Silver in the PP

[Tortoise]

In his 1989 book The Economic Time Bomb, HB advocated two seemingly contradictory approaches to silver:

Page 188 - "If you believe silver belongs in your Permanent Portfolio, you'll need to carve a place for it by removing some of your stocks and some of your gold."

Page 210 - "As a very small part of the cash budget, it might be prudent to hold some 'junk silver coins'--U.S. dimes or quarters that were minted prior to 1965... In [the event of runaway inflation], pre-1965 U.S. silver coins could emerge as the only practical spending money."

I suppose HB was thinking of silver as falling into two different categories, depending on its form--'junk silver coins' vs. silver bullion--and he thought they fulfilled different roles within the PP (although, strictly speaking, silver is not considered part of a pure PP).

I keep some 1-oz silver coins at home, along with some paper cash, for emergencies.  The silver, specifically, is for big emergencies like hyperinflation, where the cash may become nearly worthless.  They are not junk silver coins, but they serve the same purpose for me as junk silver coins would.  Therefore, I'm leaning toward including them as part of my cash allocation.  Or maybe I should just leave them out of the PP entirely and consider them VP.  It's only a moderate amount of silver, so it's probably not a big deal either way, but I was just curious.

Thoughts, anybody?

[BobS]

I sold off all my silver and other precious metals, except for gold, that were in my IRA recently.  I still keep a small supply of Silver
Eagles as part of an emergency kit.

The reasons for the sell from the IRA were multiple - precious metals prices were not rising outside the U.S. as fast as they were
inside the U.S.  The price of silver in my IRA has risen to 70% above where it had been purchased.  Silver remains an industrial
metal, not a store of wealth.

And etfs were being created for base metals - copper, etc. that would actually hold the metals as if they were precious metals.
That implied to me that speculation was significantly on the rise, thus I wanted off the speculation train.

[MediumTex]

I think a small silver allocation (less than 5%) within the PM piece of the PP is okay.  It won't behave as well as gold in certain market conditions, but holding a little silver seems unlikely to lead to a lot of future regret.

[moda0306]

I see holding some silver as a great choice.  We all know how Gold has behaved in the past, but to me, gold has very little intrinsic value and I am basing its candidacy in the PP simply based on past performance.  At least silver has some intrisic value.  No, I'm not saying "own copper, aluminum, and tin", but some some kind of industrial, intrinsic value couldn't hurt if there was some kind of "mass realization" that gold is really a shiny, heavy yellow metal that withstands the elements well... and little else.

Additionally, think of what you could buy for $1,350 to hedge for hyperinflation (canned food, rice, generator, gas, etc).... do you really think 1 oz of gold holds that much value?  How?

Sorry... anti-gold rant... but I still strongly believe in the PP.  I'm trying to convince my dad to convert, who is currently investing in my cousin's company stock.... WAY more riskly than even an all-stock index portfolio.  I am now seeing first hand how difficult it is to get people to see the light.  He's a smart guy, but, like many, can own an insanely risky portfolio, yet cringe at actually contributing to the PP.

[Lone Wolf]

I am basing its candidacy in the PP simply based on past performance.

True, but talking about "past performance" in relation to a moving average trading system you just came up with and backtested is one thing.  It's an entirely different thing to talk about the "past performance" of gold serving as a permanent store of value.  You are literally talking about past performance in terms of thousands of years (rock solid past performance, I might add.)  You can stick it in the ground in the driest desert or at the bottom of the ocean.  No corrosion, no loss to tarnish.  King Tut's treasure still looks every bit as bad-ass as the American Eagles in your local coin shop.  It's appropriate that an element like gold is included in a "permanent portfolio".

Silver has a long history in this regard as well, I might add, so I'm not disrespecting it.  But gold's qualities as a store of value really are exceptional.  (I'd recommend the Why Gold? thread as well for an entertaining take on why gold is so uniquely suited for this purpose.)

