Strong demand for bullion products amid tight market conditions and unprecedented “stimulus” measures from Washington have lots of people asking lots of questions.
Here we will answer a few of the most pressing questions currently on the minds of precious metals investors.
Is the attempt to force a “silver squeeze” on the futures market viable?
We think so. Silver is one of the most heavily shorted assets on the planet, and the amount of paper contracts far exceeds available physical inventories.
But the “silver squeeze” movement should be aware that mechanisms are in place on the exchanges for cash settlement.
The pros who trade in these paper contracts have sophisticated hedging and exit strategies.
That said, sustained bullion buying at elevated levels could very well be the wild card that causes a run on physical silver and a spike in prices.
Investment demand has been a big driver of physical off-take, and so has silver’s increasing industrial and green energy applications.
To be sure, shortages currently exist in some retail bullion products, largely a result of production bottlenecks and high retail investor demand for the white metal.
But there are no discernable shortages in COMEX or LBMA “good delivery bars” – at least not yet.
I’m worried about all the inflation the Biden administration and the Federal Reserve are pumping into the economy, but how can I be sure precious metals will provide protection?
History proves that gold and silver perform well overall in inflationary times.
But they aren’t guaranteed to rise on day-to-day basis. Precious metals shine when measured over an entire inflation cycle, which can last years or even decades.
During the decade of the 1970s, as paper assets got clobbered by inflation, gold delivered average annual returns of 30.7%. The S&P 500 barely eked out nominal gains of 1.6% per year – which were far too puny to keep pace with an inflation rate that surged into the double digits by the end of the decade.
Looking longer term, gold has risen almost 10,000% – from $20 to nearly $2,000 per ounce – since 1930, priced in America’s depreciating fiat money.
Are gold mining stocks a good substitute for physical gold?
No. It’s important to keep in mind that physical precious metals and mining stocks are entirely separate asset classes.
Gold is a tangible form of money; mining stocks are financial assets that are subject to a host of additional risks besides the market price of gold.
During the turbulent market conditions of 2008, when gold prices gained overall, the leading gold miners index (the HUI) lost nearly 30% of its value.
Incidentally, since its inception, the HUI gold stocks index has underperformed the gold price.
How can I tell when a coin dealer might be trying to rip me off?
We often warn against the nefarious tactics of high pressure “rare” coin salespeople, particularly those working for prominent dealers who advertise heavily on TV. We get plenty of horror stories from clients who have run afoul of these operators.
We’ve heard all about the never-ending follow-up phone calls from slick talking hucksters eager for another huge commission.
Among the lies they tell include whoppers like collectible coins aren’t ever taxable.
Or that super expensive numismatic coins in those spiffy plastic slabs are somehow less prone to government confiscation.
The most common bit of blarney is that you should move fast to buy some coin, which is in fact not particularly rare or desirable, at a huge premium to its melt value because swarms of future collectors will pay even more to get their hands on it. Don’t bet on it!
Check on a dealer’s reputation online and with the Better Business Bureau before giving them your business. And don’t be afraid to call and gauge the quality of their customer service for yourself.
Don’t make the mistake of automatically going with a dealer who appears to be quoting the lowest price for a product. That price may not include hidden charges or upsells that are tacked on later.
The firm may not even have the promised product available. Certain “low cost” dealers have been known to impose delivery delays of several weeks or even months – and in the recent past some of them gone out of business while leaving anxious customers with open orders in limbo.