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Speech: Frequently Asked Questions on Silver

By: Jason Hommel, Silver Stock Report

-- Posted 26 February, 2009 | | Discuss This Article - Comments: Source:

(Phoenix Silver Summit Speech)

Silver Stock Report

These are the most frequently asked questions that I get.  In Phoenix, I spoke from memory on the following topics, and my answers went something like this:

Before I get started, let me introduce the topic of Silver with one argument on why you need silver.  If you look at a 600 year inflation adjusted price chart for silver, silver is basically free today.  In fact, the form of silver in silver dimes is below what it would cost to mint them today even if you made 200,000 of them, which would be about $2 per dime, and the cost would be the same if you privately minted zinc or copper, and you can get those dimes for $1 today, which means that the underlying silver is free.  It does not get any cheaper than free, so silver is the best value that there is, and I really don't need to say anything more than that.  But people have plenty of questions about silver, either just before they buy, or as they accumulate, and these are the popular questions people ask me.

Why are you selling silver if you are bullish on silver?

Let me answer with another question.  How do all bullion dealers and coin shops stay in business?  They re-purchase the silver.  In my case, I've recognized that the public is no longer selling silver in enough quantities to meet or exceed demand, and so I'm having 1000 oz. bars minted into rounds.  I don't think this was a good business in the last 15-20 years when there were more silver sellers than buyers.

How do you make money selling silver?

I buy silver in 1000 oz. bars that are cheaper by the ounce, and create value by minting rounds that may cost more per ounce, but are more affordable, more fungible, so that coins can be easily exchanged, and can be used for exchange.

How do I make money selling silver?

My readers can make money by buying silver from me, and selling it at ebay in smaller quantities, or anywhere else, such as in a coin shop.  Often, people are willing to pay more when they can pay for silver in person, with cash, because such a transaction is more anonymous and is free of any chance of default.  This is why I ship "same day" to avoid defaults for my customers, even if my suppliers default on me, my customers will get the exact silver they paid for.

Where can I get silver?

You can buy silver from me and other sellers at ebay.  In larger quantities, I sell at along with several other dealers.  If you want to buy over 100,000 oz., you would do well to order directly from a refiner.  Minimum order size from Penoles is 300,000 oz. at 15 cents over spot prices, but that's for 300 of the 1000 oz. bars.

Where can I sell silver?

The best place to sell your silver today is ebay.  Often, you can get more at ebay than from a dealer.

How can you tell that silver is real?

This is a common question.  Silver is actually easier to tell if its real than paper money!  Very often I see cashiers take a yellow pen, or ask a manager, to see if a $100 bill is real.

It's very difficult to counterfeit silver coinage.  If it were easier to do so, don't you think our dimes and quarters today would look and feel and sound more like silver?  

Our coins today have that copper slice in the middle, and are lighter, and don't sound the same as old 90% silver coinage dated from 1964 or earlier.

We know our silver rounds are real also by the weight, sound, and feel of them.  We've visited the mint, and seen the production lines, and know it's silver, as the mint starts out with .999 fine silver bars.  We've cut them open to check, and weighed them. 

There are two tests for 100 oz. silver bars.

The first is the ring test.  Put a silver bar on a glass counter top, or suspend it in the air with a piece of string, like dental floss.  Bang it with a wooden spoon.  It will ring, because silver has a great resonance, which is why they used silver to make musical wind instruments like trumpets.  The poured bars do not ring as well as extruded machined bars will ring.

The second test is the ice test.  Push a cube of ice into the bar.  Silver is the greatest conductor of heat, and so the latent heat of the bar will quickly move into the point of contact with the ice, continuing to melt it quickly, in about 10-15 seconds. 

Which kind of silver is best? 

I like the cheapest form of silver available.  I have never liked Silver Eagles, because the premium is always too high.  I've always bought the "generic rounds", because you get more silver for your dollar.  I also like the 100 oz. bars, when they are cheaper, which they are today.

What do you think about rare coins?  Should I buy them?  And how can I sell them if I have them?

I think rare coins are like idols.  Too much value is placed on the image, and not the substance.  Don't buy them.  If you spend $300,000 on a certain kind of rare coins, you ARE the market for those rare coins.  There are so many scams with rare coins.  They will sell junk coins as rare coins for a 100% premium over spot, at twice the silver value, and then buy it back at spot, for 50% less! 

Once, I bought some old Roman coins, as gifts for my friends, but I spent about $200, and it's certainly not suitable for long term investment money.

If you have any rare coins, build up a seller's reputation on ebay, first.  Then sell off your rare coins at ebay, having carefully described exactly what they are, and having consulted a rare coin book.  If it's not worth your time to do that, then it's likely not worth anyone else's time either. 

What about confiscation?

In the Bible, Samuel warned the Israelites who wanted a King, what a King, and governments, will do, which is to confiscate everything, from the best people to the best lands.

Today, the biggest form of confiscation is through inflation and taxes. 

The U.S. 2009 Federal budget is about $3 trillion.  The size of the annual investment market for silver is about $1 billion.  The U.S. budget is 3000 times larger than the silver market.

