Gold, Silver, and the Writing on the Wall

I bought $500 worth of silver recently. $500 is next to nothing in terms of investments, but it's what I've got and it means a lot to me. I've also been kicking myself for it.

The chart to the left is meant to illustrate one point: Silver's high now, and seems to be consolidating around $30 an ounce. Three years ago silver went for $9 an ounce. Three years ago Many have thought that silver was due for a price increase, and this seems to be exactly tha$500 would have bought 50 ounces of silver. Now for that same price you can get 15 ounces. Would seem I'm 3 years too late for this madness.

Furthermore, now's a really sucky time to buy. After all, the way you make money is to buy low and sell high. Buying high (like I am doing now) isn't the winning-est strategy for making money. In fact it's how a lot of money is lost. Stock/commodoties/bonds/what have you seem to be shooting to the sky, and people pile on in hopes of joining the bandwagon.

When more of the commodity has been bought than there was really demand for, a 'bubble' is formed (heard plenty about those these past few years, eh?). The bubble inevitably pops. The price of the commodity falls. People who bought high in the rally and didn't sell lose money. Happens all the time.

So... have I bought high in a bubble? After all, silver is three times the price it was three years ago! Isn't it due for a 'correction' back to, say, $15? Maybe even just $20?

I don't think so. I think that those who would buy silver now have missed the monumental opportunity of $9 an ounce. But... Rememer: even buying then would've seemed like a huge risk. After all, silver was 'dead' at $9! The national recovery was in full steam! Everyone was piling into the recovery in the stock market! And yet it wasn't enough.

For those who don't know, the Federal Reserve under Ben Bernanke is currently in the process of printing $600 billion in new money for purchasing bonds under 'Quanitative Easing II'. $300 billion is also being reivested from the original Quantitative Easing during the crash of 2008. This is the 'monetizing of debt' that Bernanke had said would never happen, and yet has come to be inevitable. The international community has not been remotely happy about these actions. In fact, they've been downright hostile. ECONOMICS 101: Printing more money for nothing makes existing money less valuable. The money in your savings is worth less when more money is created than it was before. Likewise for your debts: The money you owe in debts will also be worth less than when you took it out. (This is a happy point for my fellow debt-ridden college students!) Money printing effectively rewards debtors and punishes savers. And that is exactly what the United States is doing. We are printing money to cover the national trillion-dollar-debt and in doing so are devaluing the future dollars of every country in the world who has loaned as money, effectively punishing them. No wonder nobody likes us.

(And there are already rumors of Quantitative Easing III... who said they'd actually stop at $900 billion? Or $2.6 trillion when including both QE and QEII? There is no remote guarentee of a ceasing of money printing.)

Anywho, that's one reason silver is going to continue to go up. The continued devaluing of dollar makes silver more expensive in relation to those dollars. It really isn't a valuing of silver so much as a devaluing of the dollars we use to buy silver.

I've been talking a lot about silver, haven't I? Isn't gold in the title of this post, too? Let's talk a little about gold.

The chart I showed you of silver was over a 5 year time period. This chart of gold prices is over a 10 year period. Over 10 years, the gold price has gone up more than 500%. The big question: is gold in a bubble? Is $1,400 the top for gold prices?

For the reasons already mentioned, this is not the top for gold prices. The fed's actions will continue to devalue the dollar, which will continue to make gold more expensive. Again, this isn't remotely because itself is inherently more valuable. It is because the value of the dollars used to buy it is going down. The price of the dollar is dropping.

So, we've mentioned money printing. That's one reason the price of precious metals will continue to rise.

There's also the coming default and/or bailout of insolvent municipalities/cities/states. California and Illionois are on the brink of insolvency. Various cities through the United States are in the same position. It's no secret. Heck, it was on 60 Minutes the other night.

The situation isn't a secret or question. The question is whether or not these troubled entities will receive their own 'bailout' from the federal government. If they do, faith in the dollar is further eroded, and we continue to paper over the fundamental problems within the system just like was done in 2008. If that is done, we will inevitably suffer for it.

If the federal government does not bail out these entities, they default and the market tumbles. The market tumbles in the midst of a double-dip recession. "Not cool" does not begin to cover it.

Anywho, that's happening, and will happen. There is no question that a bullet is coming. The only question is whether it comes now or later. The later it comes, the more it will hurt.

That's another reason the dollar is going to be devalued and the price of the $30 silver I've bought is going to go up.

Let's see here... if I just want to talk about investing sense, there are reasons that silver is a far better buy than gold. There's the price manipulation that is finally coming to light, for one thing. There is more 'paper silver' floating around then the actual physical silver that's supposed to be backing it up. As physical silver continues to be demanded, at some point physical deliveries are going to be impossible to make. What happens when you have a piece of paper you paid good money for telling you that you own silver, and then the silver you supposedly own isn't there? You now own a worthless piece of paper and can sue the person who sold it to you. If you own physical silver, you're going to watch its price skyrocket as its actual value is realized. Good day for your silver. Probably a pretty sucky day for everybody else.

I could go into why silver's a better buy than gold, but it's beside the point of why I'm writing. Man, I've gone off on a tangent. Forgive me.

The point I'm trying to make is this: Precious metals and commodities (I didn't even write about coffee and cotton) are rocketing in price because the world we know is changing. The dollar is being devalued. It is possible that it is being devalued in a way not unlike a rock rolling downhill and picking up speed and mass. It is possible that this is the beginning of a major devaluation. The piece I wrote isn't meant as an advertisement for precious metals investing (I would gain nothing from that aside from stroking my ego). The piece I've written is to illustrate one thing:

The writing is on the wall.

The writing is on the wall. The average person's finances and material life is being affected by things beyond his or her control.

How does the average man and woman keep control of their lives?
A better question:
How does the average man and woman not just survive, not just make ends meet, but actually flourish in hard times?

That's the question I want to see answered.