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Lowlow

Why nobody bought in the 1990's ...

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10 minutes ago, Lowlow said:

Many don't know this, but silver was a primary ingredient in some camera films and a lot of silver was used for this purpose.

Just a small point but I thought silver was used in all photographic film. At it's peak, it accounted for 25% of the total worldwide production of nearly 1 billion T.Oz per annum.

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very informative, so whats the future for gold and silver in the next 5 years ,buy or sell now

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36 minutes ago, Lowlow said:

I was very involved in precious metals investing in the 1990's and thought it might be instructive to make a post about it for people who are younger, especially since I see some similarities between now and then that are worth mentioning.

So ... why didn't people buy in the 1990's when silver was trading around 6-7$us/oz, a price not seen since the 1950's, the same price you could have purchased silver for in the 1920's before the stock market crash ?  Didn't people know that was a cheap price ?  Why didn't people back the truck up and start loading comex bars on when the price was that low ?  How could they all be so stupid ?  Surely YOU would have been smarter, right ? :D

I was there, and I remember many of the myriad reasons why.

First, silver had been trending down for a LONG time.  Not unlike today, coming off of the highs of 2011 (7 year since), in the 1990's you were coming off of the highs of the stagflation of the 1980's which had seen an even higher price for silver than in 2011, except that to feel the full force of what it felt like then, imagine it is now 2028 and the price has dropped from approx 16.50$us down to 8$us, that is more of a parallel to the 1990's.  It had been 10 years from the highs in 1990, and by the time the decade was out it had been 20 years since the 1980 highs, a long time.

Second, as so often happens in markets, silver had to touch an unmistakable low before it recovered and started into a bull market.  Throughout the 1990's silver would head fake rallies and look like it was about to break higher only to turn right around and bounce along its lows, but near the end of what might be called a bear market silver started trending into even lower territory, 8$us/oz, 7.50$us/oz, 7$us/oz, etc ... down down down, and it shook everyone out of the market as it fell.

Third, people just gave up.  Even the biggest bulls in precious metals just finally capitulated and gave up as silver and gold broke new lows.  It had been 20 years of watching falling prices, and by the time the lows were put in stackers had had enough.  They had been tormented by tech investors who taunted them mercilessly, investors who were speculating in internet boom stocks and seeing 10, 20, 50% returns year over year in the Nasdaq, and as prices continued to bounce around going nowhere and then turned to new lows, precious metals investors were teetering on the edge of sanity.  They were yelling at each other whenever any newbie dared to say that silver or gold was going to rise in price, pointing out how they were sick of hearing about it, etc, times were tough.

Fourth, and this is REALLY IMPORTANT TO KEEP IN MIND, people understood the percentages.  You think, how could someone NOT buy silver at 8$us ?  Think about that, really think about it.  At 8$us, if silver drops 5% you're at 7.60$us/oz.  If you lose another 5% you're at 7.22$us/oz.  If you lose another 5% you're at 6.85$us/oz.  If you lose another 5% you're at 6.50$us/oz.  If you lose another 5% you're at 6.17$us/oz.  Etc.  PEOPLE WERE SICK OF LOSING MONEY.  No matter what the price was, there was always the possibility of losing another 5%, and that had happened over and over and over to people.  Even at what you perceive to be the lows, nobody had any assurance it wasn't going to go even lower, and there was a feeling in the air that you could lose 5% every 6 months FOREVER and never actually reach zero.

Fifth, the opportunity costs.  THIS was also REALLY important because it was an argument a lot of people used.  Yes, they said, silver can't stay cheap forever, but it can stay cheap for a LONG time.  It had already been 10+ years from the 1980 high as the 1990's began, and by the end of the 1990's it had been 20 years.  Imagine what market psychology would be like if we trade out to 2028 and silver is back down around 8$us/oz and has been trading down and sideways for another decade.  There are so many other things that you could have invested in during that time, so many other opportunities that you could have taken advantage of with your money, and the argument that was in the air was that investing in silver and gold was just dead money, that it was just sitting there, doing nothing, and that while it was sitting there you weren't even beating inflation, much less making money in the bull market in equities like "everyone else".

Sixth, related to the last one, was you weren't making any interest on your silver and gold.  It truly was a place to park money, dead money, it was just sitting there, not just sitting there but sitting there LOSING MONEY vs inflation (as the 1990's came to a close and the price trended even lower).  Even bonds were paying a few percent, but gold and silver ? Nothing.  Zero.  Zilch.  Even the most basic investing books talk about the magic of compound interest, and gold and silver were not even giving you that.

Seventh, silver had established a range.  There were highs that it simply would not break through.  Every time it got close it would bounce off of those highs and plummet again towards its lows.  It did this so many times that many investors were convinced that it would do this forever, that the best they could ever hope for was to hold until the highs, sell, and buy again at a lower part of the range.  This bit of market psychology took hold and was in people's minds, it became a rule of thumb for traders, and that made it self-reinforcing.

