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The ongoing silver squeeze has been 2021’s seminal event for precious metal stackers and hard asset investors alike.  But what exactly is a silver squeeze?  Where did it come from and where is it going?  The Antique Sage will answer all these questions and more, so read on!

Oddly enough, 2021’s silver squeeze saga all began with GameStop (ticker: GME) – a U.S.-based brick-and-mortar retailer that specializes in selling gaming consoles, video games and peripherals.  The firm’s physical retail-centric business model is in terminal decline as the video gaming industry slowly but inexorably moves to an online digital distribution system.  As a result, Gamestop’s physical sales have been slowly drying up as time goes by.

I consider companies in this predicament to be in “run-off mode”.

If GameStop’s management was honest, they would be distributing almost all of the company’s earnings as dividends.  Shareholders would have to hope that they could collect enough dividends to recover their original investment before the firm goes to corporate heaven.  Of course, in reality GameStop’s management is hoarding its earnings so that they can extend the life of the (almost certainly) doomed company.  It is effectively a make-work program for C-suite executives.

I mention this because a Reddit message board populated by Millennials called Wall Street Bets recently engineered a spectacular short-squeeze in GME stock.  A short-squeeze is where buyers pile into a stock that has been heavily shorted (in the expectation of its impending bankruptcy), forcing those shorts to cover (buy-back stock) and thus driving the price skywards.

In a rational market, GME would be worth $2 or $3 a share as investors wait to see if management can (improbably) save the company from bankruptcy.  But the short squeeze was so intense that the stock momentarily reached a 52-week high of $483!  Proponents of the strategy considered it vindication for the little guy, as retail investors (theoretically) stuck hedge funds and other sophisticated speculators with massive losses.

 

 

A portion of the Reddit crowd decided to apply the same logic to silver and spontaneously self-organized under the banner of “Wall Street Silver“.  These silver fanatics refer to themselves as “apes” or “silver-back gorillas”.  They commonly declare that they have “diamond hands” (i.e. they’ll never sell).  And they love to post hilarious memes about stacking silver.

As strange as it might sound to more traditional investors, the Wall Street Silver crowd’s strategy is simple.

Persistent rumors have circulated for years that a cabal of large Wall Street investment banks has suppressed the price of silver by shorting huge quantities of the metal on the paper futures market.  If a coordinated silver squeeze were to force these investment banks to cover their shorts en masse, the price of the precious metal would theoretically explode higher.

That’s the theory anyway.

No one knows exactly how high silver could go in the event of a successful silver squeeze.  On the low end numbers range from $50 to $100 an ounce.  But some hardcore stacking enthusiasts speculate about $500 or even $1,000 an ounce silver.  In any case, if you owned the physical metal under these circumstances, you would instantly become rich (or at least much better off financially than you are right now).

Well, Wall Street Silver members put this radical idea into practice (sort of) in early 2021.  Adherents to the cause began to buy silver in whatever quantities they could afford.  Those of modest means bought a little, while those with fat bank accounts bought a lot.  On Thursday, January 28th (before the silver squeeze got underway) London’s silver market closed at $25.21 a troy ounce.  On Friday, January 29th, it closed at $27.42.  On Monday, February 1st, it popped to $29.59.

And that’s where things started going sideways.  Instead of the silver spot price continuing to rocket skyward, it gradually fell back into the mid $20 range over the course of the next several weeks.  This definitely wasn’t a repeat of the GameStop scenario.

However, all those physical silver buyers taking part in the silver squeeze did have an effect.  Although the paper futures market hardly blinked, the physical silver market experienced a severe shortage.  Precious metal dealers sold out of most silver products almost instantly.  And despite refineries’ and mints’ concerted efforts to keep the proverbial shelves stocked, they simply cannot fabricate retail products fast enough to meet the burgeoning demand.

Consequently, the silver squeeze is very real, but only for the sorts of products that small investors like: silver bars, government-issued coins and privately-minted rounds ranging from 1 to 100 troy ounces in weight.

 

Pre-1965 U.S. Junk 90% Silver Coins for Sale on eBay

(This is an affiliate link for which I may be compensated)

 

My personal silver scrapping story starts just a bit earlier than the 2021 silver squeeze drama, though.  Back when the COVID-19 pandemic hit in March 2020, the spot price of silver momentarily plunged to less than $12 an ounce.  However, it was impossible to buy physical silver bullion anywhere near that price at the time.

As the bullion supply shortage began to ease going into early summer 2020, I resolved to add some silver to my portfolio.  But I am always cost conscious and wanted to invest in the most cost effective way possible.  I targeted two different strategies: buying pre-1967 Canadian junk 80% silver coins for stacking and vintage sterling silver flatware for scrapping.

