When Silver goes High, what does it mean for Fiat?

[Devil Soundwave]

Hi Guys,

I'm fairly new to educating myself aboout personal finance, so I hope I am not about to ask a very silly question; but having spent a considerable amount of time recently researching gold and silver, something has struck me that leaves me a little confused.

Now, if the value of an ounce of silver where to go astronomical as has been predicted by some folk (lets say $1500 per ounce for sake of argument); what would that mean in real terms?

Sure, someone could then sell 2000 ounces and make a cool 3 million dollars; but if the value of the metal had risen so high, surely the purchasing power of said fiat Dollars would be pretty much worthless due to inflation anyway would it not?

So the new 3 million may no longer buy a nice house, but instead could maybe afford an xbox and a loaf of bread...

See what I mean?

What am I missing/not understanding here? Please don't flame me, I'm genuinely new to this.

Anyway, regardless of the response, I have thus far invested in a meagre 15 Silver Eagles and hope to get more as cashflow allows.

Ross (UK)

[Market Harmony]

You've hit the nail on the head, Ross. Precious Metals act as a hedge against fiat currency inflation. Some PM's are more of a perfect hedge 1:1 or close to it, but others offer the possibility of leveraging the hedge. Many silver investors feel this way regarding the white metals. The common argument is that not only do they offer a currency hedge, but there are also vast industrial uses for the white metals. So, the price appreciation of say, silver, should theoretically outpace the devaluation of fiat currency.

[Kurr]

In the scenario you suggest where hyperinflation has occured, you could trade your silver or gold forpaper and then try to trade the paper for what you could get, which as you say, might not be much. People just wouldn't want the paper and it would take A LOT to get anything. In weimer Germany they burned paper money because it was cheaper than tradeding it for firewood.

However silver and gold ARE money! Skip the paper transactionin your scenario and how much could you trade an ounce for? Manypeople even today measure and track the "value" of a thing in ounces silverand gold. How many would it take to buy a house in the 70's versus today? How many today versus tommorow?

Another way to look at it is gold and silver are not valued in dollars. Dollars are valued in silver and gold.

Just my .02

[Devil Soundwave]

I'm not sure I understand teh point of investing in teh metal then. If the value of teh fiat goes down and teh value of teh metal goes up, so that an ounce could be theoretically "worth" $1500, what would be the point if by that stag £1500 may only buy a gallon gas or a loaf of bread?

Where is the gain in real terms?

Like i said, I think I might be missing something here...

Looked at your bullion site last night btw - liked the videos on striking the logos and stuff.


EDIT: Kurr - that makes more sense now, thanks.

[beauanderos]

I'm not sure I understand teh point of investing in teh metal then. If the value of teh fiat goes down and teh value of teh metal goes up, so that an ounce could be theoretically "worth" $1500, what would be the point if by that stag £1500 may only buy a gallon gas or a loaf of bread?

Where is the gain in real terms?

The rationale for owning real money that keeps pace with inflation holds true for those investors who come in LATE in the game. Those who are early will gain in multiples in real terms of wealth increase as the torrent of new investors drives the price of precious metals beyond the pace of currency depreciation.

[Devil Soundwave]

So is it to late to be jumping in do you think?

[slvrbck]

Sure, someone could then sell 2000 ounces and make a cool 3 million dollars; but if the value of the metal had risen so high, surely the purchasing power of said fiat Dollars would be pretty much worthless due to inflation anyway would it not?

So the new 3 million may no longer buy a nice house, but instead could maybe afford an xbox and a loaf of bread...

You sell your metal in the future for 3 million and buy an xbox, bread and water. Those few who have three million in todays terms may also be able to afford bread and water, but everyone else. . . all those other people that make $40,000/yr and have no savings and no metal will have no bread, no water, and no xbox.

[Devil Soundwave]

Ok, I think I understand. At least 'll still have sandwiches.

[aristobolus]

Related to this conversation, this past week I advised a friend to invest in PM. He said, "Why, doesn't the Bible say that in the end times "a piece of bread will buy a bag of gold?'" My reply was NO! My friend (and I think no small number out there) are either directly or indirectly reacting to a Christian rock song of the 70's by Larry Norman, who penned those words. Now without getting into a debate about the "End times", I think alot of Americans believe that the U.S. is some barometer for the return of Christ. My word to all is that many nations are risen and fallen (W. Rome, Byzantium, Ottoman, Russia under the Czars, Pax Brittania, etc). None of this meant that the entire world came to an end. The world will end when God deems it will (or when we destroy it from another perspective). Meanwhile, we must live as if it could either end today, or last another millenium or more.

Thus, regarding all of the great empires of the past that I mentioned; none of their coinage can be brought into a Walmart or Sears to purchase goods. Neither do they have any value pegged to their past monetary worth. BUT, any of these coins can be sold on Ebay or to private collectors based largely on their WORTH IN BULLION. Thus if our dollar collapses, whatever new currency or the like will immediately adjust to PM; not PM to the currency.

So, if such a collapse happens in our lifetime, one can possibly envision taking just one silver Roosevelt dime (today worth about $1.76) and EXCHANGING it for a loaf of bread based on its worth in bullion. But if you had kept that money in current U.S. dollars, possibly the exchange rate for New Dollars (or worse yet the Chinese Yuan or some Global Currency) would be two to one. So your buying power would be .88 in the New Currency; you would only be able to afford a half a loaf of bread.

I hope this helps.

[aristobolus]

It is a little spookey dialoguing with the Devil about Doomsday, I admit! LOL!

[Devil Soundwave]

LOL - Just a username, I assure you.

[wagsthadog]

Hi there-

I have thought about this as well- but I think the issue is that you're thinking in terms of Precious Metal value in terms of fiat money. If we're at 1500 quid for an ounce of silver, why even bother transferring the metal to fiat, and then buying? Why not just trade it- Hey, you've got a classic car, I've got five ounces of gold- Done!
to be honest, I hope it doesn't get to that. Even at $24 silver, buyers seem to be getting a little finicky.
However, I am confident that Precious Metals are infinitely superior to fiat money, whatever comes. Have about 3-6 months' salary in -ugh- fiat at all times, the rest, PM's babay!

JMO

wags

[AGgressive Metal]

Ross, just look back through history at what one ounce of silver or gold could buy and what it can buy today. It is fairly consistent, except for recently between 1971 and 2000. You will have to do your own research to find out why that time period is bizarre.

[Devil Soundwave]

Ross, just look back through history at what one ounce of silver or gold could buy and what it can buy today. It is fairly consistent, except for recently between 1971 and 2000. You will have to do your own research to find out why that time period is bizarre.

Ok, I'll do that. I have the Maloney Gold/Silver book on the way and inhale wiki on my phone so will try and get clued up asap!

Any good book recommendations?

[AGgressive Metal]

Any good book recommendations?

Any book for sale here: http://mises.org/store/