I have discussed in 40 or so blogs here WHY silver is good to go after. But, let’s now assume you agree that I’m correct and want to get in on the action. What to buy? How much? Where? Should I buy miners?
I have to avoid ADVISING anyone – but what I can do is use a hypothetical situation of what I might do with 100k cash. This was a question I saw on Twitter, and you might not be able to reply in 140 characters. Or whatever that limit is today.
First, let’s talk about risk. This is ultimately where any investment decision would start.
If you identify a risk, you then have a choice – do I want to accept the risk, transfer it, or mitigate it?
- Accept – do nothing. For example, earthquakes. If you live in an area where there are no earthquakes, perhaps you do NOTHING when building a house. In the unlikely event an earthquake hits, maybe it’s a 4.1 and no damage happens.
- Transfer – this is insuring in case something happens. Maybe you buy earthquake insurance of sorts, and a once in 500 year event hits. You paid $3 a month insurance for this, and your house was decimated and they rebuild your house.
- Mitigate – perhaps if you live in southern California in an earthquake zone, you would then build your house to withstand earthquakes and building codes require it.
Each of the above has a cost associated with it. To do nothing, may mean you could lose everything in the event of an earthquake.
However – you then have to look at the likelihood of an event in your area, and then factor in the IMPACT to you. Meaning – the decision for thinking about earthquakes is different for me in Pennsylvania, USA than California, USA – over 3,000 miles (5,000km) away. Yes, the USA is very large.
With investing – you then have to look at how you feel the market is going. There are a lot of factors which affect the price of gold and silver, but in a sense – if everyone feels the market is going to the moon, they put a lot of their money into stocks and potentially use leverage with options. This is a “risk on” play. If people feel skittish about the markets, and want to pull their money from stocks, they may put them in treasuries or gold and silver. This is a “risk off” scenario. I’m NOT a financial advisor and this is NOT meant to be financial advice, but to educate someone as to how to look at things. Please speak to your financial adviser first before making any investments.
At other times, gold and silver may go up with the market, or go down with the market. Again – these things can be complex.
Where gold/silver shine is a situation where you have NEGATIVE real rates. Meaning the 10yr treasury pays out less than the rate of inflation. For simple math purposes, assume the 10yr is 1.5% interest and inflation is 4.5% interest. This means, the government guarantees you 3% LOSS each year. Gold and silver have a 0% rate and tend to move with inflation. So if your choice is to lose 10% with the stock market, 3% with the 10yr, or 0% with gold/silver – these become a “safe haven” to put your investment capital. This is a “risk off” play that becomes very electric when real yields plummet deep into the negative.
Scenario A – Maybe in YOUR analysis, stonks always go up. In that case, you probably think gold and silver is dead and you buy “traditional” equities. Airlines, car companies, Coca Cola, etc.
Scenario B – Maybe you think…well, I have $1million in my accounts. Maybe I should hedge to keep my value. In this case, maybe you allocate a small portion of your stocks into cash, then buy gold/silver. In this event, maybe you now have $900,000 in stocks, but to cover yourself, you then have $90,000 in gold and $10,000 in silver. If your stocks collapse, your gold and silver will go through the roof. If your gold/silver collapse, your stocks may go way high.
Scenario C – Maybe like me, you think we are in a world of hurt coming. I am ALL in defensive stocks related to gold/silver miners, and have some allocation for a small amount of physical silver. This is a RISK OFF play. This is RISKY because this is betting against the stock market. Meaning, if gold and silver go down, I have no traditional stocks that will go up. However, if traditional stocks go down, my portfolio will go through the roof.
For the sake of argument – perhaps you fall in EITHER the second or third camps and want to then look at metals.
Physical versus miners
The big thing you hear people say is, “if you don’t hold it, you don’t own it”. Now, consider you live in an apartment with others. It really makes no sense to have $100,000 in silver, perhaps hundreds of pounds. It also makes no sense to have that much metals if you are worried about security. I don’t have a ton. Maybe some survival stuff. Most of what I do is in miners. There are risks with each.