Eighth, it wasn't just gold and silver.  Commodities in general were bouncing around near their lows, oil especially.  There was no reason to think that gold and silver would take off when oil was languishing, and when the FED in the U.S. was lowering rates.  Don't fight the fed, that's what everyone said, and the word was that the FED intended to keep prices down to spur on economic growth for eternity, and that this would always keep commodity prices low.  By the late 1990's, oil was trading at under 20$us/barrel, and there was no fundamental reason to think the price would go up.

Ninth, then, as today, were people talking about how silver and gold were industrial metals and not investment metals, that the age of silver and gold as money had passed.  Many people, even in the 1990's, believed this.  This combined with the usual cast of characters ... anarchists, hard money advocates, preppers (called survivalists then), etc, constantly talking about nuclear war, living through solar flares on nothing but the pallet full of corn flakes they had stored away, etc, gold and silver was seen even then as a historical anachronism, a relic of the past that was no longer needed except for making solar panels, etc.  Then, as now, people said that the age of hard money was over, that we had matured as a species beyond the need for such protection, and that fiat currency had won.  The belief, even then, was that deficits and the national debt was too high and that it would all come crashing down ... but that it hadn't, and as long as it didn't, it wouldn't, it is a self-reinforcing mindset.

Tenth, related to all of the above, the technicals for gold and silver were horrible.  People were constantly throwing charts up showing gold and silver trending down, banging its head on trend lines, trading to new lows, etc.  None of the charts looked good, it all looked like it was consolidating into a trading pattern and that it would trade lower to eternity.  Even on the rare occasion it broke out, it would be a head fake and fall again.  It was hard to make a case using charts that precious metals would ever recover.

Eleventh, miners were going out of business left and right.  You might think this would cause people to believe that the price was going to then go up because of scarcity, and some people made that argument, but many did not.  Many investors saw this as proof positive that the price was never going to recover, that the banks weren't supporting the miners, that miners would only mine silver as a consequence of mining other materials, etc.  This one isn't as clear cut because there were people on both sides of this issue, but many people felt this was a negative indicator for the future price and a lot of arguing and back and forth was centered around this issue.

Twelfth, bank selling.  Throughout the 1990's banks were selling gold.  There were constant rumors that banks were suppressing the price of silver and gold and that they were selling their gold inventories to keep the price down.  Hardly a month went by that some bank wasn't making an announcement about selling a tonne here or there, and it was a constant string of this kind of bad news that weighed on the minds of gold and silver investors who were convinced that the banks had it out for them.

Thirteenth, related to miners going out of business was the supply demand argument, and MANY investors were concerned that one of the primary uses of silver was up until then had been its use in polaroid film was falling off because of the invention of digital cameras.  Many don't know this, but silver was a primary ingredient in some camera films and a lot of silver was used for this purpose.  This argument went further and said that the demand for silver was not growing as fast as the supply, and it was related to this bank selling, people were of a mindset that even when demand was high that the banks had enough silver in the vaults to sell to cover any shortfalls.  Whether this was true or not, many investors talked about it and believed it.

So how did investors miss such a great buying opportunity when gold and silver were at historic lows in the 1990's ?  You almost had to be there and suffer through it to understand, but hopefully some of the above lets you have a little taste of what it was like.  I'm sure I could write another 10 reasons in addition to the above for why it sucked so bad, but I think you get the idea, it sucked pretty bad.  Stackers and bugs have never had an easy time of it - when its at its lows, everyone says you're a conspiracy crazy, and when its at its highs you're a hoarder, you really just can't win.  But there were a lot of seemingly legitimate reasons to be concerned in the 1990's.  Most investors DID feel that at some point the price would go north and people would be rewarded, but they had no idea when that would be, and it was horrible waiting for it.  Even when gold and silver eventually started to move, a lot of investors weren't convinced, even people who were actually holding gold and silver, many thought it was just another head fake.

All of that said ... the one thing you never see in a 2000 year history of gold and silver ?  You never see gold and silver worth nothing, and investors knew that then as they do now.

 

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This was a very good read and gives a nice picture of what to expect potentially over the next few years in silver, thank you for posting. Was it the same picture for gold or did the investment story remain the same throughout. I ask because you mention the end of one of the main industrial uses of silver during this period which would have been a major headwind to the industrial investment case and quite a 'writing is on the wall' sort of input during a falling price environment. Must have been tough. Did gold have the same sentiment or were people switching from one metal to another? You see a fair bit of that now.  

Platinum was worth more than gold per ounce at that point - were the PGM's considered for investment or was it just gold/silver based on the monetary case?

Checking the charts palladium went parabolic/did-a-bitcoin in 1999-2001 was that related to the switch from gold to palladium/silver alloy in electronics - tied in with the tech bubble nonsense or was it something else?

Edited by KDave

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What needs to be born in mind is the authorities have been suppressing price for decades. Price would start to break out and get smacked down again and again and again.

