Author Topic: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario  (Read 4013 times)

Offline Cheapshot

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Hello,

I am new to the forum here and a thought crossed my mind today that I couldn't answer on my own.  Hopefully someone here can provide some insight for me.  If a so called "SHTF" scenario such as an economic collapse where our paper money would become as worthless as the paper its printed on occurs, or due to mass civil unrest or EMP due to foreign attack or from natural environment, whatever the situation might be, how would people put a value on gold or silver over a prolonged period of time?  So let's say the electrical grid is either disrupted by solar activity, or an outside country hacks the electrical grid thus rendering it useless, banks are pretty much out of the question, therefore skyrocketing the value of gold/silver and other precious metals.  If this goes on for let's say six or more months, how will citizens keep account of fluctuations in the value of precious metals?  There are some pretty remote areas in the United States where some people may not have contact with others for quite some time.  At some point resources will run out and people are going to have to buy or barter for something.  How will they know if they are getting ripped off by another person?  If Bill Schmill doesn't know the value of silver is equal to X amount of dollars and he needs to buy food, and Joe Schmoe has food to sell and is asking for the double the amount of the current precious metal value, what is that person to do?  I guess what I'm trying to ask is, who or what will determine the value of precious metals both initially and throughout a catastrophe like this?

Offline CharlesH

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #1 on: December 01, 2014, 07:04:43 PM »
I would imagine local markets will set the price.  It seems that in the scenario you described the value of real goods for survival would be at a premium compared to the value of precious metals.  In other words the PM holders will have to shell out more of their metal for essentials.  This would set up a classic buyers market: those who can afford to trade for the discounted PMs would be the ones holding them all when the economy got back on its feet.
 
I don't see PMs as a good hedge for SHTF.  Their place is in a hyper-inflationary type situation in my opinion.  For bartering in SHTF I'd go with beans, bullets, and bandages.  For the record I think hyperinflation is much more likely than SHTF, so I do buy PMs for myself on an annual basis.  Not a large part of my portfolio, but still a part.

Offline Alan Georges

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #2 on: December 01, 2014, 07:42:20 PM »
I guess what I'm trying to ask is, who or what will determine the value of precious metals both initially and throughout a catastrophe like this?

I think that PM's won't be so useful in an out-and-out Mad Max collapse, but there are a lot of scenarios that are less extreme, where some level of PM market will continue to function, but where paper money may be in inflationary free fall.  In such a case, junk silver would be useful for small-to-medium transactions, and the prices will be set by the market and maybe a little bit of haggling. 

Gold... gold is good for compact storage, or for making a run for elsewhere.  Think of the people fleeing occupied Europe in the movie Casablanca.  One cary-on bag, running for their lives, need a compact way to carry the equivalent of maybe about $10,000, gold's the way to go there.  Though these days, bitcoin may be a better way to travel.

Either metal would also be good for holding value across a major economic shift.  It might take a few years, but eventually some kind of economy would shamble back to its feet, and it'd be nice to have an "inflation-resistant savings account" stashed away in a safe place for when you need capital to re-establish your business.

Look, if things are so bad that there aren't functioning markets that have somewhat stable prices denominated in PM's, odds are you'll be dealing in the other precious metal: copper jacketed lead.  But let me close by saying that this is extremely unlikely.  An ugly period of high-almost-hyper-inflation is far more likely, and having a small stash of PM's tucked away is one of the few liquid hedges against it.

Offline Chemsoldier

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #3 on: December 02, 2014, 09:02:09 AM »
I would argue that nearly all "SHTF" includes situations where precious metal's role as a store of value will have a place.

Since metals are a store of value and value can be exchanged for value there will always be a place for it.  Obviously when people are all trying to get enough to eat, the value of things that can be immediately eaten will have very high value and above that of a lump of metal.  But there always exist some people willing to bet on the long term.  For instance, government officials that get some form of provided rations, farmers that produce more than enough food for themselves, preppers who have enough food on hand to bet on the future, etc.  Economic life as we know it may break down, but economic life of a sort NEVER breaks down.  In truly desperate circumstances (or truly...different people) people may sell their bodies or children, but that is still an economic choice.

Metals are a hedge like everything else, and it is as foolish to put everything into it as it is to put everything into cash under your bed.  But having some is just sense.

Offline David in MN

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #4 on: December 02, 2014, 09:44:53 AM »
There's always a market. What's being questioned here is basically what Hayek called imperfect information. You might not know the exchange rate down the street, across town, two states over, or in Bolivia (to pick a random country). But in reality it doesn't matter. What matters is the barter you're involved in. Over time markets tend to stabilize. But the market will command different prices. Sunscreen in Minneapolis is like winter boots in Miami. The long and short is that you'd have to ride the wave until an established pricing structure emerges (and it will).

If you want to study the economics of emergent pricing and imperfect information, read some of Hayek's work. I'd specifically call out his Nobel Prize speech, "The Pretence of Knowledge" that specifically covers the murkiness of prices and wages.

Offline bigbear

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #5 on: December 02, 2014, 09:51:37 AM »
There's an economic theory here called 'subjectivity of value'.  The most common 'parable' is summed up the question:  What's more valuable to a person in the desert, water or diamonds?  You're not just measuring the work involved in extracting the value but also the utility of having a diamond vs. water in a given scenario.

http://wiki.mises.org/wiki/Subjective_theory_of_value

So there is no way to determine if you're 'getting ripped off' because it's in the eye of the beholder.  We've just become so accustomed to having vast amounts of information at our fingertips that it's tough to imagine how decisions will be made without that information. 

