Brother Dick contacted me with some questions about my previous post on silver, and I quickly realized that I was remiss by not mentioning several important points, so I'll include them here as an addendum to the post.
Since the value of original silver coins (those coins once used as currency) is so much greater than the face value of the coin, they are no longer used as currency. Their value is in their content. Similarly, newer silver coins are simply bullion stamped in coin form. They might as well be bars. Just like gold Krugerrands, American Eagles, Canadian Maple Leafs, etc. their value is determined by the amount of silver content with no real face value per se.
You can still acquire pre-1964 silver coins, in the form of "bags" of coins. For instance, a bag of 90% silver coins with a $1,000 face value which represents 715 ounces of pure silver goes for about $7,750 (about $10.85 per ounce of silver). It's an interesting play.
Some silver coins have numismatic value and if there's a real crunch in the supply of silver, they might be melted down for the silver content.
Numismatic coins are graded to classify their condition. The grading of the coin is then factored into the quantity of coins minted in that year. The result is a value placed on the coin. These coins are encased in a clear plastic case that protects them and displays information about the grade of the coin.
This brings up an interesting question I've had for a long time regarding gold and silver numismatic coins. If many of them are sold and get melted down to meet demand, I would suspect that those coins that remain would absolutely skyrocket in value as they would then be that much more rare.
Regarding shares in mining companies it's important to note that they carry inherent risks. Mining disasters, unfriendly governments deciding to nationalize the mines, increased energy costs cutting into profits all of which are hazards that are reflected in the value of a share of stock. These issues explain why shares offer leverage to the price of the metal. Nothing is safer than the metal "in hand" and that's why I believe that the first order of business is to acquire a stash of the metal. It doesn't pay interest or dividends but it's safe. Then one can venture into the world of shares of mining companies.
A silver Electronically Traded Fund (ETF) has just been given approval to go into operation. For them to open their doors for business they will have to acquire somewhere in the neighborhood of 130 million ounces of silver. They operate by selling shares which are backed by the silver they have. As more people buy shares, the ETF has to acquire more silver to back the new shares. This impacts supply of the metal. All of this creates less supply in the open market because the ETF is taking the metal off the table.
Lastly, the price of both silver and gold is largely set according to the futures market. This has enabled the paper markets to significantly influence the price of the metals. In other words, by manipulating the futures market, the price of the metals have been suppressed. One has to realize that those who benefit from a program of fiat currency must maintain an environment of confidence in the fiat currency and part of doing so is to maintain low prices of the assets (the barometer) that historically indicate inflation and devaluation of the fiat dollars. That metal's prices, and commodities in general, have been in a bull market for several years now and this indicates that they are losing control. As more and more people (governments and individuals alike) begin to question the "full faith and credit" of the U.S. dollars, they will transition into the ultimate form of money. Eventually the laws of supply and demand come into play as they will not be conned and that is what has been happening over the last 5 years.
Any major political event would destabilize the whole game and prices would increase dramatically, otherwise it will just be a relatively slow grind upwards as more and more individuals (and governments) flee to the metal. Personally, I suspect investors in precious metals will benefit from either scenario.
