Intrinsic Value, Valuations, & Expected Returns

[iluc]

To return the favor for everything I learned from Realcent.org while writing Treasure Hunt, for what it is worth, I'd like to give you this money manager's perspective on how to value copper & nickel and, by extension, understand the investment merit of Penny and Nickel bullion when factoring in market dynamics (i.e. bull market excesses). I'm the research director for my firm, so digging into the data is my thing, and this data I'm sure you'll find interesting.

SUMMARY
Recent money supply figures, intrinsic value calculations, and bull market norms indicate that gold will rise to at least $6000 an ounce in the next 5-10 years. A 112 analysis of the relative prices of copper and nickel suggest that, if they return to their higher end of valuations versus gold, prices per pound would be $90 & $180, respectively, per pound. To coin hoarders, this equates to potential returns of 1400% and 2000% for UNSORTED bricks. For efficient Penny sorters, that rises to 5000%+. These figures are in line with those from old silver coins.

DISCUSSION
Before I jump into the numbers, I'd like to say that my own preference is to just hold onto the coins rather than melt them down. The thought of old silver coins getting melted down hurts me deep down in my soul, and I'd hate to see the same fate for Pennies/Nickels that are still in good working order. Nor do I see any reason for melting. As evidence, and to also support some of the eye-opening expected return calculations shown below, for every 1000 Roosevelt dimes stowed away in 1964 at a cost of $100, they would fetch about $3000 right now, or a 3000% return that was anonymous, untaxed along the way, and never subject to any management fees. A more agile investor might have liquidated those same coins in 1980 for a somewhat more modest gain. Happy results, either way.

To understand copper and nickel, we have to understand gold, the good money numeraire for all other things. In performing this analysis, I used two data sets. The first is from the US Geological Survey, which has production, consumption, and price data for all the metals going back to 1900. Second is the Money Supply data from all central banks compiled by Mike Hewitt of Dollar Daze, who has performed a herculean task and deserves a lot of credit (you know, the GOOD kind of credit).

The gist of the analysis is to determine what % of the global fiat currency supply (M0-M3) that gold/silver have traditionally "covered" -- or synthetically backed, if you will -- on average (based on the market capitalization of their above ground inventory in all forms multiplied by their spot price). In this way, it is possible to calculate an intrinsic value for gold and silver, respectively, based on their relative proportions, at any given time since 1971.

Now, we know that gold's price had been artificially fixed at $35.15 for many years even though the U.S. Dollar supply was expanding -- silver demonstrated this beautifully in the mid '60s, as you well know. Therefore, when Nixon closed the gold window and free market pricing mechanisms were able to play out, gold/silver went from covering less than 6% of global M2 to covering over 50% less than a decade later. An assumption in this analysis, which is certainly open to debate, is that gold and silver are worth the midpoint of that range. I'm sure some here would say they should cover 100% of M3 or that paper/digital currency is worth nothing right now, but let's just say we're being conservative in this approach and go with a more historically supportable figure.

Cutting to the chase, based on the year-end 2010 currency supply, gold’s intrinsic value at the start of 2011 was $1720 (see the “Afterword” for a note on silver). Likely, that value has grown by about 10% during 2011, so it’s actually quite close to its historical mid-range valuation and intrinsic value right now. However, the way bull markets work is that more and more capital pour into them driving them far above fair value, which is something I fully expect to see in the coming years. Again, if the currency supply remained fixed, that upper value for gold, based on this analysis, would be $6000. Personally, I expect the currency supply to continue mushrooming and an enormous amount of new capital to squeeze into the hard money market, but let’s just stick with $6000 and say anything more is icing on the cake. Incidentally, an alternative method of valuation is to look at the stated gold reserves of the U.S. versus base money as reported by the Fed, which suggests a value over $7000 and is just a nice sanity check.

Now we look at the USGS data for copper & nickel. Since 1900, these metals have traded, at their cheapest, at 1/8000th and 1/3000th of the price of gold, on a per ounce basis. On their high end, those ratios have been 1/1000th and 1/500th, respectively. At present, both are very close to the cheapest they have ever been (roughly 1/7000th and 1/2500th).

So, that leaves us in a position of expect gold to run significantly higher (200%+) and drag it’s base metal brethren along . . . at some point it would be expected to see copper/nickel selling closer to their historical highs, near which they’ve spent much of the past 100+ years.