With the physical, you look at this as insurance. While you will not be going to the grocery store when SHTF to buy toilet paper in American Silver Eagles, the point is that at some point in a hyper inflation scenario, you can convert your physical silver or gold into the currency and then buy food. Today, silver is $26 an ounce. There are premiums on this, which I will talk about below, but for argument’s sake, let’s say it takes you $30 to buy one ounce of silver. If a gallon of gas was $30, you are looking at 10 gallons of gas for $30 to equal one ounce of silver.
In a hyper inflation scenario, you may see prices of things go crazy. Some are calling for $600 silver by the end of the decade. Some are well over $1,000. In this type of scenario, gasoline might by $60 a gallon. To fill up your 20 gallon tank would cost you $1200. If you think of this in cash terms, it will make you depressed.
However, if gas was $60 a gallon, you could take an ounce of silver out, and it would be worth – 10x the price of gas or $600 per ounce. By buying physical silver in TODAY’s prices, you are protecting against a future where prices hyper inflate.
Check out Venezuela….where 10 oz of silver could pay for rent for a year, and 2 oz could provide you food for a year.
So maybe you want to protect your family from a hyper inflation for 2 years. Maybe get 20 oz for rent (10×2) then maybe 12 more for food (2 x 3 people in your family for 2 years). The bare essentials has you at 32 oz. At $30 per ounce, you are looking at family protection in the worst of times at $1,000.
Now – if you are in the 1% or the like, and have $1m in cash in these stocks, perhaps a stock market crash takes 90% of the value of your stocks, then a hyper inflation scenario hits. You cashed out to $100,000 in cash. In a hyper inflation scenario, that $100,000 in cash might last you a few months, given your expenses. Cash devalues extremely quickly in a hyper inflation scenario.
Now, with miners, you have a LOT of leverage to the price moves of the metals. Perhaps for every 1% silver moves, a silver major might move 3%. Maybe a junior moves 6%?
The idea is that silver may do a 2x-4x in the near to mid term. Maybe. But if you have that $1,000 you put into silver, that is SURVIVAL money. Are you buying this for $30 to get get to cash at $120 and deal with hyper inflation then? No.
Maybe you do have some extra silver you buy, and perhaps at a 5x, you convert it to cash to pay debt? That’s an idea of why you might have more than your 32 ounces. If you look on youtube, there are people with thousands of ounces. This is a security nightmare. And…unnecessary for what we are talking about here.
So maybe you have 100k and put $1kl into silver for survival, 4k into silver for paying down debt later to sell at 5x, and 95k into miners? I have some miners write ups, but I’m going to stick with physical here.
Types of physical silver
With physical silver, you are looking at national coins, rounds, bars, junk silver, and numismatics. I’ll also discuss a few others.
Coins – these are minted by a nation’s mint. Think American Silver Eagles at US mint. Britannias in UK. Koalas in Australia, etc. These have higher premiums. They are most widely recognized by your coin dealers, but also have more assurances they are genuine. Why? The US secret service will come after you if you are making fake Eagles.
Rounds – these look like coins, but are not made at a national mint. These are privately minted. Lower premiums, but also a chance they are counterfeit.
Bars – like rounds, made by private mints. Lower premiums. The bigger bars are worth more, but have a greater chance of being counterfeit. Think 100oz or 1000oz silver bars that have an outer later of silver, but perhaps lead on the inside. If silver does hit $1,000 – good luck trying to sell your 1,000 oz bar.
Junk silver – these are 1964 US coins in dimes, quarters, and half dollars that are 90% silver. Called “junk silver”. These are widely recognized as MONEY, but the problem is, most of the country doesn’t understand the composition of coins today versus 1964 and below. There would be an education issue, for sure. Looking at 1964 dimes versus 1965 dimes, they may look identical. However, one is made of silver, one is made of worthless metal. To the common observer, they would no understand. To a coin dealer, one would be worth a fortune in a hyper inflation situation.
