April 24, 2013 -- Issue No. 5

From the Owners

Well, well, well.  What a month April has turned out to be.  Obviously, this edition of the newsletter is coming out late, but anyone who’s watching the precious metals markets will probably understand why…

…we’ve been really busy!  Through the month of April so far, we’ve seen a 13% drop in gold, and a 20% drop in the spot price of silver at the lowest points.  At this is being written, we seem to be on a recovery, but right now, anything can happen with spot prices.

With the decreased price, I am proud to say that we did not have any “panic sellers” this month, but we did see a large increase in demand, pointing to a wiser consumer.  Also, we’ve seen additional empirical evidence supporting spot prices being manipulated by a paper market.

Demand has increased across the board for silver…so much so that we’re going through something that I’ve never seen—the complete unavailability of one ounce silver products.  That seems to be coming to an end, but the increase in premiums is staying firm, creating an interesting dichotomy; that while the spot price of silver seems to be violating the laws of supply and demand, the premiums are obeying the laws of supply and demand.  So, if the demand for physical silver has gone up, and silver is getting harder to come by, shouldn’t the spot price increase?  Of course it should.  But, since the spot price is largely determined by paper promises, and there is no limitations placed on the “short” or “selling” versions of those paper promises, excess selling on paper leads to artificial market depression, in return creating a higher demand for physical.  This, in turn, causes an increase in demand for physical silver among buyers who know why the prices are low, causing a shortage of physical silver because no “real” silver has actually be sold in the first place, which in turn makes premiums go up.

This puts us in some very interesting position, and exciting to see what happens in the future.  What’s coming short term?  If we knew that, my friends, I wouldn’t be apologizing for getting this newsletter out late.  Long term?  I don’t have any doubt that we’ll see prices climb back up as the dollar continues it’s death throes…but I’d expect the Euro to go first.

As always, we thank you for your continued patronage and support.

Best Regards,

Matthew and Ariana Vickers
Owners – Rocklin Coin Shop

Strangu-regu-lation

by
Matthew Vickers

Through the years, I have heard many a person argue that the cornerstone of our Constitution is democracy, and that democracy is what has made our country great.  I took in this information, as a lad, and considered that when measured against other governing systems, indeed, democracy was the way to go.  For, what better gift—what better sense of fair play could there be—then the right of people to govern themselves through the consent of a majority?

But, times change, and as with many things, exposure to the real world and the consistent beating that life dishes out leaves me wondering if all those old school yard beliefs were really all they were cracked up to be.  Is democracy that great?  Was democracy the primary focus of our founding fathers when they drafted the Declaration of Independence, the Constitution, or the Bill of Rights?  I don’t think so.

I believe that our Constitution is built upon the foundation of liberty, the fundamental rights all humans have to that liberty, and the necessity for the enactment and enforcement of legislation that serves no other purpose than to protect such liberty.  What’s further, I believe that excessive democracy, or rather, an obsessive clinging to the necessity of the democratic process to decide anything beyond the protection of liberties, fundamentally harms our ability to exercise those liberties.

Why the speech, you ask?  What does this have to do with coins or precious metals?  Don’t worry.  I’m getting there.

So far as I can see, one of the most insidious forms of excessive democracy comes in the form of regulation—it is the hand that massages liberty’s neck, earning liberty’s trust by disguising itself as a friend, as it slowly reaches its fingers around liberty’s throat, quietly strangling her.  And, like any sociopath, regulation serves but one master…itself.   Let me provide you with a delightful, personal example.

I took over ownership of Rocklin Coin Shop in September 2009.  For over two and a half years, we conducted business with honesty and integrity, receiving no complaints from the public.  And then they came.  Sometime, in mid to late 2012, we were visited by the Placer County Agricultural Commissioner of Weights and Measures.  Didn’t know that department existed?  Neither did we. 

During this visit, we were politely informed that our scales (that we use to weigh scrap metals, and verify the authenticity of coins) were non-compliant.  We were told (again, politely) to cease and desist any business practice that involved our scales until we purchased a compliant scale from their list of approved scales.  We were also informed that we had to obtain a license from the state, certifying us (my wife and I) as “Weighmasters,” and our two employees (my brother and mother) as “Weighmaster Deputies.”