[moda0306]

I agree that it's thousands of years of history as opposed to some back-tested 20-year scam.  Its ability to STORE value is amazing, but it can only store so much value, can't it?  An ounce of gold should only ever be worth what its underlying economic/industrial/luxury value is.

I think I'd want to hold something with a lot of the same properties as gold, with the added bonus that it has some industrial use, and therefore going out of luxurious style won't cause its "intrinsic value" to collapse (currently, almost all jewelry bought by my age of people is "white gold" or something non-yellow because girls in their mid-20's don't like the yellow color of gold).

[Lone Wolf]

Yeah, you're quite right that as far as actual industrial use, silver is the clear winner over gold.  But since gold is primarily a monetary metal, its price is most strongly reactive to uncertainty and fiat currency mismanagement.  The price of silver depends partly on industrial factors in the lines of production that use silver.  When demand for silver-based products goes up, the price of silver goes up.  When such demand falls, the price of silver falls as well.  Thus any reaction it has to inflation is somewhat "muted" by this effect.

Having said all that, silver is great stuff to have and I certainly want to get my hands on at least some junk silver in the future.  Great as it is, though, I just don't think it's quite the uncertainty- and inflation-slayer that gold is.  During those times when gold is carrying the whole portfolio (times we'll hopefully not see too often), it's the only PM I feel I could rely on to make up for the suffering the rest of the portfolio would be experiencing.  I've gotta go with the king.

[Pkg Man]

I like silver a lot, but reserve it for the VP.  As MT said, probably nothing wrong with using a bit of it instead of gold in the PP (PRPFX does hold silver, after all) but I just prefer to keep it separate and save for serious emergencies, i.e., a possible currency collapse.

[smurff]

(currently, almost all jewelry bought by my age of people is "white gold" or something non-yellow because girls in their mid-20's don't like the yellow color of gold).

But girls in their mid-30s, 40s, 50s, and 60s love it.

Sorry, Moda, I couldn't resist.

[dualstow]

In his 1989 book The Economic Time Bomb, HB ...
Page 210 - "As a very small part of the cash budget, it might be prudent to hold some 'junk silver coins'--U.S. dimes or quarters that were minted prior to 1965... In [the event of runaway inflation], pre-1965 U.S. silver coins could emerge as the only practical spending money."

I keep some 1-oz silver coins at home, along with some paper cash, for emergencies.  The silver, specifically, is for big emergencies like hyperinflation, where the cash may become nearly worthless.  ...
Thoughts, anybody?

Someone needs to address the elephant in the room: I've seen a few instances of silver being mentioned for SHTF situations. But, what percentage of the population is really going to be holding pre-1965 coins? One tenth of 1% maybe? If cash becomes worthless or even nearly worthless, I don't think we're going to be passing a few coins around.

[craigr]

In his 1989 book The Economic Time Bomb, HB ...
Page 210 - "As a very small part of the cash budget, it might be prudent to hold some 'junk silver coins'--U.S. dimes or quarters that were minted prior to 1965... In [the event of runaway inflation], pre-1965 U.S. silver coins could emerge as the only practical spending money."

I keep some 1-oz silver coins at home, along with some paper cash, for emergencies.  The silver, specifically, is for big emergencies like hyperinflation, where the cash may become nearly worthless.  ...
Thoughts, anybody?

Someone needs to address the elephant in the room: I've seen a few instances of silver being mentioned for SHTF situations. But, what percentage of the population is really going to be holding pre-1965 coins? One tenth of 1% maybe? If cash becomes worthless or even nearly worthless, I don't think we're going to be passing a few coins around.

I thought this at one time as well, but you may be surprised how quickly humans re-learn the value of precious metals during a serious currency problem. A book I reviewed about Argentina's currency problems many years back talked about silver/gold buyers springing up overnight after the peso crash. Junk gold/silver was being used again as money almost immediately in the aftermath.

[dualstow]

Fair enough. I've got a friend who got married in Argentina ("land of silver") and moved there during that crash who can confirm it. I suppose that there is some "unhappy medium" between our current situation and true SHTF that would merit holding these coins.