My First Bullions!!

Yeah!!

 

There's the 5 ozt .999 fine silver from Sunshine Mint on the left, and a 5g .999 fine gold from Credit Suisse.  Those scratches you see on the silver actually belongs to its plastic cover. And my camera is v.lousy, so I can't take sharp pictures. Feels good to finally own them! Especially when I hold the heavy silver in my hand :)

You can get a pocket weighing scale to weigh your bullions (one way to test for authenticity). It shows about 5 grams in the above picture (0.4g from the plastic cover and the air inside it -_- ). Fake ones will normally be overweight or underweight. Another more advanced method is to get a jeweler's loupe and examine your bullions under magnification. It took me a 2 hours to find the loupe in Chinatown. It doesn't help that most chinese sellers there do not understand English, and it doesn't help that my Mandarin is at the kindergarten level.

Anyway, wish all collectors out there good health and wealth!

Jin

What about exchange rates?

My main concern regarding this investment was the loss of profits through exchange rates. When gold rises in USD, it means that USD has devalued. USD will weaken against SGD. This means that less SGD is needed to buy more USD, and hence the profit of gold made in USD when converted to SGD will be diminished.

The world economic and financial fundamentals are shaky, and though Singapore is economically strong, it will not be spared in a global economic meltdown. The fundamental reason is that SGD is also fiat currency not backed by gold. I've compared Singapore's M1,M2, and M3 (measures of currencies in circulation) against the Singapore GDP (measure of real goods produced) and found that the former is still more than the latter. What does this mean? Inflation in the future. At my last calculation,  Singapore's M3 was $85 billion more than its GDP. Moreover, Singapore has been buying up lots of USD this year! Singapore will lose money on those USD it has bought. These 2 factors are quite enough to convince me that gold can gain in value in terms of SGD, or at least retain the value of SGD. To further back this statement up, let's take a look at some numbers.

I have very painstakingly collected data, put them into an excel spreadsheet and generated the graphs below. How I wish I still have access to the Bloomberg machine in NUS. It'll make my job easier.

This is the SGD/USD historical exchange rate, since 1970:




This is the average gold prices in USD and SGD. I converted USD into SGD using the exchange rates in the previous graph:




As we can see here, gold prices in SGD moves in tandem with gold prices in USD. So any concerns with losses due to exchange rates may be alleviated.


Jin

Silver Exit Strategy

So far I've talked about buying silver. But what about selling? When is the right time to sell? Well, frankly I have no idea on the exact timing that one should sell his/her silver. I am not a day-to-day trader who tries to time the market price movements. I am more of a long-term value investor. I believe the fundamentals of the global economic/financial systems are shaky. When mayday finally comes, the undervalued silver will have its price shot up to the moon. While I can't time the market, I can at least plan to exit at a price I am comfortable with. I think I will exit the market when silver hits USD 150-200. That's my initial plan. The plan is flexible to changes, but those changes must be based on fundamentals and not emotions (eg. greed/fear). Well, that's easier said than done.

Anyway, I have seen and heard predictions that silver prices will rise to the range of  $100-1000. Being  a conservative myself, I think it will rise to $150-200. Here are some reasons why:

1) I compare the gold:silver price ratios. Historically, the ratio was about 12:1 to 15:1. Right now it's about 66:1. That's a huge undervaluation of silver. At a $950 gold, silver should be more than $60. And remember that right now gold is still way undervalued. In the last gold/silver boom in 1980, the ratio was about 17:1. I have many good reasons to believe that this time round, the ratio can drop back to 12:1, or even 10:1.

2) Silver is harder to analyze than gold. Several inferences can be made of silver when we analyze gold. I made a rough calculation that gold prices will be 5-6k, by comparing the troughs and peaks of previous gold booms. In the previous 3 gold booms, gold has risen by 16-20x in terms of dollars. For the current cycle, the trough is about $300. Now the price of gold is $950, an increase of only 3x. It is still cheap at $950. For history to repeat itself yet again, gold has to hit at least $5,000 (I won't be surprised if it rises above $10k, the reasons I won't discuss here). And based on this estimated gold price, I apply my assumption of the gold:silver price ratio to get a high estimated price for silver (Do a calculation and see for yourself  =D ). Another reason to think gold is undervalued is because historically, the Dow Jones Industrial Average will be fairly priced if it costs about 4 oz of gold. Now I think it's about 10 oz of gold. So we see how overvalued stocks are, and how undervalued gold is. And how even more undervalued silver is.

3) In the 1980 economic downturn, silver shot up to a record high of $50. $50 adjusted for inflation will be about $130 right now! And considering that now we have far more excess currencies and rapidly growing silver supply deficits than in 1980, oh boy I wonder how high silver can go.

4) The quantity of silver available for investment is now lesser than the quantity of gold available for investment. I can't remember the figures, but it's somewhere in my research archive. Silver is very important in the technology sector. Without silver, we won't have all these electronics that we enjoy using today. However, new silver production is way too low to meet industrial demands. Up till now, the supply deficit is being covered by governments selling their huge stockpiles of silver. I believe they also sell their stockpile for the purpose of suppressing silver prices. Now with their stockpiles dwindled, they are selling less and less. And the real supply-demand deficit is becoming more and more apparent. For the past few decades, the mining business has been unprofitable because of the artificially low prices of gold and silver. But things are about to change.