Where does that leave Penny & Nickel investors? Simple math says that $6K gold and a 1:1000 copper-to-gold ratio equates to $90 copper (per pound) and $180 nickel. This suggests a 95% copper Penny whose metal content value will not be 2.7 cents as it is now, but 60 cents and a face value box of $25 in unsorted copper Pennies (25% coppers and assigning no value to the zincs, which is obviously overly conservative) being priced at $375. For Nickels, presently with about 6 cents of metal, that comes to about $1.08, meaning a $100 face value box could have close to $2200 of metal content.

The above figures imply that buying and NOT sorting Pennies and Nickels could produce returns on the order of 1400% and 2000%, respectively. If you are an efficient sorter of Pennies and you dispose of your zincs, returns on those old coppers can exceed 5000%, gross, as a $25 sorted box could sport a metal content value of $1500. This compares to actual War Nickel appreciation of 4600% and silver dimes/quarters at 3000%. I can just as easily paint scenarios of greater gains as opposed to lesser, so I’ll let these numbers stand as a slightly optimistic middle ground. Obviously, the timeframe is the next determinant of compound growth rate, but I expect most folks on this forum foresee events playing out relatively quickly, more like 10 years than 40+. I’m inclined to agree.

-Ian

AFTERWORD: SILVER
The same analysis above suggests silver’s intrinsic value is $250+ and could sell closer to $300 if it reaches 20:1 vice gold. In other words, returns well beneath those of nickel and copper, but much higher than gold. The Penny/Nickel bullion investors gets the added kick from buying under spot at prevailing market prices. The downside for the Penny/Nickel crowd is less popular acceptance of Pennies and Nickels with attendant lower liquidity, plus the potential opportunity cost given the chance that a mania will actually push silver considerably higher. Those are just factors each investor will have to come to terms with on his/her own.

DISCLOSURE
My personal allocation is about 75% silver (Eagles, Maples, Philharmonics, old dimes, and War Nickels), 23% gold (Eagles), and 2% Pennies/Nickels. Without going into specifics, I expect to increase the Penny/Nickel allocation in the coming years.

[PennyBoy]

So you agree with this article? More or less.

http://www.cnbc.com/id/44373049

I'll be thrilled if your predictions are "only" 50% right.

[iluc]

Oh, and since my business partner (aka Senor Worrywart) will probably happen by at some point, I should add the following DISCLAIMER:

This isn't investment advice. It's an explanation of what I think and why I'm doing what I do personally. All the figures used are rounded approximations and nobody should get too hung up on precision because there's a ton of factors involved. While it would be nice to sell some copies of the book, we have no financial interest in anyone else owning any of these metals.

[iluc]

PennyBoy, more or less, yes. I try not to look simply at past % changes and say those will be repeated or exceeded, but to consider the fundamental relationship between fiat currencies (all measures) and the best estimates of the above ground supply of gold & silver (including platinum group metals doesn't change the picture). I assure you, within the money manager sphere, gold is still a pariah, which tells me that we are, at most, just now entering the second half of the bull cycle. As regular advisors, pension funds, and larger central banks start to move in, the drivers of overvaluation will be in place and more value-oriented types will then start moving into the industrial metals.

The real wild card, in my opinion, is just how out of control governments get in their competitive devaluations and debt monetization, which is why I say the figures in this very unofficial report are as likely to be low as they are high.

[schockergd]

The world economy would crash with nickel & copper increasing by those rates. Copper and nickel are vital to production in a significant amount of items, mining production will increase severely before we ever get anywhere close to those prices.

[Common Cents]

Thanks for the thoughtful and well researched post. I agree with your projections about the future prices for copper. Many people have a hard time imagining what the currency devaluation going on now will produce in terms of price inflation. I think many people who are selling their copper at present are going to be kicking themselves firmly in the backside at some point.

[Common Cents]

The world economy would crash with nickel & copper increasing by those rates. Copper and nickel are vital to production in a significant amount of items, mining production will increase severely before we ever get anywhere close to those prices.

Can you not see the imminence of a world economic collapse before you? How much worse do things have to get before you realize that an economic crash is in process?

But keep in mind that (hyper)inflation can still occur during times when the economy is doing OK. (Hyper)inflation is a currency driven phenomenon, rather than economic driven. The reason why the world's economy is on the verge of collapse is because the dollar has been over-inflated, and the Euro and every other currency on the planet is bound to do the same, lest their exports become unaffordable to the world. It's a race to debase currencies around the planet, and this will have enormous impact on future commodity prices.

