Money: Gold and Silver Heresies


Last Sunday's San Francisco Chronicle-Examiner did not have a very big financial section. It had only six ads offering financial services. Five of those six were for silver investment programs, silver seminars, or the like. One of the ads advised that you should get into silver now, "before the stampede." That may take some doing. It is almost impossible to pick up a magazine of any sophistication without finding one or more offers of silver ingots, bars, coins, medals, medallions, talismans, amulets, or what-have-you, gravely offered as perhaps the only way to protect your family's security from the ravages of the coming hyperinflation.

One particularly egregious specimen on my desk announces unreservedly YOUR ONLY HOPE…For Protection Against The Devaluation or Run-Away Inflation, with a black arrow pointing to a pile of bars labeled "pure silver." Another, with an appealing directness, informs us that "You can Possess Pure SILVER." These bars are punched out in some quantity and generally have not much more than a stamp of weight and fineness on them. The better ones bear the stamp of a widely recognized producer or fabricator (e.g. Englehard or Hudson's Bay Company) but some have brands known only to the seller and his immediate family. Prices vary from fair (i.e., a reasonable mark-up over spot price to cover small lot fabrication and sales) to the completely unreasonable. Insofar as I can tell, there seems to be a direct relation between the feverishness of the sales pitch and the mark-up on the bars.

In the higher-class journals we find a steady stream of full page or double page ads for limited edition commemorative bars. Practically anything can be commemorated: states, presidents, flowers, automobiles, dogs, Father's Day, Spiro Agnew, famous firearms, historical events, kings of England, baseball players, droughts, plagues, and natural disasters. They are often serial-numbered and come with handsome display cases. They are often very pretty and if you are "into" whatever it is they are "commemorating," then I am sure that you will derive much happiness from possessing them. But I find them rather hard to take seriously as an investment.


Chief of my problems concerns their price: generally double the bullion value of the piece. And this premium has held pretty steady. When silver was about $2/oz. they sold for about $4/oz; when silver was $5-6/oz. they sold at about $12/oz. No doubt part of that premium is justified by the handling costs associated with small transactions. But when you start to figure in die cutting and solid oak presentation cases and serially-numbered limited issues you are talking about art or collectors' items or something, but not a silver investment. If this premium is justified by anything it is purely collector interest, not as a medium for silver investment. Even on the smallest transaction, there is no justification for an 80 or 100 percent premium just to invest in a commodity.

A secondary objection I have to these commemorative bars is that there doesn't seem to be much of a re-sale market for them. If you have to let them go for bullion value you will be facing a pretty big loss on what is supposed to be a conservative investment. Another problem, which doesn't seem to have come up yet but which is probably only a matter of time, involves fake bars. Even the bars issued by the largest firms are of a very simple design and should present little difficulty to a moderately competent forger who wants to pass off silver plate for sterling.

Since about every third libertarian seems to be involved in the silver market I won't presume to recommend among the various silver investment alternatives. But if you take your time to shop around, you should be able to find what you want at a reasonable price. I felt the need to say as much as I have because of the appearance of high pressure selling and scare tactics. And the future is scary enough as it is without these low-grade carryings-on.

I try to be fair-minded about these things and, if any dealer can show me that the folks who are paying $10 or $12/oz. for silver ingots commemorating vertebrates of the Lower Mississippi are really making a killing, I will retract the foregoing and confess error.


Like all good libertarians, I hold as a point of doctrine the desirability of freedom of gold ownership and of the availability of "gold clause" contracts as a means of protecting the individual from loss of purchasing power through inflation. The practical question arises, however, as to whether these gold clauses would be used, even if they were legal.

At a luncheon recently a past president of the Mexican bankers association (a good libertarian) was asked, since gold ownership, and presumably gold clause contracts, were legal in Mexico, why didn't people use gold clauses to protect themselves from inflation. He replied, after a pause, that he had never been asked that but he would suppose that borrowers would resist such agreements. As a secondary consideration, lenders would probably hesitate to insist on an inflation-proof debt since this would probably mean a substantial reduction in their nominal interest return. Since the big lenders are corporate managers of other people's money, their books will look better if they charge 10 percent, even with inflation, than it will if they get only a true three or four percent uninflated values. And something between three and four percent is what experience suggests a prime borrower, inflation-free loan should bring.

So, even if gold clause contracts were legally enforceable, there's no guarantee that we could get anybody to agree to one.

Davis Keeler's Money column alternates monthly in REASON with John J. Pierce's Science Fiction column.