Bullion - Gold and Silver

 

Gold and Silver bullion are a pure metal play. They have specific advantages due to their individual nature and how the ivestment community and regulartory agencies treat them. First lets look at some basics...

Physical Ownership vs ETF

 

I am sure that everyone has heard about "ETF's", Electronically Traded Funds, related to Gold and Silver...

 

These are negotiable instruments that trade based on the value of Gold or Silver in world currencies and are bought and sold much like stocks from any corporation.

 

These ETF's are required to maintain a specific percentage of their paper value in the base metals they represent (I have heard these range from 10% to 20%), you must check the prospectus for individual ETF to ascertain the specific amount for that product.

 

The Regulatory agencies required these companies to maintain a specific  amount in the metal, to ensure that the government agencies (IRS etc) had real tangible assets they could seize should there become a need to do so.

 

You and I who would have invested in the products would end up in that long line of unsecured creditors left with holding a piece of paper (an IOU) and an empty sack when all was said and done.

 

The primary selling point for these products is liquidity and its ease of acquisition allowing you to move in and out of the market where as physical metal required securing the product, transporting the product etc...

Gold

 

Gold has a unique perception by people all over the world. It has for centuries been used as a storage material of wealth.

 

As an investment vehicle: "Gold is a commodity that maintains it's value against other commodities over time" 

 

Therefore if you had an oz of Gold in 2009, and that ounce would buy you ten widgets, then that same ounce of gold should buy you ten widgets today regardless of the price in US Dollars.

 

So the Currency, that you spend, has a value that will move up and down against gold, not gold against the Currency. So currencies move up and down, not gold.

 

Gold has the ability to be recoverable... It has been said that if you put an ounce of Gold into a product, you can recycle that product and 100% of the Gold is recovered, While I am not completely convinced that that is entirely accurate I am sure that the percentage of recovery is quite high.

 

Gold as an investment vehicle is sold in Casting Grain (small pellets for casting jewelry), Bars, and Coins which are the most popular.

 

The cost of refined metal is  in the same relative order as mentioned above, and the following steps apply to both

 

Casting Grain:

 

Once the metal is refined to a fineness of .9999, it can be poured through small openings in the melting pot just below the lip of the cauldron into a water bath where it cools quickly into little "sort of" round pellets, known as "Casting Grain".  This grain is then sold by the ounce to jewelry manufactures (large and small) to produce Findings (the part of rings, pendants etc made of metal) into which they place stones to finish as jewelry.

 

Bars:

 

Bars are formed when molten metal is poured into a mold of a specific size, and allowed to cool. The metal is then tested with a "Diet" (a small scraping of metal that is tested with a destructive process) to determine the purity. The bar is then weighted and as marked with its weight and purity which is known as a "Cast Bar"!.

 

These Cast Bars can be changed by a manufacturing process know as rolling. The bar is rolled from end to end between two rollers with an ever decreasing width between them causing the bar to be stretched or squeezed into an increasing length, and reduced thickness.  These rolled bars are then cut into small sizes to allow them to fit into a stamping press that apply a great deal of pressure the form them into a "Stamped Bar" commonly seen today.

 

Coins:

 

Coins are made from the Cast bars after they are rolled to the right thickness and the put through a Planchet press which punches the coin size slugs out of the rolled bar (the left over metal is melted and starts the process again. These slugs are the put through a riming machine that forces the edges to be raised producing the "Planchet", which is just prior to having the "Reeding" with another machine and then, to the  "press" actual striking of the coin.

 

Investing:

 

Gold generaly follows the price of oil up and down in sympathy, but is also an emotional metal / investment. 

 

Simply put gold will usually follow the price of oil, in that if oil drops so will gold. This is true most of the time. There are however several other influencing factors that come into play from time to time.

 

Such as: 

  • War - If a war breaks out, then the cost of gold may move in relation to the number of markets that are affected.

  • Natural Disaster -  If some primary sources of gold, are impacted by, Floods etc, then that can have a direct effect on the supply.

  • Financial Market Collapse - If the stock markets around the world suddenly face excessive losses due to unexpected downturns or "Bubble Burst" and the values drop dramatically in a short period of time and the trend continues for a sustained period of time, causing the equities to lose significant portions of their respective values then demand increases...

  • New Technology - If new Technology is developed and is heavily dependent on the underlying metal to sustain that new technology then the demand may also increase drsamaticaly.

  • Commercial Invertors - If Commericial Investors determine that the top or bottom of a Bear or Bull cycle has been reached then this too can drive the cost upward or downward

 

These situations can and in some cases will affect the price of the metal on the worlds market by increasing demand. Once this occurs the markets will begin to react incredibly fast and drive massive changes in the value of the metal.

 

The real key is knowledge of what is going on in the world, evaluating its impact on the metals market and reacting accordingly.

 

Lastly, when asked what the market will do or when it will go up or down... I have to answer "If I knew, I would be sitting on a beach somewhere earning 20%...LOL"

Silver

 

Silver is an industrial metal that is used in many forms of manufacturing. Almost everything that is made today has Silver in it, I-Phones, I-Pads, I-Books, I-Watches have silver in them.

 

Silver in contrast to Gold can and does move in sympathy to gold, but the primary driver with silver is the production of products around the world.

 

Manufacturing is the real driver. If the manufacturing sector really heats up and begins to find its inventories falling short of demand, then look for silver to really jump. When manufacturing drops, such as in a depression or recession, expect to see the price drop.

 

The same outside influences that affect Gold will also have a similar effect on Silver.


While I see recovery beginning here in the US as of this date (DEC, 2015), it is my expectation that barring any external influences, silver has a while to go. It is my expectation that we will not see massive increases in the manufacturing arena for another 18 to 24 months.

 

Finally remember, NC Coppers or it's owners or employees are not  financial advisors, and these opinion expressed have no guarantees expressed or implied. Any investment decisions must be based on your specific circumstances and we strongly recommend contacting a "Licensed" Professional Financial Advisor before engaging in any investment strategy.