Monday, May 9, 2011

Silver isn't dead... But it is toxic to sheep.

Two days into the silver crash I received a text from my girlfriend in the late hours of the evening.  It went something like "Oh honey, you shouldn't have bought all that silver, apparently it crashed today :( " (That smiley face WAS included in the original text.). My girlfriend was duly concerned that I had somehow "lost" a great deal of money because last she heard, I was buying silver.

I kid! I kid!

There are two important reason's why this "bubble crash" never hurt me, and are examples to help you ride this unique market.

#1 Paradigm Shift: I'm not a short term investor in silver.
Repeat after me: "Until I actually have taken delivery of silver and found the best ways to buy in bulk I will not "invest" in silver for short term profit." I'm sure some of you out there are smarter than I am, and might be able to jump right in, but if you don't understand the following terms you should plan to begin by investing for long-term silver holdings. Again, if you don't know what the COMEX is, or what the impact of margin hikes multiple times a month are, or have a fair understanding of the Federal Reserve (and the Federal Reserve Note), you should plan to start out with a paradigm shift.

That paradigm shift is this: I do not plan to sell my silver for AT least another five years.  Instead it will replace 50% of my FRN saving's per month towards long term goals like land, or a new car. Rather than pulling for silver to go to the moon over night, you want to dip as low as possible before a slow return over time. At no point should you dump your entire savings into silver without first slowly playing with small amounts to determine the most frugal way to buy.

I bought my silver about $30/oz. But I spent closer to $45/oz, because of stupid newbie buying mistakes. Picking up art bars/mistakes while buying on ebay. However, with a budget of just $200 i didn't do myself any real financial damage, and the lessons I learned were invaluable. I then bought another round of $200, at a spot of $42, but this time reduced my cost-over-spot (including shipping) down to around $47. At this point I was fighting very, very hard to resist blowing the rest of my cash savings on buying more. The internet was full of forums charging ahead crying "SILVER BITCHES!", conflating those who were investing in silver for the first time (like me) and silver hoarders who had been in the game since $9/Oz.

Thankfully, two days before my girlfriends text, I had managed to learn enough about the market to identify several key trends from my internet sources (mostly random forums) the news (the wall street journal, drudge report, al jarzeera) that told me that silver wasn't quite going to make the immediate predictions. So i held on to my FRN's and looked at my small stack of dearly bought metal. See, if I had been in for a short profit, I would have sold because I was 70% sure it wasn't going much higher. But I'm in for the long haul, and there was that 30% risk that I would repeat my $45/oz for $30/oz worth of silver and not be able to get back in the game at a higher price.

So what did I do? I waited, and I've just bought more. In a long term game, as long as I'm always somewhere in the middle of the fluctuations, I'll come out on top when its time to sell. THAT is the paradigm shift you must have when you first start investing in silver.

#2 The Value of Silver: Silver is a metal, not paper.
The initial explanation I was given in second grade as to why we printed money instead of gold consisted of two things: "It was lighter/carry more, we can print more if it gets destroyed or lost." Hahahaha... Yeah....
The public school system completely failed to teach my just how much more complex the monetary system of our government is, and has become.It required my own research to fully start to understand.

But here's the neat thing about silver. It doesn't really "lose" value. At one time in history a roman private was was the equivalent of around three (3) ounces of silver a month in pay. How cool is that? You can measure your savings by months of backbreaking work as a roman soldier. A more sinister, but even more staggering way to view silver....
"The denarius began to experience slow debasement towards the end of the Republic. Under the rule of Augustus its silver content fell to 3.9 grams (a theoretical weight of 184 of a Roman pound). It then remained at near this weight until the time of Nero, when it was reduced to 196 of a pound, or 3.4 grams. Regular debasement of the silver began after Nero. Later Roman emperors reduced it to a weight of 3 grams around the late 3rd century.[7]"
" The price for a male slave in Rome at the time of Augustus has been quoted at 500 denarii. A female could go for as much as 6,000 denarii. One recorded price in Pompeii at 79 AD indicates that a slave sold for 2,500 sestertii or 625 denarii."

So, the cost in troy ounces for a human life in roman times is a horrifying range of between 62.69 Troy ounces and 665.88 Troy Ounces.

And if you have any understanding of Christian Theology, you will recall that Jesus was sold for a mere thirty coins, maybe around 3 and half oz?

.....This will be continued in a future post.


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