Throughout my antiquing career, I haven’t been shy about scrapping precious metal items that are damaged or don’t measure up to my standards.  This has mostly been confined to 20th century sterling flatware patterns from U.S. manufacturers – largely incomplete sets with monograms, random souvenir spoons or other orphan pieces.

American sterling silver flatware design went downhill during the 1930s and the 1940s.  I attribute this to the rise of stainless steel as a cheap, versatile alternative to sterling silver.  Silverware manufacturers began designing flatware patterns for stainless first and sterling second – or, to be more precise, they made patterns that would work in either metal in order to save money on design and tooling costs.

But stainless is a very tough material that doesn’t conform well to stamping, so stainless flatware designs must be in low relief with relatively spare details.  Unfortunately, this negates silver’s primary advantage of being wonderfully malleable, which means it takes complex, high relief designs well.

As a result, mid 20th century silverware patterns can be…well…boring, particularly when compared to their wonderfully ornate Victorian and Art Nouveau counterparts.

When I buy scrap silver I am very careful to salvage anything truly rare or worthwhile.  The silver pieces I scrap aren’t cultural treasures that will be missed – I’m not trashing 18th century Georgian silver here!  And yet, I still have a twinge of guilt when shipping material off to the refiners.  I am keenly aware that I’m consigning these silver items to be melted down and lost forever.  While this does leave me a little emotionally bifurcated, the fat check I receive in return will have to console me.

I chose to start accumulating scrap sterling silver in the summer of 2020 for one very good reason: it was the absolute cheapest silver around by a wide margin!  As the price of silver rose to the high $20s in late summer, I bought every sterling silver spoon, fork and knife I could find with a melt value below $22 an ounce.

 

 

And here’s the surprising thing – I found quite a bit of it.  According to the efficient market hypothesis this shouldn’t be possible, as any rational person would price the items they sell online at or above melt value.

And yet here I was buying scrap silver with both fists on platforms like eBay and Etsy for significantly below spot.  For example, I purchased a set of vintage Gorham sterling silver butter knives in the Camellia pattern at -32% under spot.  In another instance, I bought a lot of random Lunt sterling flatware for -58% below spot.  One of my biggest coups was buying $100 face value (5 pounds or 2.2 kilos!) of pre-1967 Canadian junk 80% silver quarters for -33% under spot.  I didn’t even bother to melt these coins, but instead added them directly to my silver stack.

Throughout my investing career I’ve repeatedly found the concept of efficient markets to be bullshit.  The (highly abridged) list of deals I’ve enumerated above is proof of that.  Even after accounting for shipping charges, refining fees and sales tax, I was still ahead of the silver squeeze wave.

So I bought…and then I bought some more.  In the end I acquired over 16 pounds (7.3 kilos) of scrap silver.  My original plan was to ship this off to be refined immediately.  But the 2021 silver squeeze has raised the fabrication fees most refiners charge.  This is the cost to have your silver turned into bars or rounds and is only charged if you want physical silver returned to you rather than a check.

Because I want physical silver in exchange for my scrap, I have resolved to wait until fabrication fees become more reasonable.  Luckily, this is easy to do with close to zero risk.  I simply have to sit on my hoard of scrap silver until the situation normalizes, content in the knowledge that the money I’ve invested is immune to the ravages of inflation.

If you’re a silver squeeze enthusiast who is interested in trying out silver scrapping for yourself, I have a few pointers.

First, stay away from silver plated items – they have no precious metal scrap value!  If you don’t know the difference between solid silver and silver plate, then you are in over your head.

Second, just because a piece of silver flatware is marked sterling, it doesn’t mean that it is exactly 92.5% fine (which is the theoretical standard for sterling silver).  Back in the late 19th and early 20th century, large-scale silverware manufacturers had a lot of incentive to cheat on the assay.  When a silver item is being mass-produced, a 1% or 2% drop in the purity will pad out the manufacturer’s profit margins nicely while being impossible to distinguish by the retail customer.

As a result, I always assume that “sterling” silver is actually 90% fine for scrap purposes.  This applies to other silver flatware and hollowware purities as well.  So I treat 90% coin silver as if it was 87% fine and 83% silver (which used to be popular in Scandinavia) as 80% fine.  British hallmarked sterling items are an exception to this rule because the government rigorously enforced their assay standards.  Silversmiths who broke these hallmarking laws suffered harsh penalties.

Old (1960s and earlier) circulated silver coins struck by national governments will generally adhere pretty closely to their stated purity as well.  But I still deduct 1% from old silver coins to account for dirt, tarnish and the fact that most silver alloys are not perfectly homogenous.  A sheet of silver used to fabricate coin blanks might nominally be 90% pure, but that doesn’t mean the alloy was evenly distributed within the sheet.  As a result, a silver coin punched out of one end of the sheet may end up being 89% fine, while another coin struck from the other end of the same sheet may be 91% fine.  This issue is more pronounced when dealing with very old (pre-1900) coinage struck by less technologically advanced national mints (i.e. those from Latin America, South Asia and the Middle East).

