Saturday, March 8, 2008

Myths in Precious Metals

There's not much doubt that people are turning to gold and silver as investments; I'd love to impress my friends by saying I called my gold broker yesterday but they'd know better. I did, though, bid on a couple of coins on eBay after some self education at the CMI Gold and Silver site. They have a really good post on the "numismatic" myth which is a good read even if you're not interested in or able to invest right now: "Myths, Misunderstandings, and Outright Lies" -- recommended reading to protect yourself, or someone you know, against unscrupulous coin brokers.

And here a certain rural Texas doctor takes on the new Fed Head (linked to the CMI blog):

8 comments:

Jared said...

That is probably the fourth time I've watched that Paul video. Seriously, how many congressmen know economics like he does? There aren't many in Congress that have even thought that much about the issue. And even if you aren't totally on board with Austrian economics you have to appreciate the debate he brings up because no one else up there knows enough to care.

I am just starting to learn more about monetary policy. It was something I don't remember talking too much about in business schoool, if any.

Cerebella said...

Jared --

I was blessed to have a really excellent economics course "back in the days" at Harding College -- of course I was too interested in really important things (like football players) to even remotely appreciate the course; nevertheless, some of the basics still reverberate through my skull as I embark on re-educating myself (thanks largely to Ron Paul).

Here are the points that keep coming back:

1. There ain't no such thing as a free lunch.
2. The broken window fallacy.
3. Gresham's law
4. Paper money always fails; always has, always will.
5. Inflation erodes thrift, ergo people begin to borrow instead of save - even for necessities.
7. The "market" is composed of people; people have a multitude of motives for what they buy and what they sell. Therefore, the market experts are almost always wrong in "normal" times because the complex of human emotions and desires that drive the market are not subject to the kind of scientific analysis by which most of us are snowed. In times that are not normal, though, it's a safe bet that most of the market -- the real market, meaning you and me and other non-expert folks, bewildered by the prices every time we go to the grocery store -- is driven by fear, regardless of what investment buyers make, even if they finally do nothing but put money in a saving account (really dumb. IMHO!).

Anyhow, my re-education has centeredly largely around the precious metals market for fairly obvious reasons. And its trajectory has been something like this:
1. The insufferably pompous Gary North (Columnist for Lew Rockwell, which is one good reason to cast a careful eye over Lew Rockwell's site). North charges for admission to his site but there are some free books available for download; I read the one on the history of gold and it makes sense.

2. Kal Gronvall, whom I like very much because he's a high school English teacher, thus proving that even the likes as we can understand economics. His teacherliness shows because he cuts through the jargon and makes things clear to neophytes.

3. A bunch of high pressure get-rich broker's sites, UGH

4. Then I found CMI (which inspired this post) - their glossary is worth a few ounces of precious metal - it takes the confusion and mystery that the "experts" toss out. Combined with Kal Gronvall's down-home discussion, the glossary has vastly enhanced my confidence.

But I think there are a couple of misleading typos regarding prices and cash reporting; also, there is a huge confusion in my own mind regarding the way "the mint" (presumably the US Mint) sells bullion coin. CMI led me to believe that one had to buy huge quantities of coin bullion when dealing with the US Mint but in fact, the Mint will sell one coin at a time. Maybe CMI was talking to wholesalers on its site.

5. Northwest Territories Mint is a good place to buy bullion coin, too - a bit less pricey than the US Mint, except for shipping - so compare; shipping is going to get worse and worse as oil prices continue to soar.

6. eBay is a fun place to watch the "amateur" (real folks) market in action;at first I was sort of put off at the idea of trading precious metals on eBay - too inelegant for words. But then I found:

6. Kitco.com -- As I had wandered through the gold/silver sites, I kept noticing price charts from "kitco.com" - finally decided I should check out kitco and I think I've found the mother lode there. They buy, sell, refine, provide tons of charts, post the latest news, and even have a forum where you can go in and talke to real gold and silver investors - men on the street, not brokers or employees of news services or trading companies. So I'm lurking there right now, soaking up as much practical wisdom as I can - and these guys all trade on eBay!

The main thing to remember is that gold and silver are not, should not be considered, ways to increase wealth but ways to preserve the wealth you've worked hard to attain and pass on to your family. Forget about day by day fluctuations and remember that the coins being traded are real money so you really have no more to lose by buying bullion coins (within reason)than you have in shifting phoney money from a checking account to a CD or a savings account.

Cheerio

Cerebella said...

PS If anyone decides to buy bullion coin on eBay, please don't bid against me! ;-)

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