Silver would have to be 3000 times higher in value in order to be meaningful to the annual budget. 

If they need my silver to balance the budget, let them confiscate!  I'll give them some of it.  At least it would mean that my silver would be worth significantly more than it is, such as maybe up to $10,000 per ounce!

Can you recommend any storage programs?

Yes.  I suggest you get a safe, or wall safe, or hide a safe in the walls of your house.  Bolt the safe down, as the instruction manuals suggest.  Safes are safe, it's why they call them safes.  Don't give anyone else the combination. 

If you must trust a third party, then put a safe into the homes of the people you plan to leave your money with when you die.  Give them the combination upon your death, through your lawyer.

All third party storage programs are targets of government confiscation if there ever was a confiscation order.

The entire point of precious metals is that they are very hard to confiscate, because they are off the grid, off the books, hidden, unknown, and you can hide them, and protect them.  It is 10,000 times easier to confiscate through paper money, and so they do.  The will never go house to house demanding metals, and even if they did, you could say you sold it, and if they still bothered to look they should not even find it, because you should have it well hidden.

How do I invest my IRA money into silver?

There are some IRA storage programs that will hold silver for you, but I don't trust them.  I would not trust any major bank or brokerage firm, certainly not anyone who was a member of the LBMA, which includes all major western banks.

There is only one fund that I would trust, and that's CEF, the Central Fund of Canada, which you can easily buy like any stock, the ticker symbol is CEF.  They are like a company that simply puts 95% of their assets into physical silver and gold, at a ratio of 50 oz. of silver to 1 oz. of gold, and they have the goods.

But in the event of total government melt down from hyperinflation, that would probably not be safe, so it's probably best to look at that only as a temporary solution until you can get physical, or look at CEF as a diversification.  If you have all your wealth in your IRA, stop contributing, or take some out early.

How do I avoid the VAT (value added tax) on silver in Europe?

The VAT is grossly unfair, and ranges as high as 17-20% on silver in Europe. 

CEF is also another way to avoid the VAT. 

Another way to avoid it is to buy government issued coinage, such as Eagles, Maples, Philharmonics, or Aussie coins.  However, those kinds of coins today are often far higher than a 17% premium, more like 25% or more, like they cost over here.

I sometimes retort that if people don't like paying such taxes, maybe they should consider a revolution.  We, here in America, had a revolution when the King of England dared levy us with a 1% tea tax, so I'm thankful that we won that war so that we would not have to pay such taxes. 

What about Capital gains TAXES?

Contrary to popular belief, a "investment guy" cannot advise you on taxes, it would be illegal for me to do so, despite all I know.  Only your tax attorney can answer your questions.  You see people like Suze Orman answering tax questions all the time, but that's a violation of the law, and I would NEVER advise anyone to violate the LAW, because if I did that, I could go to jail!

While I cannot talk about taxes, it remains perfectly legal to talk about philosophy and religion.

So, on a totally unrelated subject, let's think for a moment, philosophically speaking.

If a tree falls in the forest, and if nobody is around to hear it, does it have to file a 1040?  Of course it does, trees can fill out forms like anyone else, right?

The point is that some kinds of silver sales are non reportable events, and other kinds of silver sales are.  If you are buying almost any kind of paper silver through any major brokerage, it's generally a reportable event.  If you pay in physical cash, generally not reportable.

The Bible also speaks on taxes in many places.  Read the book of Judges, it uses the word "tribute".

Jesus was asked a trick question about taxes once, so that he would be damned if he answered it either way.  They asked, Should we pay taxes to Caesar or not?  If Jesus said, "no", he would be in trouble with Caesar.  If Jesus said "yes", he would be in violation of scripture, and not the Messiah. 

So Jesus gave a trick answer.  Jesus answered, and said, "Show me a coin" and then asked, "Whose image is on the coin?" They answered "Caesar."

Jesus then famously said, "Render Caesar's things to Caesar, and God's things to God." 

Many use that to say that Jesus said to pay taxes. 

But the question Jesus asked before his answer was not "Who does this coin belong to?"  For example, just because our $5 bill contains the image of Lincoln, nobody thinks the note belongs to Lincoln or the government, instead, we all know it belongs to the person holding it. 

The Bible is clear that God created the entire world, and thus, it all belongs to Him, all the gold and all the silver belong to God.  So, we are to give what belongs to God to God, that's the real answer to the question.

What is the proper allocation / HOW MUCH silver should I buy?

I had 20% of my assets in silver, as a protection to balance the risk of the silver stocks.  Eventually, that allocation rose to about 70% of my portfolio, because the stocks did so horribly.

Having silver, for me, was great insurance.  I would now recommend that people put as much into silver as they are comfortable with, up to nearly 100% of your assets, but not all, as, of course, you need cash to buy things.

If I just want to hold long term, when should I sell?

Right now, the era of cheap silver has been created by the fact that no nation on earth is using silver as money.  It might be wise then, to sell silver when most nations on earth return to using silver as money.

Another time to sell is if you can find any other asset for selling at a price that is basically "free".  Silver is free today, if you can find it in the form of silver dimes.  To make brand new 1/10th oz. silver pieces, would cost about $2 dollars per coin.  Dimes today cost about $1 per coin, which is less than the minting cost would be, and the silver itself was free.