Third, expect to only receive around a 90% payout (at most) on the actual silver content of the items you send to the refiner.  The refiner needs to make a profit and it is tough for them to make money if they charge less than about 10%.  So if a sterling silver spoon assays at 90% fine and you receive (at best) 90% of that, it means your payout will be 90% x 90% = 81% of the gross weight.

 

Scrap Sterling Silver Flatware Lots for Sale on eBay

(This is an affiliate link for which I may be compensated)

 

A refiner’s fee is also impacted by the amount of scrap material you send them.  A small lot of 10 troy ounces of silver scrap will generally be charged a much higher refining fee than an industrial-sized lot of 1,000 ounces of scrap.  So the more scrap you can send to a refiner at once, the better.  Each refiner has its own fee break-point policy, so be sure to check out their terms first.

Make sure that the overall assay of your lot is better than 75% or 80% fine.  Most refiners charge a higher fee if the total assay comes out lower than this amount (although the exact cut-off varies by individual refiner).  This is because it requires more chemicals and time to refine lower purity silver, driving up costs.

This is one reason I avoid buying U.S. silver war nickels (which are 35% fine) or U.S. silver-clad Kennedy halves (which are 40% fine).  If you ever have to send a bag of these coins off to the refiner, you will pay dearly in refining charges.

However, it should be alright to judiciously mix a few lower purity coins into a large lot of higher grade sterling silver, provided the overall assay remains above the magical 75% to 80% cut-off.  Many nations historically struck lower-purity silver coins that can be disposed of in this way.  For example, the Netherlands, Mexico and Austria have all struck 720 fine coins in the past, while Great Britain, Canada, Australia and South Africa minted 500 fine coins at one time or another.

Also make certain that your silver lot has been thoroughly stripped of any iron or lead contamination if at all possible.  Iron is poison to precious metal refining and will foul the assay of both silver and gold.  If it makes it into the initial melt it will float to the surface as a semi-solid slag, but will trap a lot of precious metals with it.  This will lower your final assay results considerably.

I recommend using a magnet to screen for iron in your scrap.  Old knives with silver-plated steel blades and sterling handles are a common trap for new scrappers.  These have to be dissembled before they can be sent to the refinery.  Worse yet, only 25% to 30% of the gross weight of an average steel-blade, silver handle knife will be good sterling.

Lead is a less damaging contaminant than iron, but has a special affinity with both gold and silver.  As a result it makes the purification process of silver alloys more complicated than it would be otherwise.  Happily, you won’t usually find lead mixed in with silver items (although it can occur where soft-solder was inappropriately used for jewelry or hollowware repairs).

As a final warning, if you hope to make a profit with scrap silver you must buy it substantially below spot.  -20% below spot is a good starting target.  Even when buying scrap that cheaply, it still only implies a meager 5% to 10% net profit margin after shipping costs, sales taxes and refining fees.

In addition, most of the really cheap (i.e. sub-$20 an ounce) silver flatware that used to be available online is gone.  I should know, I bought much of it.  But even if Etsy and eBay aren’t great venues for picking up cheap silver scrap right now, garage sales, estate sales and thrift stores remain viable sources of cheap material for the adventurous silver squeeze investor.

 

Read more thought-provoking Antique Sage editorial articles here.

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Political risk is the single biggest danger that stock market investors face today.  And although this chimera has been steadily growing for year after year, it receives curiously little attention in the financial press.

What is political risk in the context of investing?

Simply put, it is the possibility that politicians will institute new rules, taxes or regulations that significantly reduce the value of publicly traded securities.  And while it might be impossible to imagine the newly installed Biden administration taking any substantive steps toward disinheriting our current corporate overlords, I assure you that if the economy continues to fail the average person, a different, more economically populist administration will eventually be voted into office.

But why has political risk gotten so little recognition even as it looms gray and monstrous on the investment horizon?

I think we can all hazard a reasonable guess as to why financial media outlets such as CNBC, Bloomberg and the Wall Street Journal don’t want to have a serious discussion about political risk.

It spooks the muppets.

For those of you not up on the latest stock market lingo, muppet is a derisive term for a neophyte or unknowledgeable investor.  It seems to have originated in the halls of that deeply corrupt institution, Goldman Sachs, where executives would often use it to refer to oblivious clients the company was secretly trading against.

In any case, you don’t want to be a muppet.  Muppets involuntarily transfer their wealth to too-big-too-fail banks and other financial monopolists.  Muppets are cannon fodder for hedge funds, investment banks, professional day-traders and other sophisticated financial players.  Muppets perennially lose money.

Stock market participants, muppets included, are largely ignoring the gargantuan political risks that are steadily building in our economy.  And that’s exactly why I want to talk about it.