I’ll admit to being somewhat excited.  The nerd in me was anxious to prove I had what it took to learn (or prove that I already knew) whatever it would take to be a California State Certified Weighmaster.  I’d finally have a reason to memorize the conversion ratios between troy ounces and standard ounces; how many grains to a gram; the difference between carat and pennyweight.  What would it take, I wondered, to be counted among the Department of Weights and Measures finest…

…a one page form of personal information and an annual fee of $200.

In exchange for this, I am gifted with: 

  • A scale that costs me more than double what my other scales cost, but has a pretty green seal showing that it’s an “approved device.”
  • A tag forcibly placed on my other scales which show that those devices are “NOT APPROVED” although they weigh items exactly the same as the costly “approved device.”
  • A requirement to post my County and State Weighmaster certification and license on my wall.
  • A threat of fines should I fail to comply.
  • An ever-growing sense of frustration and disdain.

Yet, my frustration does not arise from the fee (for it is little to pay), nor the required forms (for I enjoy paperwork), nor the posting of the licenses (for who does not love to have licenses posted on their walls).  My frustration arises because this regulation serves to protect the liberties of absolutely no one.  The regulation serves only to preserve its own existence—almost alive in its own way—a virus, benefiting and sustaining itself the cost of others.

Again, what has this to do with precious metals and coins?  To now, my type of business has been terrifically under-regulated.  This, of course, is not to say that I welcome further regulation, but rather that I understand how much worse other businesses are harmed by excessive regulation.  The question is, do I think that I will always be so fortunate?  The answer that keeps popping into my head: probably not. 

I believe that this industry has been intentionally “under regulated” by the very persons responsible for the lowering value of the dollar—the charlatans and double talkers who’s reputations and opinions would suffer should their ownership of precious metals be made public.  In other words, the people who are actively (perhaps maliciously) destroying our currency are certainly buying gold and silver, and would not be served by additional regulation. 

But, I think that those days are rapidly coming to a close.  The further down the financial rabbit hole we fall, the more impossible it will become to accumulate the wealth we require as a nation to dig ourselves out of that hole.  I believe, in time, that there will be little chance but to impose regulation of the buying and selling of precious metals—regulations that would impose such fiscal impedances that buying and selling of physical precious metals would become so cumbersome, if not altogether impossible, that those who failed to buy before such regulations might be better to not buy at all.

A bleak, prediction, I know.  But, as Thomas Jefferson wrote, “the natural process of things is for liberty to yield, and government to gain ground.”  Who could look at regulation growth over the last 50 years and argue against that?

Not me.

The Rocklin Coin Shop Book Club

by
Chad Vickers

“Surviving the Economic Collapse”
By: Fernando “Ferfal” Aguirre 

Working in precious metals, one starts to see a common thread that runs through most investors in precious metals. Most of my customers keep up with current events, and are worried about the current economic conditions in the United States. Many of their concerns have led to worry of tough times ahead, which leads to an interest in survival. I have read a number of websites, and a few books on the subject, and have always found most of the information to be more bent towards wilderness survival. While information about hunting, fishing, building shelters, and spear making can be useful, I have always been left thinking “Well that's great, but how many people are going to be in a forest, or jungle when it all goes down”. It was while I was talking to a customer about this thought, that he referred me to the book “Surviving Economic Collapse”. I picked up a copy of the book and I enjoyed it so much I thought I would do something I have not done since high school and write a book report.

The entire premise behind the book is the author giving first-hand knowledge of how to survive and prepare for a disaster in an urban setting. The techniques in the book could be applied to any disaster situation, a natural disaster, terrorist attack, but the book is more driven to life after a financial disaster.  This is a subject very near and dear to the hearts of most precious metals buyers

