The recent declines in the gold and silver markets have prompted some soul searching among even the more dedicated precious metals investors.
A rational investment approach would involve considering the likelihood of various scenarios that could hurt precious metal prices even further.
Unfavorable PM Possibilities
Steadfast precious metals holders might be wrong about the long term bullish prospects for silver and gold if just a handful of the following statements were true:
(1) Real, sustainable growth can come from expanding debt in just the right amount, in combination with just the right amount of currency devaluation.
(2) It is proven once and for all that currency devaluation, printing paper currency and increasing electronic amounts of a currency will not create inflation.
(3) Peace will come in the currency war and the revaluation process will begin.
(4) Budget deficits suddenly come under control as austerity is welcomed by the masses, while politicians are elected for telling the painful truth about the short term.
(5) The big banks will forego profits, turn their backs on shareholders, break up voluntarily into smaller entities, and encourage the re-imposition of the Glass-Steagall Act.
(6) Banking CEOs and billionaires — including Warren Buffett – suddenly decide to donate their net worth, assets and foundation money toward paying off the national debt, thereby inspiring troves of others willing to do the same.
(7) The markets will finally embrace the precious metals as commodities and trade them as such, removing uncertainty and the pesky investment demand character.
(8) The legal system, led by a fed-up judiciary branch, suddenly begins prosecuting corporations that are deemed too-big-to-fail, and in the process, takes control of systematically breaking up the big investment banks and re-invoking Glass-Steagall.
(9) The equivalent of the Mother Lode is discovered, and suddenly the greatest mining project the world has ever seen begins in earnest, with sudden flows of investment capital entering like a tsunami.
(10) A mad rash of selling of all the jewelry, antiques and silverware ever manufactured suddenly occurs during a time where inflation adjusted prices in every currency are far below historic levels.
(11) Graphene — the world’s best candidate for replacing silver in numerous industrial applications — suddenly experiences a big ramp up in production, and the companies producing it decide to become nonprofits, while coming up with an easy way to "coin it" so that Graphene could also be used as an inflation hedge against the trillions of fiat currency units created to fund the necessary capital for scaling up production.
(12) GATA's evidence and Ted butler's research were just made up for profit ventures after all.
(13) All the naked short futures contract holders are actually safely hedged against customer business and non-manipulative market participants.
(14) A brilliant mathematician figures out a new formula for managing risk and accounting for counterparty ownership in the derivatives market.
(15) A new product is developed, proven and packaged as a mind control serum that effectively manages human behavior and emotion.
A Rational Approach to Precious Metal Ownership
Any rational person should question whether long term silver investors are 100% wrong, especially in light of the recent notable decline in the price of silver.
Nevertheless, if they ultimately conclude that silver investors are probably not wrong, then prudence would dictate that at least some allocation of their investment portfolio to properly held precious metals would be appropriate. Presently, such metals holdings account for less than 1% of all global pensions.
This seems far too modest a portfolio allocation, especially because properly held bullion and shares in precious metal miners would likely act as the most efficient store of purchasing power over the course of any paper currency devaluation and conversion.
Of course, the ‘Get ‘em while they’re cold!’ silver-related investment vehicles — like futures, ETFs, unallocated bullion holdings and other fractionally reserved claims on physical silver reserves easily replaced with cash – would probably not participate.