Before we get started, I want to clarify that there are ultimately only a handful of ways to recover your money after investing in a stock:

 

1) You can sell your shares to someone else for cash.

2) The company can pay out dividends from earnings.  Although it usually takes a considerable period of time, eventually you can recoup your initial investment.  Any dividends paid out after your breakeven point is reached become a gain.

3) The company can be acquired by another company, which will pay via cash, shares or a combination of the two.  If the acquiring company pays with cash, then you have crystallized your gains and truly gotten your money back.

But if the acquiring company pays either partially or fully via shares, then you really haven’t gotten all your money back yet.  Instead, you’re left holding at least some shares in the new, acquiring company.  In this case, refer back to items 1 through 3 to recover the rest of your money.

4) The company can be taken private.  This is a lot like an acquisition by another company, except that the buyout is usually conducted by either a private equity firm or management.  These are always paid in cash which is generally funded by debt.  As a result, these acquisitions often go by the term “leveraged buyout”.

A major limitation on taking a company private is size; it simply isn’t viable beyond a certain market cap.  The largest such privatization in history to date was the utility firm TXU energy, which was swallowed up by a leveraged buyout in 2007 for the sum of $32.1 billion.  This might seem like a huge amount of money, but many, many firms that are household names are far too large to benefit from leveraged buyouts.  For example, Walmart (market cap of $394 billion), PayPal ($283 billion), Nike ($214 billion), PepsiCo ($189 billion) and countless other well-known companies are much too large to be taken private.

In addition, market conditions must be just right (read: frothy) for most leveraged buyouts to occur.  It is no coincidence that 7 out of the 10 of the biggest leveraged buyouts happened during the 2006-2007 timeframe (right around the peak of the housing bubble).

5) The company can voluntarily decide to cease operations and liquidate its assets.  The proceeds must first be used to pay off any outstanding financial obligations (bonds, leases, salaries and pensions, etc.) before the remainder can be equally distributed to shareholders.  In reality, voluntary liquidations never happen.  As a rule, the management of a company will never willingly liquidate their firm as doing so would put them all out of a job.

Instead, almost all companies end their days with an involuntary bankruptcy filing once their financial condition deteriorates sufficiently.  In this case shares end up being worthless.

 

So it should be clear from our above list that there are only a precious few ways to recoup an investment in common stock once you make it.  And that finite number of possibilities shrinks even further when we strip out voluntary liquidations, which almost never happen.  I would also like to note that selling your shares to someone else is only really viable if the recipient either believes that 1) the company will pay a strong dividend stream in the future or 2) that they will be able to sell the shares to someone else for even more money later (aka the greater fool theory of investing).

This is important because much like humans, corporations have finite lifespans.  We all hope we invest in the next Coca-Cola or Ford – companies that have survived for more than a century.  But such superlative firms are few and far between.  Instead, we are far more likely to sink our money into pedestrian companies that will only survive a few decades at best.  And if we want to turn a profit, we have to make sure we recover our money (and a little more as well) before they go belly-up.

And all this assumes that we live in a financially stable world, which we do not at the present.  Instead, we are all swimming in a metaphorical ocean of political risk.

For example, it isn’t too hard to see a future where politicians looking to mitigate anthropogenic climate change levy a series of onerous carbon taxes.  This would immediately endanger the viability of numerous companies in the oil and gas sector.

In fact, the coal mining sector has more or less experienced a similar outcome already.  While the fundamentals had been moving against coal extraction for some time, implicit government hostility toward that most polluting of fossil fuels was the final nail in the industry’s coffin.

I would also like to point out that political risk for the energy sector is completely disconnected from the actual sensitivity of the climate to changes in atmospheric levels of carbon-dioxide.  For investors, whether 450 ppm of CO₂ signals imminent environmental apocalypse or not is ultimately immaterial.  All that matters is that a future political administration perceives relatively high atmospheric CO₂ levels as being an existential threat to civilization and acts accordingly.

Much-needed financial sector reform is another event that could suddenly and violently re-orient the capital markets to the great detriment of shareholders.  Although it might seem fantastical today, I have no difficultly envisioning a situation where a future populist government resolves to nationalize the corrupt too-big-too-too-fail banks: Citigroup, J.P. Morgan, Wells Fargo, Bank of America, et al.

We can’t say exactly how it would happen, but it could be as straightforward as an outright seizure of bank shares without compensation by the government.  And while I believe that depositors and CD holders would certainly be made whole, bondholders might find themselves dispossessed just like equity holders.

Make no mistake, if our venal mega-banks were nationalized, most working-class Americans would cheer the action on.  In fact, it has been my longstanding supposition that the first American Presidential candidate who credibly promises to liquidate Goldman Sachs by any means necessary will easily win the highest office in the land.

