Gold beats them all
While much attention is now focused on U.S. stock indices reaching record levels, only a handful of people are aware that precious metals, on average, have outperformed U.S. stocks since the end of 1999.
As measured in U.S. dollars, here are how various asset classes have performed from Dec. 31, 1999, to Dec. 30, 2016
Russell 2000 +168.9%
MS-63 $20 Saint-Gaudens +147.9%
MS-63 $20 Liberty +139.8%
Dow Jones Industrial Average +71.9%
Switzerland Franc +56.4%
MS-65 Morgan dollar +54.4%
Standard & Poors 500 +52.4%
China yuan +19.2%
Australia dollar +9.8%
Canada dollar +8.2%
Japan yen -12.7%
Great Britain pound -23.6%
Brazil real -44.3%
Mexico peso -54.3%
South Africa rand -55.0%
The poor performance of currencies versus gold is not just a 21st century phenomenon. Egon von Greyerz, the founder and managing partner of Matterhorn Asset Management in Switzerland, pointed out that government-created currencies have performed dismally since the U.S. government closed the gold-exchange window in August 1971.
For instance, here is how some major currencies have performed against an ounce of gold over the past 45+ years:
Swiss Franc -87%
Japanese Yen -91%
German Mark/Euro -94%
US dollar -97%
British pound -98%
In an essay released last Friday, von Greyerz predicts that all five of these currencies will collapse within the next five years. He is not alone in that assessment. Others, including commodity guru Jim Rogers and Canadian Eric Sprott of Sprott Asset Management, have repeatedly forecasted the collapse of the U.S. dollar within the next several years. Even I am highly worried that such chaos may come to pass that soon.
The track record of all government-created currencies is that they eventually fail, with an average lifespan of about 40 years. Even though the U.S. dollar has a track record going back more than 200 years, now does not mean that it will prove to be an exception. Gold, on the other hand, has a track record of being used as a medium of exchange for 6,000 years (yes, even before coins came into existence) and never failing. Silver’s unblemished track record is almost as long.
Weak demand for metals
It seems like every January, as credit card bills for holiday shopping start to arrive, that we see an uptick in liquidation of bullion-priced precious metals coins and bullion. This January not only followed that pattern, the public may have sold even more than usual. With the recent strength in U.S. stock markets attracting investment capital, there has also been notable weakness in demand for gold and silver thus far in 2017.
Although sales of U.S. silver Eagles started off faster than a year earlier, the continuing decline in the premium for U.S. 90-percent silver coins points to a rise in liquidation at the same time that demand has fallen. Late last week, one bullion retailer was even offering 90 percent silver coins at a premium below $1 per ounce.
At such low retail premiums for 90 percent silver coins I like them as a form of bullion-priced silver to own. They have multiple advantages versus the various sizes of ingots:
- Greater divisibility. For instance, one circulated U.S. 90 percent silver dime contains almost exactly 1/14th of an ounce of silver. In my judgment, if the value of the dollar plummets, these coins are likely to become the most popular medium of payment because of their smaller unit size.
- Legal tender status. When transporting coins and precious metals across borders, an import duty (tax) is often imposed on ingots and bars while legal tender money is virtually always exempt.
- Familiarity. While the numbers are gradually declining over the years, as 90 percent silver coins have not been issued since 1964, many older Americans would recognize that these coins used to circulate. The number of people who would recognize these coins as genuine silver is greater than how many would recognize silver bars and rounds or the modern bullion-priced silver coin issues.
- Liquidity. In decades past, U.S. 90 percent silver coins were the most widely traded form of bullion-priced silver. Even though buyers today are purchasing many more ingot and bars, just about every coin dealer is a ready buyer of these coins.
- Security. While the problem of counterfeit coins and precious metals ingots and bars is still fortunately minor, it is growing. In contrast, because there is almost no profit potential in fabricating counterfeit 90 percent silver coins of good enough quality to pass inspection, they are unlikely to be produced in large quantities in the future.
With all these advantages and today’s lower premium levels, I now consider U.S. 90 percent silver coins to be well worth considering for a purchase of physical bullion-priced silver.