[iluc]

The world economy would crash with nickel & copper increasing by those rates. Copper and nickel are vital to production in a significant amount of items, mining production will increase severely before we ever get anywhere close to those prices.

schockergd - the high-end valuations of gold/nickel/copper discussed above have prevailed for a significant part of the past century. We are in a period of exceptional undervaluation at the moment. My impression is that production can't be increased all that much, just as gold/silver have not been produced any faster in the past decade of rising prices. Even if it could, it takes a long time to get new mines approved and producing.

[iluc]

The world economy would crash with nickel & copper increasing by those rates. Copper and nickel are vital to production in a significant amount of items, mining production will increase severely before we ever get anywhere close to those prices.

Can you not see the imminence of a world economic collapse before you? How much worse do things have to get before you realize that an economic crash is in process?

But keep in mind that (hyper)inflation can still occur during times when the economy is doing OK. (Hyper)inflation is a currency driven phenomenon, rather than economic driven. The reason why the world's economy is on the verge of collapse is because the dollar has been over-inflated, and the Euro and every other currency on the planet is bound to do the same, lest their exports become unaffordable to the world. It's a race to debase currencies around the planet, and this will have enormous impact on future commodity prices.

Common Cents, I see the imminence of collapse of the professional can-kickers, but it's not clear to me that common folks will be losers along with them . . . in fact, the citizenry may rise to the occasion after periods of turmoil. In any case, the writing is one the wall for unbacked currencies, which is the turbocharger to the investment case above - the expected returns I'm describing are plausible without hyperinflation. All it takes is the cycle already seen twice in the past century to repeat, which is the path gold is already forging.

In any case, if things were to surprise us with a harsh deflation, Pennies and Nickels would be terrific assets. If hyperinflation, the same. Anywhere in between, pretty darn good to great, is my personal view. It's the most assymetric bet I've ever seen in financial markets, it just requires the sort of ingenuity and vision that Realcenters clearly have.

[balz]

To return the favor for everything I learned from Realcent.org while writing Treasure Hunt, for what it is worth, I'd like to give you this money manager's perspective on how to value copper & nickel and, by extension, understand the investment merit of Penny and Nickel bullion when factoring in market dynamics (i.e. bull market excesses). I'm the research director for my firm, so digging into the data is my thing, and this data I'm sure you'll find interesting.

SUMMARY
Recent money supply figures, intrinsic value calculations, and bull market norms indicate that gold will rise to at least $6000 an ounce in the next 5-10 years. A 112 analysis of the relative prices of copper and nickel suggest that, if they return to their higher end of valuations versus gold, prices per pound would be $90 & $180, respectively, per pound. To coin hoarders, this equates to potential returns of 1400% and 2000% for UNSORTED bricks. For efficient Penny sorters, that rises to 5000%+. These figures are in line with those from old silver coins.

DISCUSSION
Before I jump into the numbers, I'd like to say that my own preference is to just hold onto the coins rather than melt them down. The thought of old silver coins getting melted down hurts me deep down in my soul, and I'd hate to see the same fate for Pennies/Nickels that are still in good working order. Nor do I see any reason for melting. As evidence, and to also support some of the eye-opening expected return calculations shown below, for every 1000 Roosevelt dimes stowed away in 1964 at a cost of $100, they would fetch about $3000 right now, or a 3000% return that was anonymous, untaxed along the way, and never subject to any management fees. A more agile investor might have liquidated those same coins in 1980 for a somewhat more modest gain. Happy results, either way.

To understand copper and nickel, we have to understand gold, the good money numeraire for all other things. In performing this analysis, I used two data sets. The first is from the US Geological Survey, which has production, consumption, and price data for all the metals going back to 1900. Second is the Money Supply data from all central banks compiled by Mike Hewitt of Dollar Daze, who has performed a herculean task and deserves a lot of credit (you know, the GOOD kind of credit).

The gist of the analysis is to determine what % of the global fiat currency supply (M0-M3) that gold/silver have traditionally "covered" -- or synthetically backed, if you will -- on average (based on the market capitalization of their above ground inventory in all forms multiplied by their spot price). In this way, it is possible to calculate an intrinsic value for gold and silver, respectively, based on their relative proportions, at any given time since 1971.

