Some pundits are talking deflation. And recently the Fed Chairman said inflation is not high enough. Of course, the government measures inflation by the Consumer Price Index (CPI)-excluding energy and food. What U.S. consumer does not buy food, gasoline, and some sort of energy to heat and cool their home? The price of grains was up sharply the last few weeks. And so is the price of oil. What would the CPI number be if food and energy were included? Inflation alarmists point to the sharp increase in oil and food prices and claim that inflation has already begun. However, while grain prices are up, I notice eggs are on sale all over town.
What does all this have to do with precious metals investing, and silver investing in particular? Nothing--at least not directly. First, the CPI is not a measure of inflation. It is a measure of price change of particular consumer items. Second, prices fluctuate all the time. If you read the next sentence beyond the headline that grain prices are up, you learn that production (supply) is expected to be down. The economic law of supply/demand has not ceased to work. And oil, like all commodities, is priced in U.S. dollars. Have you heard? The dollar is falling. Therefore anything priced in U.S. dollars rises.
Why would the Fed want us to think that inflation is too low? Could it be that the cure or deflation is to inflate the money supply (print dollars)? The printing of dollars causes real inflation, that is, monetary inflation. Monetary inflation makes it less expensive to repay (government) debt. When monetary inflation sets in, the price of everything goes up, and up, and up. Prices do not go up equally, because there are still supply/demand factors at work.
If we are not experiencing inflation, why has the price of precious metals continued to rise? There are two factors. One, the falling dollar, and two, a few people know that monetary inflation is on the way. The gold and silver markets are very small. When investor demand kicks in, driven by fear of inflation, precious metals will be in high demand. I believe silver investing will be more profitable that gold. And locally at least, silver investing is coming back into vogue.
Last weekend I visited a local coin shop for the first time that opened just last May. It deals only in bullion coins; no numismatic coins. The owner mentioned that since he opened last May, the gold to silver price ratio has dropped from about 68:1 to 58:1. In less than six months the ratio has moved more than it has moved in the last 10 years. And the "Small Money" locals have apparently been paying attention. The owner of the store told me the transaction he has done most since he opened is exchanging gold for silver. The local Small Money people, including ours truly, are betting the ratio will continue to move toward the 200-year norm of around 17:1.
During my first three years in college I was a math major. So I realize the silver investing formula in the title of this article is not mathematically correct. However, when monetary inflation sets in, the price of gold will skyrocket. And if, on top of that, the gold to silver price ratio moves to the historic norm, the mathematical rewards for silver investing will be equal to gold investing cubed.
Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http:www.esilverinvesting.com
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