Numismatics – I like Morgan and Peace Dollars. They are also 90% silver and the Peace dollars stopped being made at the end of the 1930s. But if you look closely at some of these, they might be worth a LOT more than their silver content. This has to do with rarity and condition. So – some of these, and the junk silver above, may have a much higher value to collectors. Stay away from this if you are looking for survival silver. No one cares about an MS 70 American Silver Eagle. It’s one ounce of silver. Don’t pay $70 for it.
Other – people have silver in jewelry, tea sets, and perhaps silverware at home. Most don’t realize silver’s antibacterial properties, which is why they made cutlery with it. A “silver spoon in your mouth” was a dig at more affluent people who could then afford this “silverware” which might keep their family from getting sick. With a lot of the cutlery and tea sets, it may be “silver plated”. for all intents and purposes, this can make beautiful tea sets, but the content could be next to zero actual silver. Sterling silver is 92% silver, I think.
When silver went to $50 in 1980 ($600 in today’s terms) and $50 in 2011, in both cases – many people turned in grandmas tea sets, family silverware, and dad’s old dime collections to melt for cash. Today, it is estimated that less than 10% of all junk silver ever made is left.
So which ones should you buy?
The below is not financial advice, but rather survival advice. Therefore, I feel confident I won’t get in trouble for this. If I will, someone let me know…lol.
How do I rank these? Think of these in the reverse order you would sell them.
- Survival – this is what I would recommend for anyone, anywhere. Get your survival junk silver. These also are the lowest premiums. I would never sell these unless in a hyper inflation scenario. This is not where you care about the price of silver. This is “getting your ounces”. And, I’d probably recommend 25 oz of this, per person in your household. When you go to a coin shop, you can ask – “what are you at” with junk silver. My most recent I heard a few days ago was….”we’re at 20″. That means 20x times face value. You would typically then buy junk silver at face value, like, a $5 roll of dimes. Cost? 20x face value of $5, or $100 for that roll. Each $5 of junk silver has 3.57 TROY ounces (31.1 grams as opposed to 28 grams per regular ounce). So a $10 roll of quarters would be 7.15 ozT (Troy ounces) and cost you $200. The best part of this is it is FRACTIONAL silver. In a survival situation where you want to buy a loaf of bread for your family, a single silver dime or two should do. Trying to get change for one ounce of gold at $10,000 per ounce (in that time) isn’t going to work. Fractional silver is best for every day purchases.
- Sovereign – these are your American Silver Eagles in the United States. HIGH premiums. But, least likely to be fake. Yes, there’s a risk. But – these are widely recognized. You don’t need a ton of these. But these are one ounce at a pop. In junk terms, you need $1.40 of any combination to make 1 ozT. In the case of ASEs, you can have more purchasing power. Also – made by US mint like the coinage above. These today may be fetching $7-10 or more for premiums, so you if you are newer to the game, perhaps focus on item 1 above.
- Bars/Rounds – these would be what I would first sell to a dealer. You can store more value in these, like a 10oz bar. Generic rounds and bars have lower premiums than eagles, so you can get a bigger bang for your buck. For most people, no need to buy 100oz bars unless you are a more high net worth individual, like silver, and want to store larger quantities of your wealth in silver. Doing some quick math, maybe you find 10 oz bars at a dealer for $3 premium and ASEs at $10 premium at Apmex. For 100 oz of bars from a local coin shop it might cost you $2600 in silver and $3 premium for $2900. To buy the 100oz in ASEs from Apmex, it’s $2600 for silver and $1000 in premium to get you $3600. So you could save $700 by shopping at a local coin shop for 1, 5, and 10 oz bars.
Where to buy?
For me, the local coin shop has by far the lowest premiums I’m seeing today. Many of you might not have local coin shops. Call and ask them what their premiums are on junk, bars, and American Silver Eagles. Call around. Best prices are if you show up in cash.
For convenience, you can go online to SD Bullion, Apmex, JM Bullion – or other stores like that. They usually require signatures.
If you just want to play the movement of silver, you can do OneGold (and possibly buy from Apmex front end) or Kinesis (gold and silver backed crypto, where you can take delivery of your silver), or possibly PSLV.
