We all look at prices of things every day. Be it eggs, which have doubled in price in my local grocery store in the last few months; gasoline, which has gone up in dollars recently, or every other thing we purchase for life’s needs or luxury. Price is determined by supply, as well as cost to produce or manufacture. Cost to manufacture is determined by rent on the factory, cost of labor and machinery, utilities, advertising, repairs, front office, and delivery. These are religiously checked and re-checked by management or proprietors on a daily basis. “GP” means “gross profit,” and no business can exist without having it.
Illustrations are not hard to find, and perhaps in my case, they can be shown. I have never had a job, but have always worked for myself, so the cost of doing business is very important to me, as it is to all businesses. I owned three hotels in a tiny town called Silverton, Colorado, which has an average of close to 200 inches of snow each winter, and high mountain passes must be crossed to obtain entrance to it. Summers are a sheer delight, and winters, hideous. After my first winter in the Grand Imperial Hotel, I realized that it was foolish to heat a 28,000 square foot building, and maintain employees for the occasional room rental. So I closed it and operated it, as well as the other two, (Alma House, and Wyman), for a mere four or five warm months a year. The summer business had to pay for a whole year’s taxes, insurance, maintenance, and pay me to live for the rest of the closed months. It was difficult, to put it mildly. All businesses in Silverton have a huge fatality rate, because their owners don’t realize the above, when they embark on their venture.
I mention this, because while my supply of rooms and food was adequate in winters, there were never enough in summers. Summer prices had to be high, to cover winter’s losses. The same is true with metals, believe it or not. All of the gold and silver mines in the Silverton area, are permanently shut, and out of business, because of not only low metals prices, but various EPA type bureaucracies, which have decided that mining is harmful to the land. Miners have an expression, which is true. “Everything we use must be either grown or mined.” True enough. The “greens” in government, have decided that gold and silver mining is to be kaput, and in Southwest Colorado’s underground mines, they have succeeded. The supply of gold and silver in Southwest Colorado is zero, and greatly diminished in other areas of the US.
The remaining mines, which produce most of gold and silver in America, have usually been grandfathered in, are efficient enough, or strip mines, which can still produce. Idaho has mines running and producing, as do a few other states, but of all the gold and silver that is in the ground in America, most may never be mined because of the “greens.”
We then must look to other lands for gold and silver, which do not have restrictive government rules. South Africa, South America, and Canada come to mind, but there are others. Remember, all the gold ever mined and in existence, would occupy a cube 50’ X 50’ X 50’. There may be an equal amount left in the ground, some of which may be mined. Like a business such as a hotel, the cost to produce, and demand for mined goods determines the price.
Wintertime in Silverton, has a very low demand for hotel rooms. Current times, when people are enthralled with, and fooled by paper money and governmental lies, are similar to winter in Silverton, as far as gold and silver prices are concerned. Low demand, as of now. I believe that if Silverton hotel rooms, and gold and silver are compared, we are at about March 1st in Colorado. It’s cold on March 1st, and the roads are empty. There’s little demand for gold currently, relatively speaking, compared to demand in the future. When summer comes, and the roads are chock full of gawking tourists seeing the glorious San Juan Mountains, maybe for the first time, hotel rooms are scarce. But the supply is limited, just as are the capabilities of mines to produce gold. Even though we may be at March 1st for gold demand, the demand is still at mine output.
When the eventual happens, and we all know what it will be, the supply of gold and silver will be in such demand, and the supply so limited, that prices will have to climb to the sky. I am not talking about dollar depreciation causing gold and silver to go skyward, which of course is a major factor. I am speaking of an ever-increasing demand for security in times of trouble. Gold and silver, have spelled “security,” from time immemorial. For thousands of years, with earth’s population a fraction of what it is now, gold and silver have been real money, and real security. There is no reason to believe it will change now, in spite of the guffaws and bad mouthing of the media. Touting pieces of paper with ink on them all they wish, but truth will eventually out. The truth is, that tangible things will outweigh any piece of paper with ink on it, no matter how fancy the engraving and promises may be.
Gold and silver mines may be operating at capacity now, and they are close, but imagine what will happen to prices of these tangibles, when all hell breaks loose in Iraq, Afghanistan, America, or anywhere else in the world. Imagine the demand for tangible, compact, fungible, beautiful gold and silver, when the world is rocked by civil turmoil, wars, terrorist attacks, or even natural phenomena such as earthquakes, volcanic activity, floods, or droughts. Times are tough today, and if just a small percentage of earth’s population decided to own gold and silver, there would be no controlling of their prices. A 1% increase in demand, would cause prices to rocket up to unbelievable levels, compared to today.
Governments and central banks, are well aware that they deal in basically worthless paper, which depends 100% on holders’ acceptance. If acceptance declines, and paper holders decide to cash in their paper for something tangible, their paper will look pretty bad. Do any of you readers actually think there will be no hideous attack on the US? Do any of you really believe the world is headed for grand peace, with currencies being stable, holding their value, and printing of them limited to those wearing out? When horrible things happen, some may be gradual, as in currency purchasing power declines, but terrorist attacks, and natural disasters can happen in an instant. (Currency wipe-outs have in the past happened virtually overnight, but it is rare).
In Silverton, when warm weather arrived, Jeep trails re-opened, and columbines bloomed, we knew our rooms were going to be rented. We worked hard, and saved to live throughout the harsh winters, when most of us left for warmer climes. Smart people, who get into tangible gold and silver, to survive the winter of difficult times, will be rewarded by spring we all hope. Even if spring takes a long time coming, we will be secure with our beautiful tangibles. Remember, the entire price of an average home can be held in two hands, if it is in the form of gold bullion coins or bars. What more security could one wish for?
Gold and silver production, will always be extremely limited, just as rooms in resort areas are in summer. The demand for gold and silver, will be astronomical when disaster strikes, and will increase steadily, even if disaster doesn’t strike. The supply will be limited, and demand great. Gold and silver prices recently dropped. Silver more than gold, which is strange, because silver is by far in shortest supply. Economic fundamentals do not change, any more than gravity is defied, nor water runs uphill. The fact of economic matters is, that when demand is high, and supply limited, prices must go up. To say that demand will not go up, is absurd. To say that mines and production facilities can possibly keep up with huge increases in demand, no matter how rich a mine may be, is also preposterous.
Banks and governments, will undoubtedly sell some of theirs to try to keep prices down, and make their paper look good. However, when the game is lost, they will realize it, and keep their gold, because it is the one thing they will possess that will have true value. Silver is already in incredibly short supply, and the feeble manipulations by Comex traders, will surely fail, making silver’s rise a certainty. No matter how you look at it, spring will come for physical gold and silver owners. Winter, even in Silverton, cannot, and will not last forever, and meantime this is an outstanding buy opportunity. Protect yourself.