5) I believe silver prices(needless to say, gold prices too) are being manipulated. There is a really huge position on the short(sell) side, and this position is being taken up by just a few individuals. The number of shorts has drastically increased in the current financial crisis. They can only do so for so long. When the day of reckoning finally comes, due to market forces or because they're being exposed by investigators, it'll be an avalanche of losses for these individuals, and silver prices will shoot up overnight to USD 100 at least. Again, I don't have the figures at my fingertips. If you want to find out more yourself, search for Ted Butler's articles. On a sidenote, you can look at GATA, an organization which is trying to expose the gold manipulations. They have really good information.

6) Silver has always been the second money. China has started minting silver. And it has been quietly amassing huge quantities of gold too, along with Russia. When gold starts to get priced out of the middle class' reach, the horde will rush to silver, a way cheaper alternative store of wealth. This has happened throughout history. Gold always rises first, followed by silver.

There you have it. I may have more reasons but I can't think of them right now. Gotta re-study my O Levels materials because I'm giving tuition now.

Anyway, gold and silver prices will only drop IF world currency supplies drop drastically, IF the world gets rid of the currencies excesses printed for the past few decades. If this happens, real deflation will set in. And deflation is what every government dreads and will try everything at its disposal to avoid. Prices and income may drop, but the nominal amount of debt won't drop. It'll be unimaginable chaos. What the world has been doing is to print and print currencies in the past few decades to get out of recessions. To think that a country can grow itself out of the problem is wrong. I have not seen a nation or an empire succeed in this strategy. The real solution is not to print more money, but to let the recessions run its course, to correct the imbalances. Anyway, all these excess currencies will flow into gold and silver soon. Prepare yourself!

Jin

TV analysts

Some analysts on  CNBC and Fox News are annoying. They don't see the fundamentals of economics. Here's a video to proof it. In the video below, only Peter Schiff got it right, in predicting our current financial crisis. His fundamentals are very logical and sound, and I've learned a lot from him. There are a lot of such interesting squabbles on youtube.

Here's a description written by the video uploader:
Ben Stein, Neal Cavuto, Arther Laffer, Charles Payne and others down right laugh at Peter Schiff in the years and months leading up to the 2008 economic crisis. Anchors and so-called experts on the economy openly laugh at Schiff. And these people are still allowed to be on TV.

Ben Stein is still being portrayed on Television as knowledgeable about the economy when he was embarrassingly wrong. 
 


Apologize to Peter Schiff



Even Steve Forbes and Warren Buffet are bullish on the US economy and supportive of the bailouts and stimulus plans, even though they know fully well that such policies were the root cause of the current crisis. Wall Street people just want their stocks to go higher, that's all they care. Ultimately, people in the  Main Street suffer.

The worse is yet to come. There are gonna be bigger crashes in the future, and I won't be surprised if the govt comes up with bigger stimulus and bailouts. Bigger deficits, bigger debts. Do you see how USA keeps on increasing its debt ceiling? What's the point of even having the ceiling in the first place if it's not to be observed? And yesterday, Obama revised upwards the US' 10-yr deficit estimate to 9 trillion dollars.

Soon the world will stop feeding the US with loans. The usd currency may crash, and if so, the world will be plunged into a spectacular depression.

Random Update

I guess I won't be posting much stuff in the next 2days. Just started a tuition assignment on Sunday. I have to focus on refreshing my memory on O levels stuff for now. Bought 4 books which cost me $50 just for memory refreshment. But it's very well worth it.

As for precious metals investment, 2-3 of my friends are going to entrust their money with me. I feel happy, excited and a bit nervous at the same time. Nervous because I am going to manage other people's money. Happy because they are going to invest together with me, and excited because of the huge potential profit to be made. Cheers to our investment!

I went to a career fair at Suntec on Sunday. Thanks Cheng Xin for inviting! It was like any other career fair, nothing much to apply for actually. But I'm glad I got to apply for a free stock trading account. I wanted to do some intensive research on stock picking this week, especially in mining stocks (and maybe agriculture), but I guess I have to put that on hold for a while.

Helping my tutee prepare for his O levels takes precedence.

The greatest wealth transfer ever?

I've talked so much in my previous posts. It's time to take a breather. Half-time entertainment:

I will invest myself in precious metals and commodities. And I'll take a hard look at agriculture. Seems that agriculture is very under-invested by nations right now.

I don't like to make short-term price predictions, but just for fun, prices may hit these levels in 3-5 years' time:

Gold above USD 2,500 (currently below 950)
Silver above USD 40 (currently 14+)
Oil above USD 200 (currently 70+)

What this means is that precious metals/(some)commodities investors can probably see their investments double or triple in value. This may not happen in the next few years, I don't know. I don't have a crystal ball and I'm not a professional trader who tries to time the market. I'm more of a buy and hold kind of value investor.