Of course we don’t need an outright seizure of banking shares in order to create massive losses for equity investors.  If the U.S. Federal Reserve should ever institute a fully-digital dollar, it would have the side effect of disintermediating nearly the entire banking sector in an instant.  That would mean banks would enjoy dramatically lower levels of deposits, loans and, subsequently, profits.

Shareholders would be massacred.

Another area ripe for the bitter harvest of political risk is the technology sector.  Google, Facebook, Twitter and Amazon have all proven themselves to be incorrigible monopolists.  They apply suffocating control over key areas of the information economy, snuffing out lesser competitors on a whim.

It isn’t very difficult to imagine a future where a hostile political administration decides to vigorously apply heretofore neglected anti-trust regulations to these technology behemoths.  In a best case scenario for investors, these companies would simply be broken up.  But it is just as easy to see a future where the firms are nationalized or even turned into non-profits!  In either case, shareholders would surely suffer great financial loss.

The healthcare sector is also horribly exposed to political risk.  The price of both medical services and health insurance in the United States has been rising far above the rate of inflation for decades.  At this point healthcare has become utterly unaffordable to the average U.S. citizen, making it a leading cause of personal bankruptcy.  And although the Affordable Care Act (otherwise known as Obamacare) mandated health insurance coverage for nearly every citizen, the legislation did absolutely nothing to curtail skyrocketing costs.

If major healthcare reform were to pass congress and be signed into law, it could be devastating for investors in healthcare firms.  For example, the popular idea of “Medicare for All” would more or less put the entire health insurance sector out of business overnight.  Even if that doesn’t happen, it is easy to see a future where prices or profit margins for medical procedures are capped across the board.

I wouldn’t be surprised if a future administration, spurred on by an outraged populous, simply voided patent protections on all existing pharmaceutical products.  If these political risks weren’t enough to frighten you, outright nationalization also remains a distinct possibility.

In light of the myriad political risks in today’s market environment, investors would be wise to demand a quick return of their principal.  In short, it is vital to get paid back on your investments before political risk intervenes and flips the financial game board over.

Unfortunately, one simply has to casually examine the U.S. stock market to see that many people haven’t put much thought into how they are going to recover their money.

Despite being obscenely successful, tech giants Alphabet (Google’s parent company), Amazon, Netflix and Facebook don’t pay any dividends currently and have no plans to do so in the immediate future.  Other corporate behemoths such as Microsoft, Apple, Johnson & Johnson and Visa do pay dividends, but do so at such a low rate that it will take many decades for an investor to recover his principal.

For example, as of February 2021 Apple has a dividend yield of 0.60%.  If the dividend doesn’t change from its current level, it would take an investor 166 years to break even on an investment made today.  Even if we assume that Apple grows its dividend at an unrealistically robust 10% annual rate from now until eternity, it will still take you over 30 years to get your principal back.  And you will have to wait even longer (and assume perfect financial conditions persist for the entire time) if you hope to make a profit on your investment!

The bottom line is that you can’t expect to make your money back in a reasonable length of time on many stock investments made today.  But don’t worry!  Most investors implicitly believe they will just be able to flip their shares to someone else when the time comes – a classic hallmark of bubble psychology.

In fact, our current stock market mania is undoubtedly the most extreme in financial history.  It exceeds the Japanese equity bubble of the late 1980s, the British South Seas Bubble of the 1720s and the infamous late 1920s DJIA bubble that preceded the Great Depression of the 1930s.  Indeed, today’s speculative excesses in stocks, crypto-currencies and bonds are so extraordinary that they even make the hopelessly irrational Dutch tulip-mania of the 1630s seem downright sober by comparison.

Insanity doesn’t even begin to describe our dysfunctional capital markets these days.

And don’t think for a moment that you’ll be able to sell before things fall apart either.  The suggestion that the average investor will somehow figure out the game is unraveling and head for the exits just before political risk manifests itself in portfolio-destroying nationalizations, patent cancellations or windfall profit taxes is just hubris.  This is especially so when corporate insiders and connected political players will undoubtedly be tipped off about what is going to transpire long before you or I will get the memo.

In the end analysis, political risk isn’t simply one of the biggest dangers of a dysfunctional stock market – it is the defining risk of a global economic system that is rapidly spinning out of control.  This is why I advocate for intelligent investors to carefully accumulate high quality tangible assets such as precious metals, antiques, gemstones and fine art.  Hard assets will act as a hedge against the massive economic dislocations that are sure to rock the financial world in coming years.

Smart investors will own some tangible assets and avoid financial heartache; muppets won’t.  Don’t be a muppet.

 

Read more thought-provoking Antique Sage investing articles here.

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A 2019 Australian Perth Mint Year of the Pig 1/2 troy ounce gold bullion coin and a 2016 Royal Canadian Mint 1/10 troy ounce gold bar sit atop a 125 gram polished slab of jewelry-grade, off-white Siberian nephrite jade.