Please – check with your tax man about this stuff. Take a look at this video and the associated document here.
There is still time – so why not look at miners?
Miners I have listed because – first, it’s optional – but two, if you just have survival silver like me and want to jump towards making a lot more money with more of your net worth, you can jump to miners rather than be a YouTube star with 5,000 oz. In the imaginary case of the 100k question I got…I had said…perhaps 1k in survival, 4k in bars/rounds/sovereign – and maybe 95% in miners.
My thoughts are a hyper inflation situation could take quite a bit of time to happen yet. If you look at the Weimar Hyper Inflation, one of the most publicized – take a look how long that took top unfold.
We are seeing high inflation, but hyper inflation is defined by different people. If you are seeing 10% per month, you are on your way. One guy was adamant it’s 50% per month. I think in both situations, it’s problematic. However, once you start seeing 2% per month, you might then start to ramp up whatever efforts. I feel, we are early enough in the game where I can try and play the potential 3-4x with silver with a 9-24x in silver miners.
For example, if I had $120 today, I can get 4 oz of silver ($30 x 4 oz). If silver goes from $26 to $100 per ounce, I may then sell back “at spot” and have $400 in my pocket – this is a 3.33x or so. But with survival money, I am not selling for a 2x, or 3x. This is when hyperinflation hits and a loaf of bread is $138 or 2 silver dimes. Maybe I have a bunch of bars and I’d like to get that cash to pay down debt. Why would I take that $120 in today’s money to pay down debt if I can take that $120 and in a year that becomes $400 and I can pay off 3.33x the debt?
So maybe with any bars or rounds and you see a 4x or 5x in silver, maybe you sell some. Maybe the gold to silver ratio is down to 12:1. Today, it is 65:1 or so. This past summer it was 125:1. So maybe you bought bars of silver at 125:1. Next year, at 12:1, you take your 125 oz of silver you bought (which at the time would have gotten you 1 oz of gold) and now you sell those 125oz and get 10 oz of gold.
But with miners..I feel perhaps there is some time left before hyper inflation. I have my survival silver, and I want to not put money into bars that are security risks, but perhaps I want to put that money as part of a silver producing company that makes the silver? I would then own a tangible asset. A share of a business.
If silver is $26 now, and goes to $100 next year, I need to walk you through some quick math.
If today, they produce silver at $13 and sell at $26, you are seeing they are making $13 for each ounce. Silver companies, TODAY are extremely profitable. After 10 years of low prices, most have been run out of the business, and those that remain either produce it at a byproduct or are primary silver miners. I am focused on primary silver miners for this reason.
Now, if the price of silver goes to $100, their profit is not a 4x. Their profit is now $87 per ounce instead of $13. So they are stupid profitable now, but with $100 silver, they will be making nearly 7x the profit.
If you had a silver company that was producing at $21 silver, and now silver is $100, that means their profit WAS $5 per ounce, and now is $79 per ounce, so this means the company is now making about 16x the profit they were (the junior miners tended to have a higher cost of production).
Point is…if I had $120 today to put into rounds/bars, silver stocks, or junior silver stocks….and silver went to $100….
- Rounds/bars – 3.33x
- Silver miners – 7x
- Silver junior miners – 16x
So perhaps I have a portfolio mixed with silver miners, junior miners, and some explorers. Maybe my return is 10x.
Meaning – it makes a lot of sense to put MOST of today’s money into something that COULD get you a 10x rather than a 3.33x if you just had physical only.
There is risk. With this, when silver goes down, these guys go DOWN further. If there’s a crash, you could see these stocks tank, and quickly. When March 2020 happened, these things went WAY down.
So some of us feel it is good to have a mix of physical silver and miners.
What do you do with miners?
Well, let’s say I think a crash is coming, at some point. No one can pick the top or the bottoms. Maybe I feel silver might hit $50 before a crash. At $50, maybe I sell 50-75% of my miners and go to cash. Stock market crashes. Silver goes to $9. What do you do???