Now, we know that gold's price had been artificially fixed at $35.15 for many years even though the U.S. Dollar supply was expanding -- silver demonstrated this beautifully in the mid '60s, as you well know. Therefore, when Nixon closed the gold window and free market pricing mechanisms were able to play out, gold/silver went from covering less than 6% of global M2 to covering over 50% less than a decade later. An assumption in this analysis, which is certainly open to debate, is that gold and silver are worth the midpoint of that range. I'm sure some here would say they should cover 100% of M3 or that paper/digital currency is worth nothing right now, but let's just say we're being conservative in this approach and go with a more historically supportable figure.

Cutting to the chase, based on the year-end 2010 currency supply, gold’s intrinsic value at the start of 2011 was $1720 (see the “Afterword” for a note on silver). Likely, that value has grown by about 10% during 2011, so it’s actually quite close to its historical mid-range valuation and intrinsic value right now. However, the way bull markets work is that more and more capital pour into them driving them far above fair value, which is something I fully expect to see in the coming years. Again, if the currency supply remained fixed, that upper value for gold, based on this analysis, would be $6000. Personally, I expect the currency supply to continue mushrooming and an enormous amount of new capital to squeeze into the hard money market, but let’s just stick with $6000 and say anything more is icing on the cake. Incidentally, an alternative method of valuation is to look at the stated gold reserves of the U.S. versus base money as reported by the Fed, which suggests a value over $7000 and is just a nice sanity check.

Now we look at the USGS data for copper & nickel. Since 1900, these metals have traded, at their cheapest, at 1/8000th and 1/3000th of the price of gold, on a per ounce basis. On their high end, those ratios have been 1/1000th and 1/500th, respectively. At present, both are very close to the cheapest they have ever been (roughly 1/7000th and 1/2500th).

So, that leaves us in a position of expect gold to run significantly higher (200%+) and drag it’s base metal brethren along . . . at some point it would be expected to see copper/nickel selling closer to their historical highs, near which they’ve spent much of the past 100+ years.

Where does that leave Penny & Nickel investors? Simple math says that $6K gold and a 1:1000 copper-to-gold ratio equates to $90 copper (per pound) and $180 nickel. This suggests a 95% copper Penny whose metal content value will not be 2.7 cents as it is now, but 60 cents and a face value box of $25 in unsorted copper Pennies (25% coppers and assigning no value to the zincs, which is obviously overly conservative) being priced at $375. For Nickels, presently with about 6 cents of metal, that comes to about $1.08, meaning a $100 face value box could have close to $2200 of metal content.

The above figures imply that buying and NOT sorting Pennies and Nickels could produce returns on the order of 1400% and 2000%, respectively. If you are an efficient sorter of Pennies and you dispose of your zincs, returns on those old coppers can exceed 5000%, gross, as a $25 sorted box could sport a metal content value of $1500. This compares to actual War Nickel appreciation of 4600% and silver dimes/quarters at 3000%. I can just as easily paint scenarios of greater gains as opposed to lesser, so I’ll let these numbers stand as a slightly optimistic middle ground. Obviously, the timeframe is the next determinant of compound growth rate, but I expect most folks on this forum foresee events playing out relatively quickly, more like 10 years than 40+. I’m inclined to agree.

-Ian

AFTERWORD: SILVER
The same analysis above suggests silver’s intrinsic value is $250+ and could sell closer to $300 if it reaches 20:1 vice gold. In other words, returns well beneath those of nickel and copper, but much higher than gold. The Penny/Nickel bullion investors gets the added kick from buying under spot at prevailing market prices. The downside for the Penny/Nickel crowd is less popular acceptance of Pennies and Nickels with attendant lower liquidity, plus the potential opportunity cost given the chance that a mania will actually push silver considerably higher. Those are just factors each investor will have to come to terms with on his/her own.

DISCLOSURE
My personal allocation is about 75% silver (Eagles, Maples, Philharmonics, old dimes, and War Nickels), 23% gold (Eagles), and 2% Pennies/Nickels. Without going into specifics, I expect to increase the Penny/Nickel allocation in the coming years.

Thanks a lot for this text. I find it enlighting.

