-- Posted Thursday, 17 May 2007 | Digg This Article
By: Stephen Kovaka, CPA
I can now confidently advise you that had you invested in base metals over the past 3 – 5 years, you would have had the chance to multiply your wealth by anywhere from 5 to 15 times. Mark O’Byrne laid this out for us in his recent article, “Why the Silver Price is Set to Soar”.
Oil is up from $10 to $63 or 600% and more than 6 fold.
Zinc from $.35 to a high of $2.00. now $1.50/lb or nearly 5 fold.
Copper, from $.75 to a high of $4.00, now $3.58/lb or nearly 5 fold.
Lead from $.20 to $.90/lb or nearly 5 fold.
Nickel from $3 to $22/lb or more than 7 fold.
Indium, Molybdenum, Selenium, Cobalt are all up 1000% or 10 fold and more.
Uranium is up a phenomenal 1300% or 13 fold.
Jim Rogers predicted the same thing a few years ago, but I did not act on that advice. Instead, I bought silver and gold. Having listened to the advice to invest in the precious metals, was I misled into missing out on these far richer opportunities? Good question! The wise man learns from his mistakes, whereas the fool continues in them, expecting a different result.
STILL WAITING FOR PRICES TO EXPLODE
Actually, no one who invested in gold or silver should really feel misled. The biggest reason why gold and silver underperformed the other metals is obvious, and has long been publicized: gold and silver are competitors with fiat currencies. As such, governments and central banks around the world, and all their agents or masters in high finance, have used their best efforts to hold down the price of the precious metals. In this way they disguise the rampant inflation of all fiat “money” supplies and encourage the illusion that all is well in the financial market place. This is not the place to rehearse all the evidence for these statements, but anyone who had the knowledge and inclination to invest in precious metals was well aware of this issue. Newcomers would be well advised to spend some time at the Gold Antitrust Action Committee website reviewing the evidence. Ironically, it was just this very price suppression that was cited as making the precious metals good value investments. The theory was, and is, that the price suppression must ultimately fail, allowing the prices of precious metals to reach a much higher level.
The industrial metals, not being subject to this price suppression, responded to inflation and increased demand as expected, by rising much higher and more rapidly than the prices of gold and silver. Duh! To bad I didn’t think of that a few years ago. I could have been investing in base metals all this time.
Another oft-repeated argument has been, “when only a tiny fraction of the world’s wealth is directed into precious metals, supply will be overwhelmed, and prices will explode.” We are still waiting for that to happen too. Yes, the current value of all the gold, silver, and precious metal mining shares in the world is dwarfed by the nominal value of all the “money”, stocks and bonds in the world. But that is the problem. Warren Buffet alone had trouble investing even 2% of his wealth in silver a few years ago, and we’ll never know what kind of unpleasant phone calls he got from important people when he did so.
When wealthy investors and hedge funds can electronically leverage their billions into tens of billions for carry trades in the bond and currency markets, the precious metals market may be too small-time for them to bother with - especially if rising gold prices are likely to mess up their electronic playing field. Again, ironically, the modest value of the precious metals markets, far from “exploding” as prudent investors went metallic with the prudent 5 – 10% of their wealth, has probably deterred the world’s wealthiest people from investing and sending them to stratospheric levels as promised. And of course we must mention the obvious: big money like this can be used to hold down prices just as well as to multiply them. So, the strictly limited supply of precious metals in a rapidly inflating financial scene has actually worked against them more than for them thus far. How do your direct a three inch stream of water through a garden hose? Answer: You don’t even try; you just use a fire hose.
Those with access to very large amounts of FRNs have an ability to move market prices, especially in smaller markets. They see liquidity as a tool to be used to increase the amount of real assets that they control. Where the average investor is concerned with increasing the FRN value of his portfolio, the market movers are more concerned with increasing the amount of real assets that they own, regardless of the immediate FRN price. In fact, keeping the price low may benefit them as they continue to accumulate valuable assets at bargain prices. They understand that what you own and control is more important than its present valuation in fiat currency. They say that if you want to become wealthy, you have to learn to think like a wealthy person.
