It sounds BAD… but it can be VERY good …
As we write, silver is soaring … from $18 to $23 (a 27% gain) in just a few days.
Equity happens … in metals too!
We’ve been talking about precious metals for years. Watching metals is one of the important lessons from the 2008 crisis.
What do rising silver prices mean to real estate investors?
First, silver and gold are important financial system gauges … providing valuable clues about the future of money and wealth.
Precious metals are considered attractive alternatives to dollars in the bank … and to equity in real estate as vehicles to store wealth.
Precious metals tend to combine the best features of both cash and real estate equity. There’s a LOT more to say on this, but we’ll save it for another day.
For now, remember real estate equity is illiquid … exposed to creditors and predators … and hard to protect in a foreclosure.
Meanwhile, dollars have a long history of losing value. It’s a big reason why equity happens and leveraged real estate is a great investment.
Of course, converting real estate equity and dollars into precious metals mitigates many of these risks. And done right, this strategy can significantly outgrow inflation and help you build resilient wealth.
This is a hot topic right now, so we’re preparing a tutorial on it. To be notified when it’s ready, email [email protected].
Meanwhile, back to the clues in the news and soaring silver prices …
Gold and silver are considered “monetary” metals. They’re money.
Many people confuse “money” with “currency” because they used to be one and the same.
But money and currency are divorced now. Strategies which worked when they were married don’t work so well today.
The lesson is … when fundamental parts of the financial system change, strategies, and tactics should be updated.
Right now, rising silver prices could be foreshadowing a fundamental shift we’ve been watching for.
Gold’s already there, which makes silver’s move noteworthy because …
Gold and silver are similar … but different.
It’s kind of like the penthouse and the warehouse.
While gold gets to prance around at the “monetary metal” ball … hobnobbing with central banks and uber-rich investors …
… silver is often relegated to working-class status as an “industrial metal”.
This is because silver is cheaper than gold and is an essential component in many products, including solar panels and cell phones.
So while gold finds its way into fancy jewelry and safe deposit boxes … silver ends up conducting electrical current before being buried in a landfill.
But sometimes Cinderella silver gets invited to the monetary ball. And it looks like it just happened.
It’s a safe bet industry is suppressed. Lock-downs do that. So the big spike in silver probably isn’t due to industrial demand.
Of course, we’re not precious metals experts, but we know several.
One of our favorite commentators monitors an esoteric metric which helps distinguish paper trading from physical demand. It’s an important distinction we’ll delve into shortly.
In a recent article, Keith Weiner writes …
“… the [silver] buying which drove the price up so much was … buying of physical metal.”
What does this mean and why does it matter?
Seems to us if physical demand is up, and it’s not from industrial demand, then it may be silver is now on the MONETARY metal bandwagon.
That is, people and institutions could be buying silver to stack in their safes.
Of course, gold’s surge supports this. Gold is quickly approaching the all-time high last reached in 2011.
As we noted then, central banks bought physical gold in record amounts in 2019. As the ultimate currency insiders, maybe they knew something?
In any case, it seems today more people are trading in dollars for gold.
If true, you’d expect dollar weakness … and along comes this Reuters headline …
Here’s the concern … something we’ve watched for a while …
This “exorbitant privilege” creates huge demand for dollars all over the world.
So although those newbie dollars might be Made in the USA (who says we don’t make anything?) …
… but they’re funneled around the globe through federal spending on military, foreign aid, international loans, and a host of the things.
Even those stimulus dollars deposited directly into citizens’ checkbooks find their way to China … as consumers buy Chinese stuff from Wal-Mart and Amazon. U.S. trade deficits funnel dollars overseas.
This means Americans don’t feel the full devaluation of their dollars … the rest of the world soaks up much of the excess.
But consider this …
If sending dollars overseas suppresses domestic inflation, what happens if (when) those excess dollars come back?
Rising gold prices … and now soaring silver prices combined with physical demand … could be indicators of a growing migration out of dollars.
This is a big deal when set against the backdrop of unprecedented Fed printing … and public officials’ denials. Pay no attention to that man behind the curtain!
In 2008, we were told the sub-prime problem was contained … how’d that work out?
‘We want a stable dollar,’ says U.S. Treasury Secretary Mnuchin: ‘It is the reserve currency of the world and we’re going to protect that’
– MarketWatch, 7/23/20
Here’s the problem …
The way we understand it, to save a struggling financial system, the Fed MUST create MANY TRILLIONS of fresh dollars … more than ever.
Those new dollars buy bonds to suppress interest rates … another topic we’ve addressed before.
Of course, as long as enough people trust and accept all these brand-new dollars, it’s business as usual.
BUT if dollar-holders revolt, then a lot of SHIFT HAPPENS …
Interest rates could rise. When lenders think they’ll get paid back with highly depreciated dollars, they’ll demand compensation.
Are you prepared for the possibility of spiking interest rates?
Credit markets could implode. Think 2008 on steroids. Rising rates are kryptonite to the mighty-but-leveraged balance sheets of nearly every financial player.
Are you prepared for a world without cheap and abundant credit?
Commodity and energy prices could rise faster from inflation than they drop from depreciation based on depressed demand.
Are you prepared for tenants to have more of their income consumed by food and energy?
We’re not saying all of this will happen … maybe none of it will. But there are rational reasons to think it could.
As we often say …
“Better to be prepared and not have a crisis, than to have a crisis and not be prepared.”
Except this time, a crisis isn’t a “maybe”. It’s here … moving methodically through a progression of crises aimed at a currency crisis.
Ironically, the Fed’s attempts to stop it could cause it. Peter Schiff has been warning of this for years. Now we’re here.
Of course, we certainly don’t have all the answers. But we’re paying attention and working hard to stay ahead of it.
And it’s not all bad.
In fact, there should be a lot of opportunity. We’re sad for those who get blind-sided but excited for those of us who are aware and prepared.
Quality properties will likely be available at great bargains … IF you’re in a position to purchase them.
Many affluent folks could be looking for syndicators to help them move money out of Wall Street onto Main Street.
The landscape for syndication just got better.
NOW is the time to prepare for these possibilities. But it may require thinking outside the box you’ve been in for the last decade.
The world is changing in BIG ways … and very fast. Your investing strategy and tactics probably need to change too.
So stay tuned … and we’ll keep the ideas and insights coming.