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I somewhat disagree but only for short term, ie I think their value will continue to go up for awhile yet...but yes they are likely to "deflate" considerably down the road.
It all depends how speculative one feels, I suppose. I tend to think in longer terms. Therefore, I look at silver prices and say: $7 is fair, $12 is high, $19 is outrageous, because the recent (in years) stable low hung around $7 and the spikiest highs are around $19ish. If it's at a price where I think it'd be pretty hard to lose money, I like the buy.
Of course, I have enough junk silver bought at $4.50 (when the stuff was moribund in price for years) that I probably should unload some right now. I'd sell our Montreal Olympic gold coin, but I think my wife would veto that.
It all depends how speculative one feels, I suppose. I tend to think in longer terms. Therefore, I look at silver prices and say: $7 is fair, $12 is high, $19 is outrageous, because the recent (in years) stable low hung around $7 and the spikiest highs are around $19ish. If it's at a price where I think it'd be pretty hard to lose money, I like the buy....
Where this analysis has trouble is that you only looked at 1/2 the picture. i.e. the worth of silver as an asset relative to the dollar. Now what happens when you also look at the worth of the dollar relative to an oz of silver over the same period.
In other words the $ is being devalued at unprecidented rates and thus it buys less of everything.
...the worth of silver as an asset relative to the dollar. Now what happens when you also look at the worth of the dollar relative to an oz of silver over the same period.
In other words the $ is being devalued at unprecidented rates and thus it buys less of everything.
Where this analysis has trouble is that you only looked at 1/2 the picture. i.e. the worth of silver as an asset relative to the dollar. Now what happens when you also look at the worth of the dollar relative to an oz of silver over the same period.
In other words the $ is being devalued at unprecidented rates and thus it buys less of everything.
Wait a minute. Suppose silver stays at $7 for ten years, but inflation devalues the dollar each year, so that the $7 ten years later will buy about what $3.50 would buy at start. Doesn't that mean silver was also devalued?
Wait a minute. Suppose silver stays at $7 for ten years, but inflation devalues the dollar each year, so that the $7 ten years later will buy about what $3.50 would buy at start. Doesn't that mean silver was also devalued?
That's correct.
One thing most of the people here seem to be ignoring is production costs of these metals. Gold usually costs less than $500/oz to get out of the ground, and with a $700 profit on each ounce you're going to see a lot more supply than we had when they could only make $100/oz profit. Silver has also gotten way out of whack with it's production costs.
For short term trading these metals are good, but the fundamentals just aren't there to support long term stability at the current price points.
^Actually, gold is the most recycled material on the planet and the vast majority of gold on the planet has already been mined. Silver is in the same position and as I have said in the other topic, hold silver in 90% coins. The production costs are long since taken care of.
Quote:
Originally Posted by j_k_k
Wait a minute. Suppose silver stays at $7 for ten years, but inflation devalues the dollar each year, so that the $7 ten years later will buy about what $3.50 would buy at start. Doesn't that mean silver was also devalued?
No because silver is traded on a global basis. Inflation isn't a cause, it is a symptom. The dollar, just like any asset, has a worth dependant upon supply. So if you produce more dollars, supply goes up and its value relative to anything else falls. Inflation is nothing more than an increase in the amount of an asset needed to purchase something. So if the a central bank debases it's currency, then that currency buys less, hence inflation happens.
Now there is one more part of this picture. Why does a central bank debase its currency. They have to do this to provide lower interest rates. Right now the effective interest rate is 0% from the Federal Reserve and has been extremely low for most of the decade. So this has had the effect of increasing the supply of dollars to unprecedented amounts. Now compare this to the amounts of silver and gold out there. The supply of each isn't changing much so this is why you see both going up in price relative to the dollar.
Gold and Silver are inconvenient to the central banking system because it forces the government and the central bank to be honest about their currencies. This is why in 1933 they seized all the private gold in the USA and made it illegal for Americans to own any gold for close to 40 years. In the 1960s the took the silver out of coins and invalidated the silver back dollars. (Silver Certificate Dollars) Once this was done, they could print dollars as much as they want.
"you're going to see a lot more supply" I don't think you will - there have been no major new gold deposits found in the last 10 years. I expect the supply-demand imbalance to increase in the years ahead and push prices up continually while all paper currencies will continue to devalue due to excessive money printing causing yet higher prices. This site is a usefull source of info Gold News | Gold Market Analysis & Gold Investment Research
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