Remarks and predictions about the price of silver

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dchrys's picture
dchrys
Status: Member (Offline)
Joined: Jan 6 2009
Posts: 20
Remarks and predictions about the price of silver

 

As a (beginner) coin collector I check eBay regularly for silver coins. I noticed something strange about the price of most recent silver coins, which I can only partially understand.

I will use just finished, US-only, eBay transactions as examples.

 

Price for one 1964 Kennedy Half Dollar reached $3.99, with just 3 bids:

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&ssPageName=STRK:MEWAX:IT&i...

Price for a lot of 20 x 1964 Kennedy halves reached $125.75 with 10 bids ($6.28 per coin) :

http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&ssPageName=STRK:MEWAX:IT&i...

 

So, instead of a volume discount you get to pay 57% more per coin to buy rolls of 1964 Kennedy halves. The interest for silver bullion these days is high compared to numismatics.

I was intrigued, so I did some research on silver and found out the following facts:

- during the 19th century the price of silver compared to gold was more or less fixed to 1:15

- average factory worker weekly salary throughout the 19th century was around 1 silver UK crown (similar silver content to  one US silver dollar: 0.8 Oz)

- during the 20th century the price of silver compared to gold had an average ratio of 1:47, according to Wikipedia. The ratio during March 2009 was around 1:70

- silver coins for all countries had their silver content reduced during the 20th century, to the point that silver is no longer used for modern coinage.

- 70% of silver is produced as byproduct of base metal mining and 30% from silver targeted mining. I have seen claims for the mining cost at around $5 USD per ounce but I can't confirm them.

 

Many precious metals analysts, like Ted Butler, claim that silver price is heavily manipulated by major investors and is artificially low. Others claim that the price of silver will soar to anything from $100 to $500 per ounce, if and when worldwide shortages happen.

At this point, I am confused about what the "real" price of silver should be. Since mining of silver, byproduct or not,  requires labour and energy consumption I could only trust a price that reflects manhours of labour and oil barrels. For any long-term prediction I would also like to see data about the scarcity of silver ore.

I would like to hear some opinions before I get carried away by the silver bug !

-=dchrys=-

 

 

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Remarks and predictions about the price of silver

I'd say it's okay to get carried away by the silver bug, provided it's for the duration that is.

As far as the ebay stuff goes, I'm pretty unfamiliar with the procedure over there. Only placed a couple of bids years ago. But wouldn't the person buying the one coin have to pay shipping, considerably upping its per unit price? Not to mention, who wants to bother buying one coin on-line? Gold Eagle, sure. Kennedy half-dollar, why bother. Therefore, that's why maybe it's cheaper than the more appealing 20-coin lot.

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Remarks and predictions about the price of silver

I just got a lesson in silver vs. gold.  I wanted just a bit of both physically in-hand for insurance...otherwise I'm just buying/selling paper vehicles.  But shipment from northwest territorial mint finally arrived (5 months for silver eagles).  It was a workout to move it and I had to think hard about where to hide it.  I'm not sure I'd recommend it for insurance...twice as much gold fits in a pocket.  Laughing   

dchrys, I bought at $8.80.  I personally think it's headed back to that level or lower because we're in prolonged deep deflation, but many people disagree.  The wave analysts at EWI are predicting a return to that level as well before the long-term move up starts.  

DavidLachman's picture
DavidLachman
Status: Silver Member (Offline)
Joined: Jul 4 2008
Posts: 153
Re: Remarks and predictions about the price of silver
dchrys wrote:

I was intrigued, so I did some research on silver and found out the following facts:

- during the 20th century the price of silver compared to gold had an average ratio of 1:47, according to Wikipedia. The ratio during March 2009 was around 1:70

- silver coins for all countries had their silver content reduced during the 20th century, to the point that silver is no longer used for modern coinage.

As far as these two facts go, I wonder what they suggest.  As regards the first, Is gold overpriced compared to silver, or visaversa?  And the second, is silver less a monetary metal now and mostly an industrial one?  If its value for coinage has disappeared over the 20 century it makes sense that its demand (and therefore price) will have shrunk.

dchrys wrote:

At this point, I am confused about what the "real" price of silver should be. Since mining of silver, byproduct or not,  requires labour and energy consumption I could only trust a price that reflects manhours of labour and oil barrels. For any long-term prediction I would also like to see data about the scarcity of silver ore.

The fact that silver is a byproduct of base metal miners makes them see the production cost as negative, so they aren't concerned about the price so much.  It helps their bottom line but their real business is the large volume of base metal they produce.  I was surprised by that when I first looked into silver, but the advantage to the investor is that elasticity of supply is related to demand for the other metals not to silver, so in the current environment this should exacerbate a shortage if one arrives (at least as far as the 70% of production where silver is a byproduct). 

