Is it time for a little bullion heresy?
I first began reading “get rich with bullion” when the price of silver was freed from Treasury control in 1967.
That’s 50 years.
Since then, coins and bullion have given me a good living.
They have enriched my life.
But bullion has never been a vehicle for me to hit the proverbial jackpot.
I am innately cautious.
I expect many people are.
I believe in bullion ownership and have always had some.
This morning, I want to ask the question of whether there is a jackpot to be had.
The inflation hedge function of bullion, if you are true to its definition, is that the purchasing power is preserved over long periods of time.
What that means is what you pay in in purchasing power is what you get back.
Can we test this?
The Treasury began controlling the price of silver during World War II along with the prices of everything else.
It was a war measure.
The government took control of peoples' lives to fight the Axis powers.
When the war ended in 1945, President Harry Truman freed up most prices.
But not silver.
The Treasury set the price.
The Treasury moved it around, but the price was always the result of what the Treasury wanted.
In 1967, it lost control.
The $1.2929 official price was eliminated.
A free market bid up the price, and suddenly it was profitable to melt silver coins.
In the initial burst of market energy, the price doubled, so by 1968 it was peaking at $2.56 a troy ounce.
What if we assume that this increase was due to past price suppression, and the 1968 price was incorporating all inflation that had occurred since 1942?
At the moment $2.56 was reached, let's assume it was a correct price.
The price of silver this morning is $16.76, according to Kitco.
That is 6.55 times the 1968 price.
What do the official inflation measures tell us inflation has been since 1968?
According to the Minneapolis Federal Reserve data, prices have risen by a factor of 7 since 1968.
That means silver actually lost a bit as an inflation hedge.
But in nearly 50 years, it is so close that it is perhaps just statistical noise.
What about gold?
The Treasury did not let that go completely until it became legal to own in the United States at the end of 1974.
Again, let’s assume the pop in price that year was due to the market incorporating all the inflation that had occurred in the years since we went off the gold standard in 1933.
Kitco says gold this morning is $1,285.90.
That is 6.59 times the 1974 price.
What does the Fed say inflation was?
Prices are up by a factor of 4.96 since 1974.
Gold, therefore, is ahead.
But is the difference large enough to say it is due to anything about statistical noise?
Some are saying that official inflation measures are wildly understating inflation.
This gold comparison shows an understatement, but the difference between 6.59 times purchase price for gold and 4.96 for inflation as officially measured is not wildly different.
It is not a jackpot difference.
So if you had a portfolio of silver and gold in all these years, you did hedge against inflation.
You did preserve purchasing power.
You did actually make a little extra.
But you did not hit the jackpot.
To hit the jackpot, buying and holding is clearly not the way to go.
Buzz blogger Dave Harper won the Numismatic Literary Guild Award for Best Blog for the third time in 2017 . He is editor of the weekly newspaper "Numismatic News."
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