Silver and gold prices have only increased to somewhere between double and triple their previous lows at the turn of the century. Those who invested or traded in the shares of precious metals miners may have done somewhat better than that - or not. Prices of those shares bounce around unpredictably. Those who bought silver and gold and stored them safely away were able to relax and watch the FRN value of their holdings increase steadily, if not explosively. Time is on their side. Last year, for instance, silver was up in FRN value by around 47%, in a year when real consumer price inflation was probably in the 6% – 7% range and the S&P stock indexes were up by around 14%. Not too shabby!
OK – so where does all of this leave us? Well, first of all, with my 20/20 hindsight, I do wish I had invested in base metals this last five or six years, especially uranium. In the perfect world of my imagination, I might have put all my money into uranium, molybdenum and nickel. I might have made a lot more money than I did in silver and gold. Of course I would have been faced with a ton of due diligence to figure out exactly how to invest in these markets. I might also have been one of the 80% of investors who lose money in the commodity futures markets. It’s easy to look back at the price increases of industrial metals, but considerably harder to actually earn that kind of return in the real world of investing. Also, I could not have taken the uranium, molybdenum and nickel into my own custody as I could with silver and gold.
“POSSESSION IS NINE-TENTHS OF THE LAW”
The personal custody vs. Convenience issue recently came to the fore as the US government reportedly seized over 19,000 ounces of gold, currently worth 11 million FRN. This gold was held by third (or fourth, or fifth) parties for customers who wanted the Convenience of “owning” gold without taking custody. Where does that leave the gold “owners”?
The seizure order appears to be unrelated to the criminal case in progress against E-gold and OmniPay in that the seizure of the accounts by the government was done under a (separate) civil case, for which the Government has yet to file anything.
By doing so, the government was able to seize accounts without having to reveal anything to the owners of the accounts themselves. By law, the government has 30, and possibly up to 90 days to file a complaint.
Until the government civil filing is done, none of the victims of the seizures can possibly do anything to defend themselves, not even obtain information as to why their accounts have been seized, or what they would have done wrong.
None of the victims of the account seizures have been advised of anything officially at this time. US Government Forces E-gold Redemptions - Seizes Gold
The risks of letting someone else hold your gold and silver are very real, and probably increasing as the prices of the precious metals continue to rise and the powers of governments continue to expand. What is convenient for investors is also very convenient for the government when it decides to make a move. Be wise and make it difficult for them.
IS IT TOO LATE?
The past has passed, the future is a little hard to read, and as always, investors are faced with the question, “What are you going to do NOW?” Are base metals still the better investment? Here are the facts as I see them. Precious metals have increased only 2 – 3 fold, whereas base metals are up 5 – 13 fold. Precious metals have a very high value to weight ratio and can be readily purchased or sold in large quantities and stored privately. Base metals are not practical for the average investor to buy and store as an investment, and can therefore only be invested in indirectly through shares or futures contracts. Precious metals prices have been suppressed at great cost to those running the price suppression, whereas base metals prices have risen without interference. Governments around the world continue to fund their own growth and rising expenses with their con game of money spinning and competitive devaluation, and fiat currencies have a 100% track record of eventual failure. US debt held by foreign governments is in the trillions and can never be repaid through normal trade.
My own choice is clear: continue to privately hold silver and gold as the markets spin further and further into unreality. The forces of fiat money have managed thus far to slow, but not prevent, the rise of silver and gold. Even at that, holders of silver and gold have done very well, just not as well as investors in base metals may have done. But the future may well hold a reversal of those positions.
Stephen Kovaka, CPA
stevek@dewater.com
-- Posted Thursday, 17 May 2007 | Digg This Article
