Monday, May 06, 2013

dismal science

Economics is hard enough to understand without people trying to manipulate prices to their advantage, but then I guess that's a part of economics.

In mid-April, precious metals markets took a hit from someone, somewhere. Silver fell about 25 percent in a couple of days, dropping from nearly $28/oz. to a hair less than 23. Gold fell about 20 percent at the same time.

Who was responsible for this obvious manipulation, in which billions worth of metals "futures," purchases of bullion for future delivery, were "sold short?" No one knows for sure, but primary suspects are Jaime Dimon's ChaseBank, which has been manipulating silver prices for years, BofA, and numbers of people in the know, including Jim Kunstler, suspect either active participation or a free pass from the Federal Reserve.

The problem for the fixers is that their attempt to load the dice may have backfired, for there is now a distinct separation between the prices of metals "futures," and the actual stuff. The futures market may not have much of a future; gold and silver are taking off.

When the history of our time is written, specialists will need to  spend lifetimes studying the hypercomplex, Byzantine "instruments" of our modern paper economy in order to explain to future generations how we got into the mess we're in. Some things  are starting to sort themselves out and become comprehensible again. The paper economy now exists entirely untethered from the tangible world of things, or in other words, unmoored from reality.

Right now, today, a US Peace Dollar minted in 1922 sells for $28-$30 on Ebay, as good a deal as you'll find anywhere. Coin dealers want $40 for them. However, at the current futures price of $24/oz, the value of the silver in the 90% silver coin is $18.50.

Want to be an investor? My advice is gold, silver, wine, fine art, petroleum, and real estate. As with anything else, you can  lose money if you don't take care to get the good stuff -- quality vintage wine, not vinegar, and truly fine art, not kitsch.
Oil is a form of wealth, as are oil futures, and real estate is only a good investment in certain places (location, location, location!). The beauty of buying gold and silver is you always get the good stuff.

Illustration: janus-faced god on a Roman denarius, a 90% silver coin minted 114-13 BCE.

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