- You cannot find silver for $9. Buy silver at OneGold or Kinesis for close to the $9. Perhaps buy PSLV. As silver quickly re-inflates back to $30 or so, you perhaps could play that re-inflation with digital representations of silver. You already have your survival money
- Buy all of your favorite miners at a severe, severe discount.
- Rotate money into another asset class.
Mike Maloney did a great talk on something called “wealth cycles”. The idea is, today, real estate and stocks may be severely over valued, and gold/silver may be under valued. Take your money and buy the undervalued item. If silver hits $400 per ounce and real estate is in the tank, perhaps you sell silver and put that cash into real estate. Maybe with this next crash, you LOVED Tesla, but not at $900. You might now find Tesla on sale for $43. Maybe Bitcoin falls to $500. Maybe you have a rental property and use miner profits to pay off the rental unit. Why? If the rental unit is paid off, someone at my age gets 35-40 more years of MUCH higher Free Cash Flow (FCF) per month. Additionally, if tenants cannot pay, I don’t default on my mortgage. With the higher FCF, I should be able to have a fund for repairs or operational expenses for up to 2 years. Now, I currently have 3 rental units. NOTHING compared to a lot of you ballers out there – but if these 3 units generated high FCF, they could potentially also buy more units with the profits. And so on. Maybe you don’t pay them off completely, but perhaps de-leveraging them with inflated money may work.
Take a look at Maloney’s Wealth Cycles here
Back to “normal”
For me, it doesn’t mean I don’t like Tesla or Bitcoin. For me, I see gold and silver severely undervalued, relative to other asset classes. It makes sense, for now, to pour a good deal of my investments into these things. In MY risk assessment situation, I feel political and financial issues in MY country are problematic. I have people from 75 countries or so that read this, so YOUR country may be in a much better position than we are here in the US.
At some point, perhaps there is a currency reset. Perhaps all of the gold the east has taken in over the decades leads to a Chinese/Russian-led gold-backed currency, and the rest of the world has to comply. Maybe problems in this country last for 6 months, perhaps 60 years. I don’t know. I do know that on the other side of any major correction – there will be some form of debt situation being addressed. First, I feel they will need to inflate us out of debt, and second, I feel there will be a come to Jesus moment with how our country spends at the federal level.
That being said, on the other side of whatever THIS is – assume I had cash and before any form of hyper inflation hits – I would buy up a very diverse portfolio of things that Warren Buffett might like. See – IF our stock market is corrected 85%, you can buy things REALLY cheap if you had cash. Yes – gold and silver will protect you through a hyper inflation, but so will owning really good companies. Also – companies that MAKE THINGS, may do really well. I’m talking commodities. With any kind of rebound after a crash, I think each country will be looking at their own supply chains. In this globalized world, we have to make nice with certain countries to get rare earths. This compromises our national security policies. We ran into this with oil. Meaning – if you are someone who invested in uranium, copper, petroleum, silver, steel, cobalt, nickel, etc on the other side of this – as hyper inflation hits – all of these raw materials on the supply chain drive up prices for everything.
Take a look at Hugo Stinnes – and how he became the richest man in Germany during the hyper inflation. Am I going to be the richest man in America? Hell no. But we can learn from history.
The overarching idea here is to try and protect your family, first and foremost. Don’t overspend to do it on expensive silver. Buy the cheap stuff. If you want to throw a lot more money into the pile, cool, but think about miners to play this in a bigger sense because you can create security issues if you go crazy on metals. Where your most money can be made is leveraging silver miners, owning parts of companies, and rotating in and out of asset classes based on wealth cycles. Right now, gold and silver are pretty much the most undervalued they have ever been in history, and an opportunity is here now – to protect your family and possibly grow your wealth while the markets around us collapse.
March 18, 2021 at 5:10 pm
Good afternoon from Spain I think that here we go stage c like all the West. Thinking about what you have written in the end, the best are the tangible things and of course the mining actions. We will see what the future holds but nothing good and the worst of the Anyway, people think that we will return to 2019. Thank you for writing the great article as always.