The price of silver went up by a lot today, and the premiums for physical silver went up even more. Anyone buying physical silver at the moment are paying a whopping 30% above the spot price, which means that they will have a guaranteed 25% loss if they turn around immediately to sell their physical silver back to the dealer. Premiums for gold are closer to 5% at the moment, which is the norm for both gold and silver coins, so the current premiums in silver are excessive. However, even under normal circumstances, buyers face the prospect of significant loss on their purchase if they have to return their stash to the dealer. No wonder then that people hesitate to buy physical metals. It cannot be traded. It must be held for months or years before a reasonable profit can be made.
However, there are some ways around this that few seem to realize. We don't have to return our gold or silver to the dealer if we can sell it to friends and relatives, or we can borrow cash with our stash as security. This requires a general awareness among our friends about the true value of gold and silver, and it requires them to be in a healthy financial position. Our network needs to have a reasonable net worth. But apart from this, no special goodwill or trust is required. If our friends agree to buy our stash for a price above spot, it's a straight forward deal with no debt involved, and if we borrow from our friends with 100% security, there's no risk of default. If we don't repay our debt, our friends retain the security.
If done correctly within a circle of relatives and friends, gold and silver can be kept in circulation inside our network for decades without any need of a dealer. Premiums are only paid to dealers when there's a need or desire to add to our stash beyond what's available inside our network, or there's a need or desire to lower our total exposure to the metals.
I've done this with success over the last ten years, so I know that it works as it should, and I expect it to work well for me and my loved ones into the future. I have lent money to friends with security in their gold, and I've bought gold from my son when he needed money for an apartment. Going forward, I see things continuing along the following lines:
Instead of putting money into saving accounts with banks, family and friends buy physical gold, either from dealers or from individuals inside their network. They add to their stash until they are ready to make a major investment. Since they cannot borrow money in a bank with precious metals as security, they turn to their network for help. Someone with access to credit in a bank steps up and proposes a deal: "Let me hold your stash, and I'll lend you X amount of cash at Y% interest." This individual is able to get credit from the bank for a little under Y%, and will therefore make a small profit. The borrower has had the advantage of better return on the metal than would have been possible in a savings account, so the deal is tolerable, especially because the stash remains inside our network so no premium is lost. The stash is returned to the borrower in predetermined portions with every repayment.
No-one runs any risk with such a scheme, and everybody gains because banks cannot exploit us with their sub-par savings accounts, and metal brokers cannot make money on what's circulating inside our network. The scheme encourages prudent investment and savings habits, and renders everyone better off over time.
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By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link
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