However, here is what might be a flaw in the logic. This historical ratio worked well because technology was not advanced enough to make use of the poorer copper veins. Copper is abundant everywhere on the Earth's crust (as opposed to gold or silver) but in many places it is somehow "diluted" with other minerals and those places might see extensive copper mining as soon as the price go up (actually preventing the price to go that up), which can't be the case for silver or gold because those are rare anyway.

Of course, one could say that my logic could apply to oil as well, and it doesn't because we know peak oil is a fact. The thing is, again and again: oil is non-renewable and copper can be used, smelted, reused, etc.

Sorry if what I say is not very clear. Maybe you understand my point?

[iluc]

balz, your point is reasonable. I can't falsify it with what I know, but here's what I think.

1.) The value is based on above ground supply in all forms and the ratios of those supplies are not really changing. The value isn't explicitly based on how efficiently we use the metal in a technological sense, although I suppose that could cause old uses to require less of it for the same processes. Even if your point there is true, it's just as likely that new uses will arise, making it a wash in terms of the change in demand.

2.) There may be more available in the crust, but the expense of mining is going up, too, so there's a general phenonenon of the inflation lifting all boats (higher costs of mining require higher costs of the metal or the mining will stop).

3.) You can only get so much out of existing mines, so many new ones would need to be started to cause a real shift in the supply. The red tape, time, and expense of this means that the producers can't respond nimbly to price increases. JIm Rogers says, and I have no reason to doubt it, that it takes 10 years to bring a mine on line.

These are just my thoughts, not based on expertise. I welcome any else's perspective.

[68Camaro]

My 2 cents. I think you make the same point, in a different way, that has been made in other ways. I think there are shorter ways to say it.

We are in the middle of an incredible out of balance system, which is in the process of attempting to restore itself to balance. It's a zero-sum game, on the whole, but in the moment there are incredible disparities and unbalances, which are temporary. Currently Gold is returning to its correct value given the money supply. Silver, likewise, is following. Everything else will follow behind, yes, including copper, nickel, etc. But what this means is that the dollar has been devalued (is being). One dollar used to be worth 1/20th of an ounce of gold. It is now worth (in rounded terms) 1/2000th an ounce. If you divide the basic money supply by the ounces of gold held by the US government, you get somewhere between 1/6000th an ounce to 1/20,000th an ounce, depending on what you consider to be money. So the dollar has been devalued by a factor of 100 so far, and that factor soon could be 1000. That just means that a loaf of bread will soon cost $20 instead of $2 (remember 20 cent bread? I do). If a nickel becomes worth 50 cents, then you'll be paying for that $20 loaf of bread with the same 40 nickels that you would buy a loaf of bread today (simplistic example, don't get hung up on the details). If you buy and hold you'll be preserving wealth, nothing wrong with that, and better than most. If you trade along the way, you can possibly take advantage of some intermediate imbalances, and perhaps come out ahead.

[iluc]

68Camaro, for sure. I just wanted to add a global wrinkle, to perform an intrinsic value calculation on the worldwide metal and fiat supply (since I'd never seen one done that way) and note how that figure compares with the domestic perspective you covered. And then overlay the base metals on top to make it relevant here.

There's also a fine line between the insurance aspects of all this and the investment merit thesis. If we go Full Weimar (which I do not honestly foresee as a high probability), then holding through the whole process will be sensible. Anything short of that means there may be a window of opportunity to sell into the face of a speculative mania. And there's a very good chance the that the bullion of choice in these parts will outperform the yellow metal in the end, although I favor a diversified approach if possible. There may even be an opportunity to rotate out of the monetary into the lagging base metal brethren, at some point - to an extent, one could argue that is already an option, but I expect the precious metals to keep running for some time before we have to worry about losing the ability to get all the Nickels and Pennies we want, but who knows. How to handle that opporunity cost is a topic for another day.

[Copper Catcher]

Small/Large Flaws in expected returns...

As everyone knows it is illegal to melt copper pennies & nickels. Trying to sell coins above the face value is no small task and until the penny is pulled from circulation or there is a change in the metal content you will likely not see a huge run on the coins in circulation or any real interest by the masses.

To expand on this further....

One important factor to consider if the current saving rate of the population. You can go in greater detail by looking at the figure at the U.S. Bureau of Economic Analysis (BEA) http://www.bea.gov/

Granted when people don't have confidence in the economy, they do not spend or take risks and the savings rate in America improves. However, I'm not worried that all of a sudden pennies or nickels are going to disappear. Here is why!

