Silver has hit $50 twice in my 45 years in precious metals bullion business, January 1980 and April 2011. Both times would have been excellent times to have sold. I did not see either and was not a seller. What will be the right move the next time silver hits $50, sell or hold?
Both times silver got to the $50 level, there were world calamities. In January 1980, we were seeing the end of the feckless Jimmy Carter four years in the White House, and inflation had been registering double-digit increases. Worse — probably — in December 1979 the Soviet Union invaded Afghanistan.
In 2011, the Fed was on a massive money printing program that was aimed at – in Keynesian theory – pulling the world out of the Great Recession. The Fed created, out of “thin air,” right at $4 trillion to buy toxic assets from troubled banks. And, the Fed got in the lending business, even to foreign entities. Additionally, other major central banks became active in money creation, and trillions of dollars (equivalents) were foisted on the markets.
But, what are you going to do the next time silver hits $50? Are you going to sell and take a digital currency in return for your hard metal? The same goes for gold, when it rises to $1900 or $4500. Will you be willing to accept paper greenbacks?
If the metals hit prices anywhere near the numbers noted above, the world will again be facing a major calamity, such as the 2008 Great Recession or another war. There are lots of potential calamities out there.
As it turns out, 2011 (when silver hit $50 and gold $1900) would have been a great time to sell. Further, 1980 would have been an even better time because the metals entered a 20-year bear market. (Hindsight is wonderful, but it doesn’t make you any money.)
As for the 2011 tops, we’re now seven years into a downturn. However, with all the potential calamities out there, I believe that gold and silver are prudent investments at current levels, having put in bottoms in December 2015.
Among the potential calamities – to name only a few — are the federal government’s deficit spending, now pushing $1 trillion annually; dealing with (and refinancing) $21 trillion of debt that will easily rise to $40 trillion over the next decade; and, interest on the national debt that is forecast – with no recession – to be $1.3 trillion annually by 2022.
As noted in earlier writings, America’s ageing population threatens to bankrupt our entitlement programs, which, of course, would be another calamity. Then there’s the possibility of wars with Russia, Iran and North Korea, with Iran being the most likely candidate. The neo-cons can’t seem to get enough of saber rattling.
Wars are huge strains on the federal budget. The invasions of Afghanistan and Iraq have cost in excess of $4 trillion dollars, and we’re still in Afghanistan, which has been the graveyard of numerous Empires. To name a few: Genghis Khan’s Mongol Empire, the Mughal Empire, Alexander the Great’s, the British Empire, the Soviet Union. (See Why is Afghanistan the Graveyard of Empires?)
Will the American Empire be the next? As for the $4 trillion already wasted in Afghanistan and Iraq, the cost was basically financed via debt. Without those wars, our national debt would be $17 trillion instead of $21 trillion.
So, what will you do when silver returns to $50, gold to $1900? Will you sell? If you sell, what will you do with the proceeds? Now is the time to start thinking about it. My suggestion: Look for something tangible that could be underpriced during a crisis, such as a piece of land, a farm, a business with tangible assets, a shopping center, an office building. Something tangible. Going back into a digital currency that the government controls would be dangerous.
However, here’s something else to consider: Stocks could take a serious tumble and be real bargains. They were in the 2000 Dot-com crash and the 2008 Great Recession. Still, buying stocks when things look disastrous takes a lot of guts because it’s tough figuring out which companies are going to survive.
As silver moves toward $50 and gold $1900, the metals will look like they are going higher — and they may very well go higher – and you may not want to trade your metals for dollars or anything else. It may look like the end of the dollar as the official currency of the United States. It may certainly be the end of the dollar as the world’s reserve currency. Remember, the history of paper money is that it is printed until it is worthless. There have been no exceptions.
At some point, you will have to decide on a strategy for exiting your metals. Start thinking about it now.