M. on August 9, 2022 silver is trading at approximately $20.85. This shiny metal may be the only asset trading at a 60% discount to its 1980 high. On January 18, 1980, 42 years ago, silver finished the day at $49.45 (silver also hit $49.50 intraday on April 28, 2011).
Think about it. On January 18, 1980 the Dow Jones Industrial Average finished the day at 867.15. Yesterday, August 8, 2022, the Dow Jones Industrial Average finished at 32,832.54, a multiple of 38.86 times where the Dow was on 1/18/80.
Could a resource as beaten down as silver be a savior to investors who to most, have no idea that they need it?
There is much material written about the fact that the silver and gold markets are severely manipulated. It is this manipulation of the spot prices through the paper (not physical) markets for gold and silver that the large banks keep a lid on the price of the precious metals.
Why would the precious metals markets be manipulated? The answer of course is that silver and gold are direct competitors to the U. S. Dollar. Physical gold and silver have no counterparty risk. In other words, unlike debt (which is what the dollar is) if you own physical gold or silver, you don’t have to worry if whom you have loaned your money to has the ability to pay back the debt they owe you. Investopedia defines counterparty risk this way:
…’Counterparty risk is the likelihood or probability that one of those involved in a transaction might default on its contractual obligation.’…
The United States dollar, as it exists today, is a currency that is only backed by fiat (that is, by decree). Only because the US Government says that its’ paper is worth something, is it worth something-and that people continue to believe it. Another way of putting it, in the words of Nobel Prize winning Economist Paul Krugman:
…‘If you like, fiat currencies have underlying value because men with guns say they do.’…(Transaction Costs and Tethers: Why I’m A Crypto Skeptic, New York Times, July, 31, 2018)
It is a lot easier to enforce your decree or your fiat currency if you have ‘men with guns’ backing your assertion.
The problem with fiat money (like the U.S. Dollar) is that as more and more of it is printed it begins to lose value, lose purchasing power. As more and more is printed, more purchasing power is lost through inflation.
80% of all US Dollars in existence have been printed in the last two years.
In rough terms, since Joey ‘I Stubbed My Toe And Fell Off My Bike’ took the same seat that Abraham Lincoln and JFK did, the US has printed 80% of the money from the time of George Washington till the end of the term of Donald J. Trump. That is serious money printing. And that is the same reason that we have high inflation-‘officially’ 9.1% annualized rate according to the U. S. Bureau of Labor Statistics-According to John Williams of ShadowStats we are looking at 17% inflation! That means that the real rate of inflation is almost twice what the government is telling us that it is.
So one can see that not only does the U.S. Dollar carry counterparty risk, but right now it is losing 17% of its purchasing power as it sits in a bank account earning 1/2 of 1% or less. A return of minus 16 1/2% return for most people is a serious kick in the teeth.
That brings us back to gold and silver. Gold should always be a primary consideration for someone building a position in the physical metals. But today I am going to focus on silver because of the incredible suppression that it is under by the money center banks and because of the value it represents to the average person. In a collapse situation, silver may have a lot more utility for Joe Six Pack. Although never a guarantee, a relatively small amount of precious metals in a portfolio can serve as a non-correlated hedge to all of the dollar denominated assets the average person in America is exposed to.
What do I mean by ‘all of the dollar denominated assets the average person in America is exposed to? Do you expect to receive or are you receiving a pension or Social Security payments? Many of us do. Do you receive barter equivalents for those monthly payments? For instance, do you get paid in sides of beef, chicken eggs or some seriously needed work done on your car? Of course you don’t. You get paid in U. S. Dollars. What about your 401(k) and all of your investments is stock and bond related mutual funds? When you get your statement what is that little symbol in front of the numbers on the page that represents your wealth? Is it ‘$’? Of course it is. Those 401(k) assets are all denominated in the currency of the United States, which is debt, which has the counterparty risk associated with an issuer of fiat money.
Can you see that you and most Americans hold close to or actually 100% of your assets in dollars? Once one realizes this fact, it becomes easier to consider some diversification into non-correlated, non-dollar assets such as the precious metals. That is, the physical precious metals.
To be clear, this is not financial advice and I am not a financial adviser for anyone. What is being discussed here are general concepts for your information.
As a general rule of thumb, 5% to 10% of assets in a portfolio should be considered to be allocated to the precious metals. I have read where some billionaires are putting multiples of these numbers into the shiny stuff, but that is not the average person. In light of some very interesting information from silver expert David Morgan, the consideration of this type of allocation should be a serious consideration for many people.