In June of 2011 a survey of financial data was published by Bankrate.com and it disclosed that 24 percent of consumers have the recommended cushion of at least six months' expenses set aside. However, the vast majority aren't ready for contingencies; another 24 percent don't have any emergency savings at all! With 6.2 million people out of work for half a year or longer...people are spending their pennies and nickels to survive when they can find them not save them!

With all that said, like everyone else love to go to coinflation and look at the base metal value calculator and I like patting myself on the back telling my ego how good of a job I am doing saving all those precious 95% copper pennies collecting them at face value.

Yet, I am not counting my chickens before they hatch...in fact I think my nieces and nephews have a better chance at making money than I do. At this point I'm willing to lose the time value of money and sit on what I have for the moment...unless someone whats to trade me silver or gold for copper! It is nice to dream isn't it!

[HoardCopperByTheTon]

They'll trade you silver or gold for copper.. but you won't like the ratios.

[Copper Catcher]

Hoard, you need to leave some for someone else!

[iluc]

Copper Catcher, can you clarify a bit more how you suppose the American savings rate affects the price of copper and the dynamics of Penny/Nickel bullion? Are you meaning that we will continue to see more Pennies coming out of "retirement" in people's homes as they tap into even that meager savings and that this will outweigh demand or...?

I would imagine that the efforts of individuals may be co-opted by the coin processors such as Brinks and its peers, or by banks themselves realizing they're sitting on veritable copper mines.

[Copper Catcher]

iluc, forget the statistics for a moment and remember it is illegal to melt copper pennies or nickels so with that option not available unless you are willing to risk going to jail, you are left to pretend as if the face value of the coin does not exist and act as if it is just another commodity. Herein lies the rub.

The point about the current savings rate highlights is that a large percentage of the people in the US don't have money for emergency needs much less retirement.

So in order to make the profits you outline there has to be a fairly large established market; while there is a market now, it is tiny. People who are investing money into metals are looking at gold then silver. Copper and or nickel are clearly after thoughts.

In my opinion it is very unlikely that people are going to wake up and magically decide one day that saving 95% copper pennies and nickels is something they should do. Abet....in the past people have voiced a concern that the percentage rate of copper pennies currently in circulation quickly vanish. At the same time it has been pointed out many times that due to the shear numbers in circulation that even with large industrial sorters that might come back online aka Jackson Metals before the melt ban, it will take years to make the supply dwindle.

You said: "A 112 analysis of the relative prices of copper and nickel suggest that, if they return to their higher end of valuations versus gold, prices per pound would be $90 & $180, respectively, per pound. To coin hoarders, this equates to potential returns of 1400% and 2000% for UNSORTED bricks. For efficient Penny sorters, that rises to 5000%+. These figures are in line with those from old silver coins."

I hope you are right…but “hope” is not a method. Maybe some people realize this now that the economy is going down the tubes!

Collecting a 5000% return would be nice…but I think I have a greater chance at hitting the Powerball! (Disclosure: I do sort pennies and buy lottery tickets! )

[iluc]

Copper Catcher, I totally see your perspective. I'm sure I could walk around my base here in Afghanistan, show everyone some pennies, ask their thoughts about it, and get blank stares. Then again, I think the ASE in my pocket would garner the same response.

I simply don't see the quantity of Penny/Nickel bullion as being large. The USPS, in the last twelve months, has had negative profits that vastly exceed the face value of every Penny/Nickel that has ever been minted (maybe it's time for "Stampflation"). The number of units, to my mind, isn't relevant. The total face value is. That face value is so exceedingly small in comparison to the ocean of fiat will be looking for some sort of "good" monetary asset, melt ban, or not. Choir Time: Add all the AGEs, ASEs, etc., and we're still talking about a tiny island of metal everyone's going to try to pile onto when they realize their is no monetary alternative.

At the very least, whatever happens, it won't be boring.

[68Camaro]

FYI - the historic gold/copper ratio (Coinage Act of 1792) was 1066:1 If that held, it would imply copper should be at $1.74 per TROY oz, which would be $25/lb. Of course those would be in the inflated dollars which we are about to experience, but haven't yet.

[fb101]

Copper Catcher, I totally see your perspective. I'm sure I could walk around my base here in Afghanistan, show everyone some pennies, ask their thoughts about it, and get blank stares. Then again, I think the ASE in my pocket would garner the same response.