As you point out they used to do this by selling physical. The IMF sold gold, the BoE sold gold, i suspect the US Treasury has no US gold, they could not give the German gold back - they still haven't given the gold supposedly in the UK and US back to the Germans. Canada has sold all the gold. The same selling of silver went on, you can get silver bars made from silver out of the US stockpile - sold to suppress price. Eventually they ran out of physical in quantities sufficient to manage price so they invented the paper market. Now they hose in 100's of tonnes of paper gold and silver to suppress price. They don't have the physical so they must use imaginary metal.

This could have gone on forever or at least a long time but in stepped China and Russia. Russia does not get spoken of much but it looks like they have more gold than China. The dynamic duo have by my reckoning something like 70 000 tonnes of gold. We know Russia is stockpiling silver - we see it sitting by the gold in the videos.

We are now seeing the Petro-Yuan which is convertible into gold. The oil market is worth $trillions - doesn't need much to go into metals.

So the price manipulators have run out of most of the physical gold. They have been able to keep going longer by stealing gold of course - we can say they stole the German gold. They have stolen gold in Iraq, the Ukraine, in Libya. Then there is the gold they hold for 'safe keeping' for other nations - this will have been stolen. This will have been leased and rehypothecated to infinity. We know they are selling gold they hold b/c the Germans never got any of the original bars back.

i am aware that Goldman Sachs is building up physical gold. JP Morgan has what some say is the largest stack of silver in the world. They are not doing this for fun. Is it to cover shorts they have? Do they know something? They will know something of course.

i have mentioned the Exchange for Physical contracts which are ramping up incredibly - i only use incredible when it actually means unbelievable. We have what amounts to a year's silver mining production of EFP's have gone from COMEX to London so far this year - this amount of physical is standing for delivery. The number of holders of long position who want their physical is going off the charts - the COMEX does not have the metal and it goes to be settled in the opaque over the counter London market. We do not know at what price or if physical is actually handed over. If there were a stockpile of silver somewhere and these EFP's are not getting bought off for cash, that stockpile must be getting low. This must be costing someone - the silver won't be available at the current spot price.

Whatever slight of hand, whatever criminality is going on, with this massive demand for physical something has to give. Yes we have heard people say silver is going to run out blah blah and the silver price will go to the Moon blah blah. In the past we did not have these factors in play. We did not have falling mining output, high demand in industry and now entities demanding huge tonnes of physical when at the same time the market manipulators don't have their slush fund of physical b/c they gave that away quite a long time ago.

i have not gone into the Kinesis currency and how this will suck up tonnes of metal - it kicks off in October, so physical will be bought this summer.  Irrespective of those running Kinesis being hell bent on breaking the paper market, it is only a matter of time and with the volume of EFP's going through, there isn't much time left before we get wholesale defaults and then the dam will burst.

Studying history can tell us about potential future events - studying the history of precious metal price manipulation tells us they used physical to suppress price and then the physical ran out; so they used paper and phony ETF's like SLV and GLD. The explosion in EFP contracts tells us big money is done with these paper con tricks - they want the real stuff. i feel confident this is coming to a head.

Edited by sixgun

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Good read, my experience.

I was around at the that time, silver had a rotten time.  Those who were in (and they were few in numbers) were in on Gold. Gold was cheap enough even with VAT, then without.  I even bought gold from the bank at just above spot, yeah coins they were glad to get rid of them.

They used to sell Silver coins in big bags on trays at Auctions .    

 

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All good stuff. 

Everyone likes to think that they're smart enough to buy a bargain and sit on it until it becomes fully valued, but the reality is that even if you are able to recognise something is a bargain very few people have the conviction to buy and continue buying while everything else is going up and then have the bottle to not sell it all just as the party is getting going.

this is true of any market, not just silver. when a market has been so beaten down for so long people just aren't interested and will find any reason to avoid it.

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Looking at prices in the 90s till now

Gold you might have have 5xs your money if you bought then and held till now

Silver 4xs if you managed to buy very close to spot, unless you sold everything in 2011 and then maybe 6xs

Whilst the above is better than cash in the bank, as an investment it's not exactly awe inspiring

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4 hours ago, Thelonerangershorse said:

Don't forget hospital x-ray films which have now also gone digital, they used tons/year

I used to work in the printing industry and before that went digital we used film and bromide paper with silver emulsion. Buyers used to come around every few months and buy our old developing chemicals to recover the silver from. This was large format stuff with film as big as 8 A4 sheets of paper. Must have used tons there too, all gone now.

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33 minutes ago, Kman said:

Looking at prices in the 90s till now

Gold you might have have 5xs your money if you bought then and held till now

Silver 4xs if you managed to buy very close to spot, unless you sold everything in 2011 and then maybe 6xs

Whilst the above is better than cash in the bank, as an investment it's not exactly awe inspiring

Interesting points there.

I would be interested to see what wages and cost of living have done in that time - I would not be surprised if its 5 times where it was. 

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The more things change the more they stay the same.. I've been trying to drum up some interest for commodities and you'd think that on a silver forum there would be some enthusiasm for this, but most people only see the pain of the previous 10-20 years. Being a contrarian investor is by definition getting excited about something that nobody else could give a fig about.

Edited by vand

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