In a recent interview by Greg Hunter at USA Watchdog (‘The Great Silver Crisis is Coming), Mr. Morgan shared an incredible piece of data regarding silver:
…’Morgan points out that inflation is much more extreme than most people realize. Morgan explains, “If you look at the metrics that we used in 1980 where food and energy, the two things humans need most to survive, were not taken out of the CPI (consumer price index) and they left that in, and we went with the same calculation, which is far more honest that the calculation we have now, it’s a simple math problem, and $50 silver in 1980 is $600 right now. The $50 that silver hit in 2011 really didn’t buy you anything, and certainly not what it would have bought you in 1980.”…
When Morgan says…’and $50 silver in 1980 is $600 right now’… what I believe he means is that adjusted for a correct inflation metric (like what John Williams at ShadowStats is doing), silver would be $600 an ounce right now and not $20.85. Wow.
Does that mean that if you buy ‘x’ amount of ounces of silver today at $20.85/oz that you should expect in a very short period of time to reap $600/oz before you go on vacation next year? No, because rarely in life do things work out like that in a straight line fashion.
But please consider this. Many Americans have worked long and hard to get to the point to where they have put away what many would call a ‘nest egg’-savings and investment that will hopefully carry you through retirement. But the powers that be in our country have printed so much money that high inflation and perhaps even a hyperinflation could make those preparations worth a whole lot less and it could happen very quickly.
While there is no assurance of silver being truly and fairly valued, in my humble opinion, I believe that ultimately it will happen. There are forces at work working towards this. First is the awareness that the US Dollar is not is what it once was cracked up to be when compared to currencies either linked to gold or proposing being linked to gold (the Russian Ruble and the newly formed BRICS alliance of countries). The use of gold backed currencies is on the rise and the Dollar is not one of them. Secondly, major money center banks are right now being tried for their excursions into manipulation of the precious metals markets. The truth will come out and at that point there will likely be more upward pressure on the price of the metals and more risk on the Dollar resulting in higher prices for the precious metals.
As an exercise (and again this is not financial advice nor any type of recommendation) consider this scenario:
-A person with an overall investable long term portfolio value of $300,000 (not bill paying day to day money)
-Person re-allocates 5% of their portfolio to -physical- silver
$300,000
X. .05
————
$ 15,000 will be allocated to physical silver
In this example we will buy American Silver Eagles at a going rate of $34/ounce (you didn’t think that you could buy silver at spot price did you? That is impossible! There is always a markup…)
$15,000/$34.00 = 441ounces of silver
In our example silver eventually goes up (there are no guarantees of this or anything in this life but death and taxes) to $600/ounce.
$600/oz.
X 441 ounces
——————
$264,600 estimated value of silver in this hypothetical portfolio
The take away from this hypothetical example is this: Although there are no guarantees, if an investor allocated 5% of their hypothetical portfolio to physical (not paper) silver and silver is allowed to trade at a much more fair and inflation adjusted level (what was mentioned by David Morgan) of say $600/ounce then in this example one might see the overall value of their portfolio buoyed by investing a minority of their overall investments into a non-correlated, non dollar asset which is physical silver.
If the stock and bond markets crashed and a small part of your portfolio (represented by physical silver) performed anywhere near this, even perhaps half of this-wouldn’t you feel that you did better than many by holding to something real, something you can touch whose mettle (metal) was tested and survived?
And before some smart Alec tells me that I valued the non-dollar asset in dollars I am doing that so that you have a point of comparison-in the end it is all about what your assets can buy for you and that you have something of lasting value to pass on to your heirs.
You should be working with a professional regarding your portfolio. If your ‘professional’ has not allocated an appropriate portion of your assets to physical precious metals, you need to add at least one more professional to your collection of advisors. Someone who sells precious metals (PM’s) who has been in business for an ample amount of time who has a solid reputation and access to metal now. Someone who is selling you metal and not a promise of metal (there are cases with bigger orders where metals have to be sourced-as more people see the need for PM’s we will see more of this).
I hope that this information and exercise have given you cause for thought and pause. Don’t pause for too long though. The game of musical chairs is on-the music is playing and people are shuffling around the available seats-which in this case I consider to be the available silver supply. You have the ability to assure yourself a seat by taking possession and ownership of precious metals and for many, silver is a great choice.
If you avail yourself of the physical (PM’s) your reliance on the once great and now teetering US Dollar will be in a more balanced state.
How long before the music stops?
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Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice.