Let’s face it.  2020 had been a rough year for a lot of people.  And while I would like to be able to tell you that 2021 will be better, I can’t do that with any degree of certainty.

As 2020 ended, it became apparent that central bankers and governments around the world will resort to further money printing in an attempt to (temporarily) solve their problems.  This is in addition to the printing press largess that has already flowed forth.  As a reminder, the Federal Reserve’s balance sheet expanded by almost $3.2 trillion during 2020.  Meanwhile, the U.S. Treasury mailed out checks totaling $1,800 to every adult citizen ($1,200 in the spring and another $600 at the end of the year, with more possibly coming in 2021).

And the U.S. Government hasn’t been especially profligate compared to foreign governments either.  Other central banks around the world have been printing money just as quickly in relation to the size of their economies.

It is a situation that cannot persist without eventually triggering negative financial consequences.

So smart investors are beginning to look for inflation hedges – ways to protect their hard earned money from rampant monetary dilution driven by foolhardy central bank policies.  So without further delay, I present to you the Antique Sage’s best inflation hedges for 2021 and beyond (in no particular order)!

 

Inflation Hedge #1 – Nephrite & Jadeite Jade

Jade is the Rodney Dangerfield of gemstones – it can’t get no respect!  At least it can’t get any respect outside of China, where the Stone of Heaven has been coveted for millennia.  But Westerners really should take a good look at jade as a tangible investment.  The gemstone possesses superlative physical properties that place it among the very best of inflation hedges.

Jade is actually a blanket term for two gemologically distinct minerals: nephrite jade and jadeite jade.  Both varieties of true jade are harder than either glass or steel.  They vary between 6 and 7 on the Mohs hardness scale of minerals, rivaling the hardness of quartz.

Jade is also the toughest natural material known to man.  Toughness, otherwise known as tenacity, is a material’s ability to absorb physical shock without being damaged.  Laboratory tests performed on jadeite jade have determined that it has at least double the compressive strength of granite.  Nephrite jade is even tougher than jadeite jade, sporting a compressive strength that can be quadruple that of granite!

Jade is also immensely beautiful.  Its micro-crystalline structure scatters and diffuses light, giving it an ethereal or dreamy appearance.  This means that jade is unique among gemstones; its luster can mimic soft butter, delicate porcelain or highly-reflective glass, depending on the exact structure of the material.

One way to gain a sense of jade’s potential value is through its geology.  Alluvial or placer deposits of jade accumulate via weathering into streams and rivers over millions of years.  It is important to note that only a handful of different materials can survive the punishing hydraulic action of constantly flowing water over such long periods of time.  This short list consists of gold, platinum, diamonds, rubies, sapphires and jade.

Think about that for a moment.  Gold, platinum, diamonds, rubies, sapphires and jade.  It is excellent company for a precious stone to find itself in.

Even though prices for both nephrite and jadeite jade have risen considerably over the past 20 years, the gemstone is still dramatically undervalued in my opinion.

For instance, I recently purchased a rectangular gem-quality Siberian jade slab online.  A slab is simply a piece of rough stone that has been sliced (relatively) thin for collectors or as an intermediary step on the way to a fully carved piece.  This slab had the rind and any fractures or other bad parts cut away, leaving only higher quality material.  It was a tight-grained, highly translucent, off-white to celadon nephrite jade tinged with light green (see the hero photo at the top of this article).

 

Rough Jade for Sale on eBay

(This is an affiliate link for which I may be compensated)

 

Siberian jades are among the best in the world – so much so that most Russian production gets exported directly to China without ever seeing the West.  My slab weighs about 125 grams and cost nearly $150.  That translates into a value approaching $1,200 per kilo.

And I was happy to pay it too!

Why?  Because at the time I bought my jade, it was worth about the same as 1/12 of a troy ounce of gold.  It is easy for me to see a world in 10 to 15 years where gold is $4,000 an ounce.  That catapults gold into the upper echelons of inflation hedges.

But I believe that in that same scenario my jade slab could trade for close to 1/5 of an ounce of gold.  That would mean a quintupling of its dollar value from $150 to $750 – an annualized return of better than 11% over a full decade and a half!  An outcome like that would make jade an even better inflation hedge than gold!

If you are interested in finding out what to look for when buying jade, please read my jade investor’s buying guide.

 

 

Inflation Hedge #2 – Precious Metals – Gold, Silver & Platinum

Precious metals are, with good reason, the most widely recognized of inflation hedges.  In addition to being highly portable and liquid, gold, silver and platinum are the very embodiment of the term “intrinsic value”.  This is of unparalleled importance in our digital age.  Too many investments these days are simply 1s and 0s in some far off server farm, which offer investors no real safety whatsoever.

But as simple as the concept is – buy precious metals as an inflation hedge – the execution can be surprisingly complex.  First there is the most obvious question, which precious metal do you choose?  They all have their own individual weaknesses and strengths.