But some time in the future, these prices will be realized. I am confident of higher prices actually, but that may happen be in 10 years' time. Even if taking into account possible losses from exchange rates and after doing some calculations, I feel that there's still profit to be made. Worse comes to worst, the precious metals will retain the purchasing power of your cash =)

Long-term (5-10 year) predictions:

Gold above USD 5-6k
Silver above USD 200

In fact, apart from physical metals, I think mining stocks will have a stellar performance when all the other stocks are dropping. I will look for small mining companies which have discovered new mining fields. In the future, the bigger companies will buy up these small companies, at a great price. Stocks are more tricky though, so be careful when picking companies.

I am very bullish on gold and silver. The physical precious metals market is so super small compared to the sizes of bonds, derivatives, stocks markets right now. When all these bubbles burst, all the excess currencies are gonna flood into precious metals (and other commodities). I've heard a good analogy somewhere. It's like trying to force all the water from a Hoover Dam down a garden hose. The transfer of wealth from these asset types to the precious metals asset type will be immense.

Inflation of currency supply by the central banks is detrimental to the economy. Most recenly, we heard news that Iceland had become bankrupt. That was quite astonishing to me. I remember a few years back, I was watching a youtube video on Iceland. Back then, I saw a beautiful and pleasantly surprisingly rich country. It went bankrupt! There're riots, food shortages, basically its whole economy collapses. Yet, we do not see much news on Iceland in the media. What about the UK, its closest neighbour? UK is in very serious trouble now. Don't have much info on the country either. On a more positive note, in Asia, smart China has been quietly amassing gold for years, although its gold reserve currently forms < 2% of its total reserves. Anyway, China (and Russia) knows that the USD is going to be devalued by a lot. The USD is still the world's largest reserve currency. It forms about 70% of world reserve currencies. When economic meltdown of the US happens in the foreseeable future, it'll be chaos worldwide.

Finally, of course, all these stuff that I've written in this post are backed up by tons of hard research. There're too much things to write down here, so I won't do that.

Disclaimer: Do your own research first! Don't come and sue me if you lose money =.=



Jin

Inflation!!

I have to diverge a bit from what I promised you in the previous post. I think I need to address the issue of inflation first.

I once asked a friend, "Why are prices of goods around us increasing?"
He replied, "Inflation."
I stared at him, expecting him to say more, but his eyes were quizzical. "Not Happy!?! What do you want, huh!"

If you ask anyone on the streets this question, most likely they'll say what my friend said to me. But it is doubtful that they know exactly the process of inflation, nor will they really realize the impact of inflation.

To give you an example using the US dollar here: Had there been not such rampant inflation of the USD in the past 100 years, a barrel of crude oil would have cost only $3.50 instead of $70 right now. A $55,000 car now would have cost only $1,500.

That is the disastrous effect of inflation. It basically means that your purchasing power with your money drops. USD has dropped in value (and purchasing power) by more than 96% in the past 100 years. In the more serious case of hyperinflation, you will see your ENTIRE life savings wiped out overnight.

How is this possible? The reason is because of rampant central banks' creation of currencies. Creation of currencies out of thin air. If you remember the goldsmith story (real story) in the previous post, you can probably figure out why. The goldsmith printed 3 receipts, which should be exchangeable for 3000 oz of gold. However, those receipts are only worth 2000 oz gold. The paper receipt in your hand loses purchasing power.

Recently, a Canadian minister did a survey on the people on the streets. High-flying professionals, graduates with great degrees, poor people, rich people, he interviewed them all. What he found out was that not a single one of them knows accurately how money is created. I have mentioned central banks' ability to create currencies out of thin air, but there is more to this (I'll explain next time).

When central banks print currencies, these excess currencies have to go somewhere. These currencies have to chase after the same amount of real goods in the economy. Thus the effect is a general rise in prices, what we perceive as inflation.

The original definition of inflation was: An increase in supply of currencies (more than an increase in supply of real goods)
Now, its definition has been tweaked to: A general rise in prices.

If the word has kept its original definition, maybe more of the population can see the truth. That reckless printing of currencies will lead to inflation down the road. No doubt, printing of currencies spur economic growth, but that is only in the short term, and this economic growth creates an illusion of prosperity. In the long term, there will be economic crashes. This is short term gain, long term pain. I do not know how the current popular definition of inflation got a foothold in our dictionary.

I hope by now that you see the real story behind inflation. The central banks have the power to create excess currencies. Specifically, I want to talk about the US Federal Reserves, and how its actions are going to contribute to a great economic collapse in the near future, an economic depression potentially more disastrous than the Great Depression in 1930s when international trade plunged by more than 1/2 to 2/3. In fact, our recent financial crisis could have been this disastrous, had it not been for government intervention in pumping huge bucket loads of credit into the economy, with plans for more stimulus if they deem it necessary. This seems like the right thing to do, because we are hearing reports that the economy is improving, that the worse is behind us................or is it?

I'll end the post here. Time for some Japanese drama :D


Jin