I simply don't see the quantity of Penny/Nickel bullion as being large. The USPS, in the last twelve months, has had negative profits that vastly exceed the face value of every Penny/Nickel that has ever been minted (maybe it's time for "Stampflation"). The number of units, to my mind, isn't relevant. The total face value is. That face value is so exceedingly small in comparison to the ocean of fiat will be looking for some sort of "good" monetary asset, melt ban, or not. Choir Time: Add all the AGEs, ASEs, etc., and we're still talking about a tiny island of metal everyone's going to try to pile onto when they realize their is no monetary alternative.

At the very least, whatever happens, it won't be boring.

iluc, I'm confused. Who is the money manager?

[Copper Catcher]

Copper Catcher, I totally see your perspective. I'm sure I could walk around my base here in Afghanistan, show everyone some pennies, ask their thoughts about it, and get blank stares. Then again, I think the ASE in my pocket would garner the same response.

I simply don't see the quantity of Penny/Nickel bullion as being large. The USPS, in the last twelve months, has had negative profits that vastly exceed the face value of every Penny/Nickel that has ever been minted (maybe it's time for "Stampflation"). The number of units, to my mind, isn't relevant. The total face value is. That face value is so exceedingly small in comparison to the ocean of fiat will be looking for some sort of "good" monetary asset, melt ban, or not. Choir Time: Add all the AGEs, ASEs, etc., and we're still talking about a tiny island of metal everyone's going to try to pile onto when they realize their is no monetary alternative.

At the very least, whatever happens, it won't be boring.

iluc,

I assume you are not in Afghanistan for your health...If you are serving our country then I thank you for your service!

You may or not be aware but ten investors plus or minus - most of them from the United States and Britain - are investing an estimated $50 million in the gold project in Dushi district of Baghlan province, about 84 miles northwest of Kabul. The only other gold mine in Afghanistan is in neighboring Takhar province.

Geologists have known for decades about Afghanistan's vast deposits of iron, copper, cobalt, gold and other prized minerals. In June, the U.S. Defense Department put a startling $1 trillion price tag on the reserves, but Shahrani i.e. Wahidullah Shahrani, the Afghanistan's minister of mines called that a conservative estimate. He said he's seen geological assessments and industry reports estimating the nation's mineral wealth at $3 trillion or more.

In late 2007, a $3 billion contract was awarded to China Metallurgical Group Corp. to mine Copper at Aynak, 21 miles (35 kilometers) southeast of Kabul. The mine is thought to hold one of the world's largest unexploited copper reserves. Mining the copper could produce 4,000 to 5,000 Afghan jobs in the next five years and hundreds of millions of dollars a year to the government treasury.

If you are in Afghanistan that might be an interesting side trip!

[iluc]

fb101, i started an investment firm several years ago, while serving in the military. we're a three-man shop now, and i'm the research guy. my 9+ years in the USAF will be up in March so I can focus on business efforts and spreading the good (money) word.

Copper Catcher, I'd heard vaguely of the Afghani deposits, but that's really interesting! They're going to need the Chinese, because otherwise, on their own, this stuff is never getting dug up. Will the Taliban be the next government to go on the gold standard? Trust me, if I had the ability to go look, I would. I'll be close, soon, in Bagram.

[biglouddrunk]

All interesting responses, but I do want to echo one thing. We are making this investment in copper to buy goods and services in the future. So to echo what 68camaro said you have to value future money in 2011 dollars. You have to look at copper (more specifically discounted copper because you can buy copper pennies at 1.7x face, but it worht 2.7x face) vs. land, corporate bonds, and other non-metal assetts. Lets say 500 lbs of copper will buy one year worth of food for your family in 2025, but a quarter acre of farm land might do the same so which is cheaper today? This is the analysis I use in my head of course.

I also what to echo what the person said about peak oil. The fact that easy energy is dieing will cause some assetts to increase in price faster than others. We always need to keep that in mind. The best reason to like copper is that it will be more expensive to mine as energy prices go up, and also it might see higher demand when oil and nat. gas become begin to disappear where coal is still pretty abundant. Electricity is how the world will be powered espcially in the transportion sector.

[iluc]

BLD, I am with you on the food sourcing. It's a major initiative of mine. Also, I expect there will be "dislocations" due to energy/electricity, but there's a lot of other technologies that will become suddenly economical . . . at much higher copper prices, I suspect.