Gold is the old-standby of the tangible asset investor.  It has been used as money for at least 5,000 years and there is absolutely no indication that it will ever stop being used as money.  But everyone from housewives to hedge fund managers knows about gold’s inflation-hedging abilities.  So although I feel that gold is still a reasonably good value at almost $2,000 an ounce, there is no great bargain to be had there.

Silver is almost as venerated as gold.  But the last 150 years of monetary history have been particularly unkind to the lunar-themed metal.  As a result, it takes more than 70 ounces of silver to equal the price of 1 ounce of gold today.  Throughout most of human history that ratio was well under 20 to 1.

The plus side of this predicament is that silver is tremendously undervalued versus gold today.  And if silver is undervalued versus gold, then it must be egregiously undervalued compared to hopelessly inflated paper assets like stocks and bonds.

Platinum, the dark horse of the precious metal family, has also fallen on hard times lately.  For most of the 20th century, an ounce of platinum was more valuable than an ounce of gold.  However over the past decade the price of platinum has fallen until it takes almost 2 ounces to equal a single ounce of gold.

This means platinum is a screaming buy, in my opinion.  But platinum investors must be wary too.  A significant amount of platinum demand is industrial in nature.  Automobile catalysts, scientific equipment and the chemical/glass-making industry all use substantial amounts of the precious gray-white metal.  Consequently, platinum demand is vulnerable to swings in the broad economy in a way that gold demand isn’t.

Another conundrum investors looking for inflation hedges face is choosing what form of the metal to buy.  Do you go with modern bars and coins?  What about older coins that used to circulate?  And what size bars or coins do you buy?

Honesty, I don’t think it matters whether you choose newly fabricated bars and coins or older circulated coins.  Feel free to buy whatever strikes your fancy, provided the premiums over spot aren’t too high.

 

Fractional Gold Bullion Coins for Sale on eBay

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I find the question of size to be much more interesting, though.  Premiums are lowest on larger bars and coins, and lower premiums are always good.  But you lose flexibility when it comes time to sell because you must sell at least one full bar/coin at a time.

So for example, a 1 troy ounce gold coin will cost you nearly $2,000 today.  That is a substantial chunk of change for anyone to put down for a single purchase.  And if the price of gold were to double to $4,000, you couldn’t sell just half an ounce.  No, you would have to sell the entire 1 ounce coin.

This is why I favor fractional platinum and gold bullion these days, provided the premiums are reasonable.  Anything from 1/10 to 1/2 troy ounce bars and coins look great in the current environment.  I also like gram-sized gold and platinum bars ranging from 2 to 20 grams.  These bite-sized precious metal pieces can be found starting at around $150 to $200 for the smaller sizes, making them attainable for ordinary people.

Factional bars and coins give investors maximum flexibility in both buying and selling, so they are great inflation hedges.  As an added bonus, if precious metal prices really run skyward then retail demand for small bars and coins would drive premiums up.  This would allow you to recapture some of those elevated premiums when the time comes to sell.

 

 

Inflation Hedge #3 – Numismatics (Rare Coins)

Rare coins are uniquely positioned among inflation hedges, offering investors a safe haven in a world of ever-devaluing fiat currencies.  They combine the best attributes of two different asset classes – antiques and precious metals – rolled into one.  But strangely, returns for rare coins have been pretty horrid over the last 30 years.  You just have to look at this chart of the PCGS 3000 (a broad index representing the collectible U.S. coin market) to see how abysmally coins have performed as an asset class since 1990.

But it is important to keep in mind that long term returns in all asset markets – including tangible asset markets – are driven by valuations.  So asset classes that underperform for long periods of time (like rare coins have after their late 1980s bubble burst) almost always outperform in the future.  From its peak in 1989 through the end of 2020, the U.S. rare coin market has returned a cumulative (nominal) loss of nearly -70%!  And although this historical market underperformance has undoubtedly been painful for past coin collectors, it means that numismatics is like a coiled spring right now from an investment perspective.

 

 

Let’s take a look at a specific example to get a better idea of the bargains that can be found.  Not too long ago I bought a Japanese 2 shu gold coin (known as a nishu-kin) in XF condition from eBay for less than $60.  This Tokugawa Shogunate coin was hand-struck at the Edo (modern day Tokyo) mint between 1832 and 1858 – a time when samurai warriors still roamed the streets of Japan.  The cash-strapped Tokugawa government struck nishu-kin coins from electrum, a debased alloy of gold mixed with silver.  In this case, the coins are 29.8% gold and 70.2% silver.

Despite its obvious beauty and historical significance, this particular coin has performed abysmally from an investment perspective over the past 50 odd years.  In 1972 you could buy an example for $7.50.  In 2020 I paid $52 + $4.90 shipping for a grand total of $56.90.  This represents a return of only 4.31% per annum from 1972 to 2020 – a rate that barely beat inflation as measured by the U.S. Government CPI (consumer price index) over the same period.

