Good Morning,
I am a fairly new SurvivalBlog reader but like your range and depth of coverage in all things “survival”. I Hope you can help me with a metal question…
I have collected gold and silver coins for over 10 years now and have always assumed I could sell them when the time was right, but I recently had a conversation with a local coin dealer who indicated they were cutting back their hours and that there were several other shops that were closing down their retail operations because a lot of people were only wanting to sell precious metals not purchase them. Thus, the shop inventories were swelling and they could see no reason to buy more from their customers until their [coinage] stocks diminished. Did I understand this line of reasoning correctly? If the banks crash and people need cash will that not cause metal prices to plummet since there are so few places that will purchase gold and silver? Would this be a temporary condition as foreign buyers like India would swing into action? Your thoughts on this would be much appreciated. – Keith D. in Colorado
JWR Replies: You are correct. that the precious metals market is global. It is, however, a notably very “thin” market, compared to other investments like land, stock and bonds. Thin markets tend to be volatile. But every free market eventually finds equilibrium. In the short term, just the rumor of a Central Bank gold sale could push down the price of gold by as much as 30%. But that won’t change market fundamentals, and the metals will prices will eventually bounce back. The impact of a major bank run in the US is an imponderable. It could push metals down, briefly. But in the aftermath, when people see the continuing declining value of the US dollar (USD) in foreign exchange, the metals prices will resume their bull charge, fueled by foreign purchases.
I cannot predict a top, but my gut tells me that it is somewhere substantially above $1,500 per ounce gold. That equates to 1000 Euros per ounce, which might be seen as a magic number. (A “panic” number for the bankers.) Beyond that, there is a substantial risk of “intervention” that could run the gamut from government gold sales, to government gold leasing, to targeted “exceptional profit” taxes, to export and import controls, to even possibly another FDR-style gold ban. (Keep in mind that when I was describing natural equilibrium, I was talking about free markets. When market freedom is destroyed by legislation or executive orders, all bets are off. Free market fundamentals only apply to truly free markets.
When governments and their banking cartels feel the heat and recognize the risk of their magic money machine being revealed for what it is–essentially a fraud–then there is no limit to what they will do to protect their interests. Wit that said, I strongly recommend that once gold passes the $1,000 USD mark that you very gradually unwind your metals positions. You should divest perhaps 70% by the time gold passes $1,600 per ounce. Don’t try to time the peak. Experience has shown that this is almost impossible. My further advice for divestment is as follows: Sell off your foreign-minted bullion first, followed by your US commercially-minted gold, followed by your US Mint Eagles, and finally your pre-1933 numismatic gold. (The latter is the least likely to be confiscated.) I recommend that you maintain a core holding of pre-1965 sliver coins for barter, regardless of what price level the metals markets reach.
As you divest your gold in the bull market, put the proceeds immediately into other tangibles investments–as I’ve described at length in SurvivalBlog. Just don’t make the mistake of parlaying your precious metals profits into any dollar denominated investments. That would be foolish.