byRoy M. DEC 8th, 2020
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About 20% of all US dollars in existence (that were ever created since the establishment of the USA) were printed out of thin air in 2020 due to the Covid pandemic, in the form of stimulus checks, loans, grants etc. This has started a collapse in the value of the dollar, and it seems the money printing isn't going to end. We will discuss how to invest in what is often referred to as god's money, and why it should always be part of your portfolio.
Throughout history, as far as biblical times, gold and silver were considered as money. A valuable used for trade. This was true globally. From ancient 30 B.C. Rome to 12th century Great Britain, as these two substances (gold and silver) are genuinely rare. They did not posses their value because some central bank decided it, or because a certain nation declared so. They became valuable since they look good, have practical and industrial uses, and most importantly, have physically limited supply. In fact, if all of the gold ever mined will be placed together, it would form approximately a mere 20 meter cube, easily fitting under the Eiffel tower. Silver isn't that far behind, forming a mere 52 meter cube
While silver is not a business, and won't generate you any cash flow or dividends, the following are very good reasons to consider investing in it right now for the coming years.
In 1913, upon the establishment of the US federal reserve bank, the price of an ounce of silver was 0.59$. Today it is around 24$. That is about 40 times more. But this is not because silver became that much more valuable. Rather, the reason is that the value of the dollar itself declines greatly over time. In fact, 0.59$ back then are worth 15.59$ today. This means that the value of silver didn't change that much (only doubled), but in terms of dollars, it multiplied by over 40.
As stated, About 20% of all US dollars in existence (that were ever created since the establishment of the USA) were printed out of thin air in 2020 due to the Covid pandemic, in the form of stimulus checks, loans, grants etc. The more money printed for these various reliefs and acts, the lower the value of the currency becomes. This causes investors to flee to safe stores of wealth, with true rarity and limited supply that cannot be increased on a whim, like silver.
The world is transitioning to clean energy. Only recently UK prime minister Boris Johnson laid out his plan for a "green industrial revolution". Sweden, France, Denmark, New Zealand, Hungary, China, Japan and South Korea have already set zero-carbon targets nation wide by law. This means more batteries, solar panels, and electronic cars. These industries today consume about 480 million ounces of silver, as it is the best heat and electric conducting metal on the planet. As more and more countries set a carbon-free energy target, these industries will only grow with time.
Even though gold is about 18 times as rare as silver, it's current price is about 75 times as much. This, in many opinions, implies that silver is undervalued.
Unlike gold, silver is mined as a byproduct. Because it is both rare and cheap, current prices usually don't justify mining especially for it. So basically miners usually mine for other metals such as copper and nickel, and take the silver they happen to find. Also, unlike gold, silver has much more industrial usage as aforementioned. Therefore, a lot of silver is thrown away each year as unused cars, batteries, circuit boards and other electronics are thrown, and not necessarily recycled.
The price of physical commodities, like metals, oil, gas, wheat, corn etc is usually determined by what is called a "futures contract". It is a paper guarantee that entitles it's holder the receive X amount of goods at a set date. These contracts are traded in many exchanges around the world. In the case of precious metals, these prices are usually defined as the price for 1 Oz (one ounce) of pure metal, which is roughly 28.3495 grams. For example, as of writing this, the price of a futures contract for one ounce of silver, to be delivered in march of 2021, is 24.810$
The actual current price of the commodity is called the "spot price". The spot price is determined according to these future contracts. In the example above, we can see the march 2021 future contract has considerably more "volume" than the other near term contracts, meaning it is traded the most, Therefore the spot price will be very close to it's value (24.810$).
The first option to invest in precious metals is to buy physical coins and bars - also referred to as "bullion". If not made for the hobby of collecting, there is really no logical reason of doing that, unless you feel the need to prepare for world war 3 and an imminent zombie invasion that will follow thereafter. The cons of doing that are:
A better way to invest in god's money is by using ETFs. These are assets issued by large companies, that can be traded just like any other stock. When you buy an ETF, you basically buy a guarantee from that company that its price will change according to the underlying entities (commodity, stock prices, etc) it follows. In our case - gold and silver.
Most ETFs are straightforward, in the sense that whenever the price of the entity changes by X percent, the ETF's price changes by that same amount. Meaning, if the spot price of silver will rise 1% - the ETF will rise 1%, and if silver drops 1%, the ETF will drop 1% as well. But, some ETFs offer leverage, meaning that when the underlying entity rises by x%, the ETF's price will rise twice as much, or even 3 times as much. This of course means that if the entity drops x%, the ETF would drop 2x% or 3x% respectively. A list of relevant ETFs for silver:
|SLV||iShares Silver Trust||None|
|AGQ||ProShares Ultra Silver||2x|
|SIVR||Aberdeen Standard Physical Silver Shares ETF||None|
For the reasons discussed, I have made a sizable position in AGQ back in June 2020, when the price was around 27$. This has since reached a high of 69$, and currently resides at 44.64$.
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NOTE TO THE BELOVED READERS OF MARKET ALERTS: The views and opinions depicted in the article are for educational use, and do not constitute financial, investment, or other advice.