Offline MTUCache

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #6 on: December 02, 2014, 10:13:46 AM »
A very common question that I think nearly everybody has at one point or another while they run these scenarios down in their head.

Perhaps the most helpful way to answer it (for yourself) is to extend that question out to other things...
Forget about gold/silver. What's the monetary value of food in a SHTF situation? A gallon of gas? A way to purify water? A handful of prescription drugs? A brick of ammo?

It's worth whatever immediate real-life value places on it at that second. If our normal systems of food/water/energy/etc aren't in place, security and laws don't exist, the idea of a "store of wealth" or "future value" becomes immediately pretty silly. Planning for an uncertain future doesn't even cross your mind when you're in the middle of an uncertain present.

If I'm in the middle of a 200 mile bug-out while all forms of digital transactions are down, and pull up to a gas station that just happens to have gas, they'd be crazy to take an IOU with a credit card number on it. Some would argue they'd be crazy to take any US currency at all. If you're stuck paying in silver, and this may be the only place you've got to fill up your tank, how much would you be willing to pay? An ounce of silver per gallon? I'd pay that in a heartbeat if it meant keeping my family safe and getting to my BOL. Does that mean my silver lost 90% of it's value? Or that gas is suddenly 10x more valuable? At that moment I don't know, and I don't care.

Every commodity has this problem. We've just become so programmed to rely on the slow changes in relative value (and a massive market that everyone has access to) that the idea of big swings scares us. The idea of having imperfect information and an unknown timeline naturally make us second-guess ourselves.

If you're the only farmer that has a wheat harvest within 100 miles this year, it doesn't matter what the Chicago Merc said bushels were worth last week (or last year). The price of that wheat is whatever you say it is. If you think you can get a good deal for yourself and your family, and you can move it before it starts spoiling, you're going to make it. If there's enough demand to set up and auction, great. If not you deal with whatever offers are there at that time.

Long term, eventually, all the information and markets come back and people will find out who over-paid and who got a deal... but you've got to make it to that long-term first. And if all you lost was a bunch of metal you'll thank your lucky stars, since most people will be talking about the lives that were lost and the crimes that were committed.

If that SHTF event ever happens, I'm guessing your shiny minerals will be one of the LAST things on your mind, because there's going to be some terrible, horrific things going on everywhere that no amount of money or PMs will be able to stop. Thankfully, that particular event is pretty unlikely, and all the silver/gold that you have stored will be far more useful in the more likely scenarios of continuing inflation and long-term economic depression.
« Last Edit: December 02, 2014, 10:25:55 AM by MTUCache »

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #7 on: December 02, 2014, 10:57:09 AM »
A very common question that I think nearly everybody has at one point or another while they run these scenarios down in their head.

Perhaps the most helpful way to answer it (for yourself) is to extend that question out to other things...
Forget about gold/silver. What's the monetary value of food in a SHTF situation? A gallon of gas? A way to purify water? A handful of prescription drugs? A brick of ammo?

It's worth whatever immediate real-life value places on it at that second. If our normal systems of food/water/energy/etc aren't in place, security and laws don't exist, the idea of a "store of wealth" or "future value" becomes immediately pretty silly. Planning for an uncertain future doesn't even cross your mind when you're in the middle of an uncertain present.

If I'm in the middle of a 200 mile bug-out while all forms of digital transactions are down, and pull up to a gas station that just happens to have gas, they'd be crazy to take an IOU with a credit card number on it. Some would argue they'd be crazy to take any US currency at all. If you're stuck paying in silver, and this may be the only place you've got to fill up your tank, how much would you be willing to pay? An ounce of silver per gallon? I'd pay that in a heartbeat if it meant keeping my family safe and getting to my BOL. Does that mean my silver lost 90% of it's value? Or that gas is suddenly 10x more valuable? At that moment I don't know, and I don't care.

Every commodity has this problem. We've just become so programmed to rely on the slow changes in relative value (and a massive market that everyone has access to) that the idea of big swings scares us. The idea of having imperfect information and an unknown timeline naturally make us second-guess ourselves.

If you're the only farmer that has a wheat harvest within 100 miles this year, it doesn't matter what the Chicago Merc said bushels were worth last week (or last year). The price of that wheat is whatever you say it is. If you think you can get a good deal for yourself and your family, and you can move it before it starts spoiling, you're going to make it. If there's enough demand to set up and auction, great. If not you deal with whatever offers are there at that time.

Long term, eventually, all the information and markets come back and people will find out who over-paid and who got a deal... but you've got to make it to that long-term first. And if all you lost was a bunch of metal you'll thank your lucky stars, since most people will be talking about the lives that were lost and the crimes that were committed.

If that SHTF event ever happens, I'm guessing your shiny minerals will be one of the LAST things on your mind, because there's going to be some terrible, horrific things going on everywhere that no amount of money or PMs will be able to stop. Thankfully, that particular event is pretty unlikely, and all the silver/gold that you have stored will be far more useful in the more likely scenarios of continuing inflation and long-term economic depression.
+1  Nailed it.  I was going to write a few similar things, but this post pretty much covered it all. 

Ultimately, what will be the medium of exchange for common transactions?  Barter is just too inconvenient to be a permanent solution to all exchanges.  It might start out as a barter economy, but sooner or later, coin is likely to settle in as the medium of exchange.  In the meantime, values are likely to be set by what the market demands.

nelson96

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Re: Gold/Silver value In a prolonged "SHTF" or economic collapse scenario
« Reply #8 on: December 02, 2014, 11:16:31 AM »
Barter is just too inconvenient to be a permanent solution to all exchanges.  It might start out as a barter economy, but sooner or later, coin is likely to settle in as the medium of exchange.

This is what nails it for me, though all of you make good points.