Unlike a pure monetary metal, like gold, silver is used up in industrial processes/products.  So while most of the gold in the world still exists this is not true of silver.  Some estimates give the world 9 years of supply left.  I suspect that there is more silver out there than that--particularly if the economy does not "recover" quickly silver will last longer.  Even so, silver application is expanding, especially into medical uses, battery technology, and recently emission control.  It already has established usage in electronics, photography (declining), and flatware (declining).  If the price goes up there will be some substitution where possible.  Investment demand is certainly up, and some call silver the poor mans gold.  Given the fundamentals I suspect that silver will rise in value.  What the "real" price should be is difficult to say.  Silver is a very small market which makes it an easier candidate for manipulation, the ETF in silver has exacerbated that, as have other "paper silver" instruments.  Some silver writers expect the ETF to fail as the documents which set it up seem to suggest that they aren't required to have the silver they claim they have.  This would cause a spike in the value of real silver.  Chris recommends holding some physical silver.  It seems like silver has a good future if you can buy it now from a source that doesn't charge a 40% premium--this is hard to find, except in 90% junk silver.  

Silver can be more volitile than other investments, in part because of the reasons mentioned above, but like any investment you need to know your tolerance for volitility and what your exit plan is.  Especially physical silver, if you plan to sell it when the price is high you need to know where you are going to do that and be confident the discount will not be too steep for you.  Good luck.

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Re: Remarks and predictions about the price of silver

EBAY is not the place to buy gold or silver. Prices are generally higher than you can get from an on-line dealer.

I sell stuff on EBAY from time to time. I am always surprised how much more I get than I expected. I think some people get caught up in the bidding competition and pay more than they have to. I do buy stuff once in while but usually I am outbid because I won't bid more than what the stuff is worth to me.

 

Ken

 

DavidLachman's picture
DavidLachman
Status: Silver Member (Offline)
Joined: Jul 4 2008
Posts: 153
Re: Remarks and predictions about the price of silver

Hi Strabes, 

Can you say what form your bought your silver in and what the markup over 8.80 was?  5 months is a long time to wait, but that seems like a great price, although silver may dip down there or lower again, no telling for sure.  

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Remarks and predictions about the price of silver

I bought Eagles so the markup was massive...I believe I paid about $11.40+/- so it was a 40+% markup despite buying a large volume.  I did that because this was just my insurance buy...hedging against the slight risk of total collapse...so I wasn't concerned about profit.  I wanted gold coins and some small value silver coins in case of need for barter.  You can't barter with a 1000 oz bar.  And I figured for larger denominations, gold coins would be more liquid than 100 oz silver bars.  But that's just my guess...I'm new to the practice of bartering in societal collapse and monetary breakdown so I speak with no expertise. Laughing  I gotta tell ya though, it met my need for insurance already...the peace of mind from having just a little bit of real money that can't be destroyed in my hands when I got my first gold shipment was remarkable.  Now as I work further down CM's path toward sustainable community, peace of mind will become even more profound.

I've heard all the arguments about the 90% coins, numismatics, avoiding the big popular ones like Eagles and Maple Leafs due to govt confiscation, but at the end of the day it was real quick and easy for me to just place this single phone order for Eagles rather than spending time in coin shops.  I don't care what the govt does...these will never be worth zero, and other people will know what an Eagle's content/quality is so I'll benefit from a high level of trust if I ever need to use them.  I suppose the risk is the govt makes them illegal so the opposite will happen...rather than benefiting, I'll be worse off because the seller won't accept the most famous illegal coin unless they can melt it down onsite.

If you're doing it for investment/profit purposes, obviously don't buy coins...get big bars allocated in vault storage...or trade the paper.

SteveS's picture
SteveS
Status: Gold Member (Offline)
Joined: Sep 6 2008
Posts: 358
Re: Remarks and predictions about the price of silver

I commented on this topic in another thread:

http://www.peakprosperity.com/comment/27100#comment-27100

It echoes most of the points raised here, and adds a few. I have a hard time seeing how silver cannot be a good long term investment.

About the only negatives I see with silver are it's weight per value (if you want a large holding), and the high premiums charged; gold's premium is 5% or so, whereas silver is 10% or more. I'm thinking of the silver ETFs for some short term investment, but I don't trust it for long term though. 

Septimus's picture
Septimus
Status: Silver Member (Offline)
Joined: Aug 19 2008
Posts: 200
Re: Remarks and predictions about the price of silver

When taking the shipping into account, the one coin purchase actually was about $6 while the one roll purchase had free shipping. Not too much difference.

jerrydon10's picture
jerrydon10
Status: Gold Member (Offline)
Joined: Mar 2 2009
Posts: 442
Re: Remarks and predictions about the price of silver

Am I just paranoid, or do others worry about buying PMs from people they don't know, i.e. online?

They could send me silver or gold plate and I would never know the difference.

 

Septimus's picture
Septimus
Status: Silver Member (Offline)
Joined: Aug 19 2008
Posts: 200
Re: Remarks and predictions about the price of silver

When buying U.S. silver coins or name brand 1 oz bars or rounds (JM, Englehard) or buying from a reputable source such as APMEX I don't worry about it. I have confidence in my ability to spot 99.9% of fake U.S. silver coins (due to my expereince working in coin shoips for a number of years) and don't think you should have a poroblem if you stick to reputable people or firms. For eBay, I would translate that to mean people will straight forward listings, large clear images, 99.9% or better positive feedback and at least a rating of 100 feedbacks.

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