The world has experienced a decade of growth fueled by record-low interest rates, a burgeoning money supply, and historic debt levels – but the good times only last so long.
As the global economy slows and eventually begins to retract, can precious metals offer a useful store of value to investors?
Part 1: The Start of a New Cycle
Today’s infographic comes to us from Endeavour Silver, and it outlines some key indicators that precede a coming gold-silver cycle in which exposure to hard assets may help to protect wealth.
Bankers Blowing Bubbles
Since 2008, central bankers around the world launched a historic market intervention by printing money and bailing out major banks. With cheap and abundant money, this strategy worked so well that it created a bull market in every sector — except for precious metals.
Stock markets, consumer lending, and property values surged. Meanwhile, the U.S. Federal Reserve’s assets ballooned, and so did corporate, government, and household debt. By 2018, total debt reached almost $250 trillion worldwide.
Currency vs. Precious Metals
The world awash in unprecedented amounts of currency, and these dollars chase a limited supply of goods. Historically speaking, it’s only a matter of time before the price of goods increases or inflates – eroding the purchasing power of every dollar.
Gold and silver are some of the only assets unaffected by inflation, retaining their value.
Gold and silver are money… everything else is credit.
– J.P. Morgan
The Perfect Story for a Gold-Silver Cycle?
Investors can use several indicators to gauge the beginning of the gold-silver cycle:
- Gold/Silver Futures
Most traders do not trade physical gold and silver, but paper contracts with the promise to buy at a future price. Every week, U.S. commodity exchanges publish the Commitment of Traders “COT” report. This report summarizes the positions (long/short) of traders for a particular commodity.
Typically, speculators are long and commercial traders are short the price of gold and silver. However, when speculators and commercial traders positions reach near zero, there is usually a big upswing in the price of silver.
- Gold-to-Silver Ratio Compression
As the difference between gold and silver prices decreases (i.e. the compression of the ratio), history suggests silver prices can make big moves upwards in price. The gold-to-silver ratio compression is now at high levels and may eventually revert to its long-term average, which implies a strong movement in prices is imminent for silver.
- Scarcity: Declining Silver Production
Silver production has been declining despite its growing importance as a safe haven hedge, as well as its use in industrial applications and renewable technologies.
- The Silver Exception
Silver is not just for coins, bars, jewelry and the family silverware. It stands out from gold with its practical industrial uses which account for 56.1% of its annual consumption. Silver will continue to be a critical material in solar technology. While photovoltaics currently account for 8% of annual silver consumption, this is set to change with the dramatic increase in the use of solar technologies.
The Price of Gold and Silver
Forecasting the exact price of gold and silver is not a science, but there are clear signs that point to the direction their prices will head. The prices of gold and silver do not accurately reflect a world awash with cheap and easy money, but now may be their time to shine.
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Great article…looking forward to parts 2 and 3.
Am polishing my silver to see if it shines!
No need to polish silver coins. Silver coins are easily cleaned with a simple trick that requires no friction.
Use aluminium foil and form inside a cup that will withstand very hot to boiling water. Place the coin in the cup on top of the foil, add the hot water, and then spread a portion of sodium bicarbonate (baking soda) to cover the coin. Add a pinch of table salt and a drop of lemon juice.
The chemical reaction of reduction will remove much of the discoloration caused by sulfides and deposit to the aluminium foil or boil off as a slight gas. When it’s done the coin can be rinsed in tap water and dried with a soft cloth.
No need to rub as it might cause surface scratching. I’ve done this with dirty Libertads and rounds for years. The last Peace Dollar I bought was ungraded but after this process it was almost as bright as the graded MS-63 Morgan I have stowed away.
Never clean your silver coins. The dealers can tell. You probably ruined that Peace Dollar.
LOL
No. It has zero scratches outside any handling flaws and sure as hell looks a lot better without the obvious blue-black sulfide discoloration … or do you recommend leaving it?
I was talking about my old flatware my Granny gave me.
Rob’s not here to defend you now, Maggie. If it’s flatware, there’s no silver in it. Unless it’s plated.
It’s just an old set of silver forks, knives and spoons. I did not even get the ladles… are you telling me they aren’t Sterling like they say they are? What about my bigass (2+ ounce) St. Christopher medal Poppa Grooch gave me?
The rounds and bars are somewhere sealed in their little condoms.
Well you called them flatware, that’s like calling Paula (you also called her Laula) a wallflower.
Her name was Laula, she was a showgirl
With yellow feathers in her hair and a dress cut down to there
She would merengue and do the cha-cha
And while she tried to be a star
Tony always tended bar
Across the crowded floor, they worked from eight til four
They were young and they had each other
Who could ask for more?
Maggie, you are my inspiration, such as it is. Don’t ever go away.
Laula was a phone typo.
Never clean a national mint coin, is devalued.
Clean private mint bullion, is all right.
Flatware, dishes, jewelry etc are sometimes sterling silver (925) or 92.5% pure silver. Pre-1964 dimes, quarters, halves which (like Morgan and Peace dollars) are 90% silver. Most silver bars & rounds are hall-marked 1 troy ounce 99.9% silver.
The Peace dollar was never a graded coin and is in far better shape than any MS-64 or lower specimen I’ve seen. My local coin dealer doesn’t sell crap, and besides, the coin still has the same 90% silver it had back in 1935.
I really think some people have never seen this method of non-destructive chemical reduction.
Their loss, really.
On top of physical I also own shares of silver miners.
One such company is Hecla, a seriously depressed ore producer. Unlike Endeavor, Hecla has a few endemic problems with poor production numbers and a pitiful board/CEO. In my opinion it’s far better to own the physical product than the stock assets because there’s no financial business risk with physical metal. You DO need to have a good coins shop or dealer to do business with when it’s time to buy and sell.
“Forecasting the exact price of gold and silver is not a science, but there are clear signs that point to the direction their prices will head.”
Cental Banks have increased their holding of gold 74 since 2008 while also allowing the big commercial banks to use naked shorts to suppress the real price. Basically printing money you have to pay for to buy artificially cheap gold which the will sell to their commercial banker friends later. The gains will be squandered by the govt. while sending you the bill. Meanwhile the MSM downplays and even mocks PM’s to keep the public from buying them. What’s not to like.
Gold and silver rise and fall together although silver has greater swings up and down. They are still inseparable as far as money goes.
Old Muck said he had a system for trading PMs. He said he would sell it, alas, I never asked.