Summary : Precious metals are a sure and profitable investment in the medium and long term. They protect from risks of inflation and/or collapse of the very fragile international financial system.
A sure and profitable investment
Contrary to company or government bonds, precious metals have no « counterpart risk », because neither gold nor silver can go bankrupt ; they have been an unchanging value for thousands of years.
Contrary to banknotes, precious metals are absolutely not affected by inflation or any money reform. One kilogram of gold will always remain a kilogram with its intrinsic value, whereas « paper money will sooner or later return to its intrinsic value : zero » (Voltaire). The historical studies relating to all countries at all times prove that paper money, which is multipliable, has always more or less quickly lost its purchasing power. During the French revolution (1789 – 1799), people who trusted paper money lost in one decade at the rate of 1000/1 (René Sédillot : The Cost of the French Revolution, 1989).
Since autumn 2008, more and more investors and increasingly important sums are focussing on precious metals. This trend will be strengthened during the next years, because reasons to fear – instability of the international financial system and inflation – will remain and will even get worse, because of increasing excessive debts.
The collapse of the monetary system is only a question of time, because usury first produces debt, then over-indebtedness and finally suspension of payment. The increase of indebtedness is unavoidably produced by interest and interest on interest, so that debts grow more and more quickly. As debts produce interest, which creates interest on interest, and so on, the indebtedness of private people, of companies and of governments grows exponentially. This acceleration of increase of indebtedness will lead debtors to bankruptcy. The movie « Money as Debt » shows us well that paper money is nothing else than an acknowledgement of a debt in a form of bond or banknote and since this debt produces increasing interest on interest, the moment will inevitably occur, when over-indebtedness will end up in the bankruptcy of nations. This is why it is mathematically sure that the system of paper money, which is based on debts, will collapse (as it has already occurred dozens of times in the past). Keeping banknotes or bonds is equivalent to financial suicide.
Precious metals are not only a sure value, but they are a profitable investment, because more and more investors are interested in them, which makes the price go up.
The gold rate will rise
The price of gold will go up, because supply (mining production and destocking of central banks) decreases, while demand of investors is becoming more urgent.
Production of gold : gold extraction has been regularly decreasing for some years, because many mines are running out. Exploring new reserves and opening a mine takes a long time and much money (2 to 5 years from the discovery of a gold deposit to beginning of mining operations).
Destocking of central banks : central banks of the large Western industrialized countries have sold enormous gold stocks on the market since the end of convertibility of money into gold in 1971. This is why there was pressure to hold the prices low until 1999, when the main countries that still had gold signed an agreement to limit these sales to 500 tons of gold a year. In 1945, 68% of gold in the world was kept by central banks ; 20% in 2003 ; the current reserves are close to 0%, even if official statistics claim the opposite. So central banks cannot make gold rate fall by additional sales.
Even more positive, a new trend has developed these last years among certain developing countries (China, India, Russia, Argentina,…), which are increasing their central banks’ gold stocks, because they distrust the dollar.
Demand of investors : the third argument which speaks for the gold-price rise is the small (6 trillion $) amount of the gold supply compared with the quantity of dollars which are invested in the stock (40 trillion) and bond markets (100 trillion). In case of a market crash, the capital which would flee stocks and bonds could not enter the gold market without causing an amazing increase of the price of gold and even more of the price of silver, whose market is tiny (0,02 trillion). Currently, 4% of world assets are invested in gold and silver ; if 30% were reached (a percentage that has already been seen in 1980!), the price of precious metals would be multiplied by 7.
The silver rate will rise sharply
There are at least ten reasons which, combined together, will cause a strong rise in the silver rate.
1. The silver mines will be exhausted within approximately fifteen years (2020/2030).
2. World stocks fell from 10 billion ounces in 1950 to 1 billion in 2010. If this trend continues (and there is no reason why it should go the other way), there will be no more reserves at all in a few years.
3. New industrial or medical applications, which use silver, are created. In every car, every computer, every cell phone, every solar panel, there is silver.
4. The silver that is used by industry is generally not recycled at all.
5. Toward the middle of the 1960’s, the USA and European countries withdrew silver coins from circulation. These coins were melted down and converted into ingots for investors. Silverware was also melted down and transformed into ingots. Since less and less coins and cutlery to be melted remain, this kind of recycling gradually decreases.
6. Silver is five times rarer than gold. There are 4983 million ounces of gold in stock, but only 965 million ounces of silver.
7. The ratio gold/silver is currently (summer 2010) at 1/65 (1 gold ingot has the same value as 65 silver ingots), whereas silver is rarer than gold and the traditional average was about 1/15. The current ratio will sink to the normal average, i.e. compared to gold, silver’s value will rise.
8. At the peak of the previous rise of precious metals (1980), gold reached its highest point at 850 $ an ounce and silver at 50 $. The current gold rate is higher than that of 1980, but the current rate of silver is lower than that of 1980, therefore there is a broad capacity of correction before we may speak of a « bubble ».
Moreover, if we consider the monetary erosion of the dollar (inflation of paper money), we must multiply the nominal price of 1980 by seven to have the equivalent purchasing power of 2010. 50 $ x 7 = 350 $. The current rate of silver has not reached this level at all.
9. The raw material stock exchange COMEX in New York is unable to deliver the entire futures, because its silver and gold stocks represent only a small part of the total volume of transactions. As long as the speculators are satisfied with getting their benefits paid in dollars, the « fractional metal reserve » may be sufficient, but if too many people at the same time suddenly require the physical delivery of metal, this stock exchange will go bankrupt, because there is simply not enough gold an silver supply for all. This fractional reserve system is also practiced by some ETF (exchange-traded funds).
One US bank alone sells « short » (i.e. without having the metal in stock at all) a third of the yearly worldwide production of silver.
The same ingot is sold short 50 times on paper. This manipulation will fail the day the salesmen of paper certificates won’t be able to satisfy the demand of physical delivery – their « fractional reserve » will have become insufficient, because the really available world reserves will have run out.
10. When everyone wants to buy the same product, its value is overpriced. On the other hand when few investors are interested, it is possible to get it at a low price. However silver is an unknown and therefore undervalued investment. Compared to the whole population, only some rare and aware people hoard silver. Therefore the value of silver is largely underestimated. The whole of all world reserves (1 billion ounces) is hardly worth 20 billion dollars ; the bond market is worth 100 000 billion and the stock market is worth 40 000 billion ; if only 1% of the sums that are invested in bonds were invested in silver, its price would be multiplied by 50. If we took 10% of bonds and of stocks, the price would be multiplied 700-fold.
11. The ten previous arguments are all the more strong since they can be added to one another. The ten bullish factors will simultaneously be felt, which will multiply by ten the impact on the price. The scenario looks like this : played-out mines and no more old coins nor cutlery to be recycled ; world stocks that have fallen to zero ; industrialists hopelessly looking for the raw material that is essential for their production ; panic of short sellers, who have to buy at any price to be able to deliver the physical metal ; investors who are rushing to this investment everyone is talking about ; savers that are seeking refuge in a sure value, because the world financial system is collapsing under their terror-stricken eyes and because the bank counter remains closed.
Conclusion
Precious metals are a sure and very profitable investment. Gold is good, but silver is even better.
Euporos Ltd offers you faultless quality (new ingots, scratch-less coins). The goods are brought to your home by insured safe transport, or, if you prefer, we store them for you in a discreet way in a safe place in Switzerland, in a VAT-exempt « free port ».