Another way to look at it is that my Japanese coin has increased in value by a factor of 7.6x over that 48 year period.  At same time silver has increased by 12.3x, gold by 29.0x and the S&P 500 (price only; no dividends) by 30.7x.

 

Edo Era Japanese Gold Coins for Sale on eBay

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Now you might look at this result and wonder how Japanese coins (or any other coins for that matter) could possibly be a good investment.

It all comes down to the coiled spring effect I mentioned earlier.  Low returns for long periods of time in an asset class invariably lead to future outperformance.  We just don’t know when.  But we can indirectly measure this decline in valuations by looking at the premium above melt value that Japanese nishu-kin gold coins sold for in 1972 versus today.

 

	Intrinsic Value
	of a Nishu-kin in
	1972	2020
Gold:	$0.99	$28.75
Silver:	$0.07	$   0.89
Total:	$1.06	$29.64
Price:	$7.50	$56.90
Premium:	606%	92%

 

As you can see, the poor returns for nishu-kin coins mean that the premium over melt value – the collector’s premium – has plummeted from 600% in 1972 to less than 100% in 2020.  A nishu-kin sold for more than 7 times its precious metal content in 1972 versus less than double today.  These low premiums over scrap value wring the risk out of the equation for today’s buyers.  And when you purchase an asset with very little risk, it means that the only thing remaining is reward.

The best part is that Edo era Japanese gold coins are absolutely typical of the performance put up by ancient, foreign and U.S. rare coins over the past several decades.  This means you can buy almost any type of coins you like, safe in the knowledge that numismatics is among the best inflation hedges out there.

 

 

Inflation Hedge #4 – Antique Sterling Silver Flatware

Sterling silver flatware and hollowware is the asset class that time forgot.  From the 3rd millennium BC right up until the 1970s every wealthy household aspired to own a chest filled with solid silver tableware.  And no wonder!  Silverware is a store of value (due to its precious metal content) and a useful luxury good wrought into elegant sculpture.

So what in the world happened to one of the world’s premier inflation hedges to bring it low?

First, middle class families began coming under increasing financial stress starting in the 1970s and 1980s.  As discretionary income began to dwindle, some traditional luxury goods like silverware saw stagnating demand.

Second, a dramatically rising silver price during the 1970s commodities bull market priced many newer households out of the sterling silverware market.  At the same time, dining and entertaining was becoming less and less formal.  As a result, even after silver prices dropped again in the 1980s and 1990s many consumers had already moved onto buying different luxury goods.

The final coup de grâce for sterling silver flatware arrived with the Great Recession of 2008-2009.  Up until that point, there was still a fairly healthy market for antique pieces from respected makers like Gorham, Tiffany & Co. and Asprey & Co.  But as the middle class financially bled out in the torturous aftermath of the recession, antique and collectibles markets of all types collapsed in value.

Antique silver was one of those unfortunate victims.  Whereas before it was not uncommon for a good antique silver piece from the late 19th or early 20th century to sell for 4 to 5 times its scrap value, it is now normal for such items to trade for less than double melt.  Sometimes more common patterns from less venerated manufacturers will hardly sell for any premium over melt at all.

Although it hasn’t been pretty to watch, it is great news for anyone looking to invest in inflation hedges today.  At this point in time, there isn’t much downside left.  The value of most antique silverware is well supported by its underlying bullion value, which acts as a floor under the current price.

 

Antique Sterling Silver Flatware Sets on Sale on eBay

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And the upside is quite considerable indeed!  If fine antique silverware was to trade back up to 4 or 5 times melt, it would imply a doubling or tripling in value with no corresponding move in the underlying price of silver whatsoever.

As an added bonus, huge amounts of antique and vintage sterling silver flatware have been melted over the past 50 years, making the surviving pieces increasingly rare.  Every time the price of silver spiked higher, barrelfuls of silver services disappeared into the refiner’s crucible.  In spite of this fact, the depressed antique silver market has been so beaten up for so long that it is possible to pick up some really magnificent pieces for shockingly low prices.

So what types of antique silver do I like right now?

Continental European (especially French) silver is a great buy right now.  Vintage silver services from classic American manufacturers like Towle, Reed & Barton, Alvin, Wallace and Gorham are all solid choices that rarely sell for much over bullion.  To be honest, it is tough to go wrong in antique silver right now regardless of what you buy.

I also find great value in sterling silver “short” sets, which I define as 6 to 12 of a matching set of either spoons, forks or knives.  Because they are smaller than a full service, sterling short sets are among the most affordable of inflation hedges.  Sometimes you can find them in their original custom-fitted cases, too.

As little as $100 will get you started building your very own chest of antique silverware.  And due to it being a buyer’s market, you have the ability to pick and choose whatever pattern or style you like.

 

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