I will admit before reading the book, my knowledge on Argentina was limited.  I could have told you it was a South American Country, and if you would have asked me about their economy I surely and naively would have guessed that it was a poor Latin American Country.  Up until 2001 Argentina was a fairly well to do Country.  The conversion rate of the Argentine Peso to the US Dollar was 1 to 1.  However, as it turns out Government spending was out of control, and exceeding the money that the Country was making (sound familiar).  The International Monetary Fund was making billions of dollars in loans to Argentina, even though the Countries officials kept postponing  its payment schedules, because it had no way, and no intention of paying back their loans. Eventually all of this came to a head.  Banks closed, over night the conversion ration of the Peso to Dollar became 3 to 1.  Once wealthy citizen lost their jobs, businesses went under, there was rioting, looting, the president stepped down.  The country fell into chaos.  Unemployment went through the roof, once well to do middle class Argentinians were left unable to keep up with a devaluing peso, banks limited citizens to the amount of cash they could with draw (we are looking at you Cyprus), people began to starve, and then came the crime.

The picture that the author paints is as bleak as it is terrifying.  It’s not a disaster that we see in the movies, and bomb hitting, insane destruction, and eventual rebuilding.  It is something much worse.  As the author states, “life does not stop, it just changes.”  Things that we once taken for granted are gone.  Food is harder to come by, as is avoiding crime.  It is a terrify loss of societal standards that are still being felt in the country today.

Where the book succeeds greatly, is by quickly establishing how the downfall happened, and then giving a step by step demonstration on how to deal with and prepare for everyday events which take place when the World as you know it, is flipped upside down.  One thing that I found of great interest is the book was very different from most survival ideas.  Most people I talk with talk about leaving the cities, going to somewhere in the middle of the forest and living off the land.  The author writes more about safe guarding one’s home.  Prepare to stay put and deal with the immediate insanity.  Keeping enough food, water, fuel, and medical supplies to get through the initial chaos.  After a while that slows down, and people.  He even talks about how the areas hardest hit by crime and poverty were the further out, less densely populated areas.  Police stay close to the largely populated areas.  Even when Martial law was declared, military forces are more inclined to protect areas where there is more wealth and prominence.  Farmers in the middle of nowhere were the hardest hit by criminals looking to take advantage of the fact that nobody was around.  Don’t mistake the illusion that because there are no neighbors for miles around that you are safe.  It only means that there is nobody around to hear you scream.

There are informative sections on firearm selection, self-defense techniques, defensive driving techniques, and what types of equipment to acquire.  The section I found of particular interest (as will most likely anyone reading our newsletter) was how ownership of silver and gold is crucial for surviving it a destroyed economy.  How bartering for goods and services quickly fell apart, because not everyone needs chickens, or sweaters, or .22 ammo.  Cash is still king, rather it be the US Dollar, or pesos.  Our societies are so tied into in now, that it will always be traded.  Gold and silver work great to keep on hand, take small portions into a money exchanger and turn into cash to buy a week’s groceries.  As money is devaluated, it becomes worthless to have too much cash just laying around, losing value.

I’ll save any further description of the book, and just heartily suggest that you read it.  You may not agree with every idea in it, I surely did not.  But it was nice to get a real perspective on how to deal the possibility of financial collapse from someone who has lived it, and not just a book about theoretical situations.  The book is self-published, and does not have a wide release.  Though copies can easily be found on Amazon.com (http://www.amazon.com/The-Modern-Survival-Manual-Surviving/dp/9870563457/ref=sr_1_1?ie=UTF8&qid=1365015290&sr=8-1&keywords=surviving+economic+collapse)

 

Premiums & Ratios

by
Matthew Vickers

I found it important to write something regarding the premium differentials between silver and gold, and how that differential applies to the decision-making process as it applies to metal allocation in one’s precious metals portfolio.  It’s important to discuss, because we often make recommendations on portfolio allocation based on analysis of the “Silver to Gold Ratio,” (hereinafter S:G) which we keep posted on our price board. 

There are typically two schools of thought with the S:G, and what the fair number should be.  One school of thought is 16:1 (meaning that 16 troy ounces of silver have the equivalent dollar value of 1 troy ounce of gold).  Most proponents of the 16:1 theory derive the number because that was the S:G ratio when the US Dollar was on the gold standard.  The other school of thought is that the fair ration should be 25:1—the S:G ration during our time on the Silver Standard for currency.  I’m a pretty conservative guy, so for that and some other reasons, I tend to lean toward the 25:1 theory.