For a long time, when silver was issued, the premium on silver coinage was 500%.  In the great depression, the U.S. government bought silver at 29 cents per ounce from the miners, and turned 1 troy oz. of silver into $1.40 worth of coinage, since $1 of coins contains .72 of an oz. of silver.  Thus, that would be like if the U.S. government was buying silver at $10/oz., and sold 1 ounce silver Eagles for $50 each!

The point is that when silver is money, the value is much, much higher.

Who could afford a 100 oz. bar when silver goes way up?

I'll say it again, another way.  When silver is much much higher, it's probably because its more likely to be used as money.  When something is used as money, a circulating medium of exchange, it's very easy to spend it, or trade it. 

Today, at the bottom of the silver market, there is often only one good bullion shop in any major city.  At the top of the silver market, perhaps 1 person in 50 will be a bullion trader, just like 1 person in 50 was a real estate professional in Florida during the top of the real estate market.

Thus, you will have much less trouble buying and selling silver at the top of the market, than today.

Is there a silver shortage?

There are at least two proofs of a silver shortage.

1.  They are no longer using silver in the currency.  Thus, that's proof that they have printed up too much currency, relative to the silver, so there is a shortage of silver compared to the money.  Whether people who have that fraudulent currency are currently wise enough to try to buy the limited silver available, or not, is a separate question, but it's an axiom, a fact, that there is not enough gold or silver at present prices in the event that people need protection from currency devaluation, and it's only a matter of time when that need becomes self evident to a large portion of the population.

2.  They have position limits on longs in the futures markets.  Thus, that's proof that they have issued too many short contracts to deliver silver, and they don't want to be held accountable to actually deliver all the silver they have promised.

A third big factor is that a lot of bullion traders survived the bear market in silver by dealing in silver while refusing to hold it, or by taking on a silver debt.  A silver debt can be "profitable" in a declining market, but leads to bankruptcy in a rising market.  That kind of business practice creates a shortage of silver for those entities who are short of silver, and that was standard practice of all the major banks, and many major mints and bullion traders in the last 40 years or more.

Silver bars remain available for sale because new silver is being produced each year.  The market is open enough and free enough, that people can buy these 1000 oz. bars, and prevent them from going to the banks who need them to honor their silver obligations.

How are silver prices manipulated?

Banks sell more silver than they have.  People who trust promises more than delivery have their potential silver demand diverted into paper promises, instead.  ETF's, Futures Contracts, Silver Certificates, Bullion on account, bullion on deposit, all of those are probably not backed by real silver.

But the biggest manipulation is paper money.  This diverts "demand" away from silver, into paper, all the same.

How long can they manipulate? / Can't they manipulate forever?

Manipulations break down when deliveries cannot be made, and when people lose faith in fraudulent currencies.   This is not a function of price, it's a function of running out of silver! 

Won't the CFTC stop the manipulation if there was one?

The CFTC is complicit.  They are a willing participant in the silver manipulation.  As a government agency, their job is to lend the "aura" of respectability to the game of government confiscation.  Their job is actually the opposite of what we think it should be.  Their job is to prevent longs from accumulating too much silver -- that's what they call manipulation. 

When there is too much paper money, the key problem is that any one of a thousand different billionaires, from Martha Stewart to the Olson Twins to Oprah Winfrey could buy up all the silver, and begin to destroy the value of the dollar by revealing the inflation of the currency that has already happened.  That, they would call, "manipulation".  I would call that freedom.  They, on the other hand, think freedom means the freedom to sell promises to deliver what does not exist. 

Won't high precious metals prices bring chaos to society?

High precious metals prices bring civility, not chaos. 

When precious metals prices are manipulated too low, that is the cause of the chaos we see today. 

When silver prices are too low, it destroys the mining industry.  The mining industry for gold and silver create by byproduct metals that modern civilization needs to thrive, such as copper, zinc, molybdenum, lead, and all sorts of other metals that are found as byproducts of all sorts of mines.

If very wealthy investors are not allowed to buy silver, they do other more dangerous things to the world economy, such as trying to corner the copper market which causes even more chaos with wild price fluctuations that destroy capital investments, and turn investors into gamblers who try to chase the latest investment fad, rather than getting down to productive enterprise.

Even worse, investors may try to corner the food markets and hoard excessive amounts of food, which can cause many other less well off people around the world to begin starving.

High precious metals prices increase the value of the existing stock of precious metals, and thus, create capital value.  And unlike paper money, silver and gold cannot be created to excess.

Thank you.

If you would like to get silver from a reliable source, please consider, where we are auctioning off silver 5 days a week, M-Th, and Sat, around 7PM Pacific.  Our reserve prices are currently $2.75/oz. over spot for 1 oz. rounds, and $2/oz. over spot for 100 oz. bars.

We are shipping the SAME DAY wires come in, so as to prevent any possibility of default to you, the customer.


    Jason Hommel

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    -- Posted 26 February, 2009 | | Discuss This Article - Comments:

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