Why You Should Save in Hard Money

Daily Reckoning ^ | 22 Sep 25 | Adam sharp

[delta7]

In 1964, U.S. minimum wage was $1.25 an hour.

That’s 5 quarters, which at the time were made of 90% silver. There was 0.18 oz of silver in each coin.

With silver priced at $44/oz today, the melt value of those 5 silver quarters is now $39.

So minimum wage in 1964 was equivalent to $39 an hour today, as priced in silver.

1964 would be the last year that U.S. quarters and dimes contained silver. The half-dollar was reduced from 90% silver to 40% from 1964-1970, but even that became untenable eventually.

One catalyst that led the government to remove silver from coins was that the value of the silver in them started to outpace the face value.

Smart speculators had begun to hoard silver coins, which led to a nationwide shortage of small change.

Silver’s growing use in photography and other industrial uses contributed to the problem.

But the root of the issue was something deeper.

The desire of government to spend untethered by the constraints of hard money.

Prelude to the Nixon Shock

The removal of silver from American coins in 1965 was a preview of what was to come in 1971, when Richard Nixon ended the gold standard.

Due to obscene government spending, these two acts were essentially unavoidable. LBJ’s simultaneous expansion of the welfare state and the Vietnam War essentially sealed the deal. Guns and Butter, indeed.

As long as the gold standard was in place, foreign central banks could redeem gold for $35/oz. America’s gold reserves were being drained. It was unsustainable.

The result can be seen in the chart below, which shows cumulative inflation from 1913-2022.

image 1

Source: InflationData.com

The red arrow points to 1971, when the dollar’s last official tie to gold was severed.

But as you can see, even before ‘71, inflation picked up with every major war. WW1, WW2, Korea, and Vietnam. The massive spending and borrowing required increased the money supply, and hence inflation.

The end of the gold standard, and silver coinage, was the result of many decades of overspending by the federal government.

Once the dam broke in 1971, government spending was no longer even partially restrained by precious metal ties. And we can see the result clearly on the chart above.

In the first half of the 20th century in America, inflation was a periodic problem. But starting in the 1960s and culminating in 1971, it became a devastating problem.

The government has attempted to cover up the devastating effects of inflation by cooking the CPI books. We recently laid this out in Is Gold Cooked?

The problem, of course, is that government inflation is a horribly flawed measure of price.

For example, if you look at CPI price data for new cars, the BLS tells us that the price of a new auto has increased about 2x since 1980.

However, the average price of a new car in the U.S. back in 1980 was around $7,600. Today it’s around $48,000, about 6x higher.

But CPI tells us that new car prices have only risen 2x since 1980? How come the actual price is up 6x?

This is a great example of how the BLS cooks the books on inflation data (CPI). They say that because modern cars come with electronic windows, airbags, and more efficient engines, the price is basically irrelevant. You’re getting so much more for your money, that the true price increase shouldn’t matter.

Instituting a Personal Hard Money Standard

There is no quick or easy solution to these problems. Eventually we may return to a gold or silver standard, but if it happens, that’s probably at least a decade off.

And the only way the government would be desperate enough to re-institute a gold standard would be to instill confidence following hyperinflation, or something close to it.

For now, the best we can do is create a personal gold/silver standard.

In other words, instead of saving only in fiat money, save in gold and/or silver. Physical bullion is a great option, but if you’re looking for something more liquid with no transaction costs, Sprott’s Physical Gold (PHYS) and Silver (PSLV) ETFs are good options too.

Personally, I think it’s perfectly fine to have up to a 25% allocation in gold and silver (including miners) in this environment.

Eventually the time will come to shift some of that precious metals allocation into long-term growth stocks.

But we’re not even close to that point yet. Growth stocks remain ridiculously overpriced, and gold and silver still have at least 5 years to run, by my estimation.

For now, hold onto those precious metal investments tightly. It’s going to be a bumpy, but profitable ride.

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TOPICS:
KEYWORDS: previousmetals

[delta7]

Paper is for spending, PM’s are for storing Wealth….it is no longer “how much you can make” ( in devaluing currency) , but how much you will not lose to inflation and a declining currency.

[hdbc]

Ltr.

[af_vet_1981]

For now, hold onto those precious metal investments tightly.

One can't really spend them. They have to be traded for currency to fund expenses. The markup on the transactions is relatively high. There is also the risk of untraceable theft. They are not as much investments as insurance against the total collapse of a government and its currency. Should that occur they are stolen from the vulnerable.

[Palio di Siena]

Guns are a good hedge and fun as well.

[irishjuggler]

So, $1.25 invested in silver in 1964 would be worth $39 in silver now.

And $1.25 invested in the S&P 500 on December 31, 1964, would worth $96.18 now... plus dividends.

Knock yourself out with metals if you want... but diversify too.

[irishjuggler]

...or $44 now (silver). Sorry.

[cowboyusa]

Criminal.

[Dan in Wichita]

The article had an error in it. 1964 half dollars were made of 90% silver. Half dollars of 40% silver started in 1965 and ran through 1970.

[sauropod]

Bkmk

[Leaning Right]

Gotta agree. You were lucky to hold silver and gold during the Weimar Republic. Germany was an orderly place, and you could trade your silver and gold for things you needed.

If the United States gets that bad, it won’t be an orderly place. Trading would be difficult and dangerous.

[Georgia Girl 2]

I think Trump plans to get back on the gold standard before he leaves office.

[Responsibility2nd]

For now, hold onto those precious metal investments tightly. It’s going to be a bumpy, but profitable ride.

_________________________________________________

Rate of Return Last 10 years....

Gold 8.8%
S&P Index 12.3%

[ChildOfThe60s]

Silver 320%

$14 in 2015
$45 in 2025

[Uncle Miltie]

Or, you could save in Stocks, and have six times as much as saving in silver.

You pick.

[CalTexan]

Now do California real estate.

It was 1961 when my friend bought a home in SoCal for 29K.

Today it is worth 1.5 million...

[fatboy]

I didn’t want to buy any gold or silver because of all the reasons others have expressed in the comments above. But then finally the day came when we were doing the following: 1. Paid off all of our debt, mortgage paid off and established a 6 month emergency fund. 2. started maxing out our 401Ks (most of it going into the S&P 500), 3. opened and funded a brokerage account. 4. saved enough cash to purchase a new car. Four steps accomplished and we still had some money left over to save/invest. At that monumental moment we purchased our first silver rounds. Paid $24/ounce for some buffalo rounds now worth $42. When the subject of metals comes up I always start with “It’s not an investment it’s a place to put money”. For those with debt, little or no savings, and not a defined money goal and plan, stay away from metals. But I love love love our stack and plan to buy more next week. Have a great day!

[wny]

You’re correct, but you completely miss the point…

[eyeamok]

Gold is the money of Kings
Silver is the money of gentlemen
Barter is the money of peasants and
Debt is the money of Slaves

[delta7]

Rate of Return…..
—————————
Here is the rate of return.

Gold Price Performance USD
Change Amount %

Today +17.05 +0.46%
30 Days +324.98 +9.52%
6 Months +690.18 +22.63%
1 Year +1,086.52 +40.95%
5 Year +1,860.63 +99.00%
20 Years +3,277.46 +708.44%
goldprice.org - 09:44 NY Time

Silver Price Performance USD
Change Amount %
Today +0.64 +1.43%
30 Days +5.74 +14.69%
6 Months +10.50 +30.61%
1 Year +13.17 +41.64%
5 Year +21.16 +89.54%
20 Years +37.53 +516.32%
silverprice.org - 09:45 NY Time

[kvanbrunt2]

I always laugh when someone says there is no inflation.