Obviously, if a fair price of silver would be found at a 25:1 ratio, and we’re currently at a 60:1, it would indicate a very low price for silver, and a great buying opportunity.  But, we have to look a little closer, since the ratio is based ONLY on the current spot prices.

Anyone who’s bought physical silver and gold knows that you don’t buy it at spot.  There’s a premium.  Silver and gold don’t come out of the ground in coin and bar form.  They have to be refined, minted, and sold, which takes heavy equipment, specialty machines, a labor force, etc.  In the past, those premiums have been fairly consistent, ranging from 3-10% over spot, depending on what type of product you buy.  Additionally, those premiums stayed consistent across both metals.

What we see now, though, is a dramatic increase in silver premiums, while gold premiums have remained relatively stable.  Of course, this comes with a disclaimer…not every dealer structures their prices like we do.  Our pricing structure is very simple: replacement cost + 5%.  The replacement price on gold products has not significantly changed, so our prices have not.  Conversely, there are some other, shall we say, “dealers of ill repute” who are taking advantage of the buying frenzy, and Jacking up their premiums on gold rigHt along with silver.  So, when I’m talking about pricing structure, I’m obviously not talking about these guys.

However, for the honest dealers, when there is a dramatic shift in premiums, we have to look at a new number, which I call the Retail S:G Ratio.  The Retail S:G Ratio takes into consideration premiums, by averaging similar products.  In other words, the costs of 1 troy ounce silver products against 1 troy ounce gold products.  Here’s a better example using real prices off the Rocklin Coin Shop Price Board.

Silver rounds (at this point very scarce) are trading at 20.15% over spot for a total retail price of $29.15.  Similarly, all one-ounce gold is trading at an average of 7.72% over spot for an average price of $1,577.79.  Now, while spot prices (24.26:1,464.66) would reflect a S:G ratio of 60.4:1, the retail prices (29.15:1,577.79) reflects a 54.1:1 ratio!  That’s a retail ratio loss of almost 6:1.

If you compare silver 10-ounce bars against 1 ounce gold, you can do better at a 57.6:1 retail ratio.  The reason why this is important is because you can see what you lose by just getting what everyone else wants.  For every $1,580 that you spend on silver, you lose three ounces of silver if you buy rounds instead of bars, and raise your DCA (Dollar Cost Average), lowering your total long-term gain. 

Does that mean bigger/cheaper is always better?  Not necessarily.  This article is merely a reminder to consider all things when making your investment.  Every investor is different.  Every person has a different goal.  For many, the additional 3:1 loss buying one-ounce rounds is worth it for the smaller size.  Others, like myself, think that paying premiums that high is a little silly. 

If you’re buying all your silver right now, and what you want is rounds, then the price will be worth it.  However, if you’re buying silver over time, go with the 10-ounce bars right now, and pick up rounds when the premiums level off.  There are always multiple factors to consider, but the honest dealer will make sure that your personal goals are taken into consideration.

As always, we’re here to help.  Drop by or call anytime if you want more information.

Happy buying.

This Month's Prize!!!

As you probably know, all subscribers to the Official Rocklin Coin Shop Newsletter earns you automatic entry into our monthly prize giveaway.  

It’s a late newsletter, and we’ll be choosing the winner of this month’s free prize giveaway very soon.  This month’s lucky winner will receive a 1999 US Mint Silver Proof Set.  This set was the first year that the State Quarters were released, and includes Delaware, Pennsylvania, New Jersey, Georgia, and Connecticut quarters in a separate slab, along with a Half Dollar, Dime, Nickel, and Penny in another slab.  The Half Dollar, Quarters, and Dime are all 90% silver!  This set has a retail value of $120.00! 

Good Luck!!

Rocklin Coin Shop Staff

WE WANT TO HEAR FROM YOU!

Have something to add to our conversation?  Want to get our opinions or insight on something specific.  Want to give us suggestions on products or supplies that you'd like to see stocked at the shop?  The success of any business comes from it's ability to listen to its customers.  We wouldn't be here if it weren't for you. E-mail us anytime at newsletter@rocklincoinshop.net.