Monday, November 21, 2011

Colloidal Commerce



Patrick MontesDeOca: Mr. Sprott, can you please give us the current situation in terms of price in the silver market? What you might see in the short term as it unfolds in the next six to twelve months, what is your forecast?
Eric Sprott: Sure, I take a longer term view than six to twelve months. I’ve been involved in silver for about probably almost ten years now and of course the price of silver has done wonderful things in that time period even though recently it has come under a lot of pressure. My thesis being that even though the last decade has been the decade of gold, this decade will be the decade of silver. I can only imagine that it will go back to its historical relationship to gold of 16 to one in term of price. And as an example of 16 to one, with gold at $1600 it would suggest that the silver price should be $100. And most of the data that I look at certainly as it pertains to day to day markets, and I don’t mean the Comex, we're not talking about that, we're talking about the physical market for silver, and we have data points that suggest that buying for silver by the public is almost on a ratio of dollars of silver being bought to dollars of gold being bought. We can see that the U.S. Mint’s data that comes out every month, and pretty much every day, so for example, the amount of silver coins being bought through the mint’s service - they sold 50 times the number of silver to gold coins. This month it’s actually running around 70 to one. This really means people are putting as many dollars into silver as they are into gold. But there is nowhere near the amount of silver to invest in as there is gold.

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You can expect to pay anywhere from the value of the silver up to about a 5% premium to buy "junk silver" coins.  There is a lot of silver sold on ebay and you should familiarize yourself with the categories under the US coins category.  Often there are buys there for NO PREMIUM over the spot silver price in my experience. I just bought 7 rolls of dimes ($35 face value) yesterday for $359.  This is a multiple of 10.26 times face which if you divide by 0.715 tells you that I paid $14.35 per ounce of silver which was 14% below the silver value.
Keep an eye out for deals like this on ebay and buy them when you can...
Silver Eagles
American SIlver Eagle one ounce
Another widely used form of silver is the $1 Silver Eagle which is a very beautiful coin that contains exactly 1 Troy ounce of silver.  They typically sell for a premium over the silver price of 10% or so.
I would purchase these if you can find a good price but try to avoid paying a large premium.  Junk silver is a better bet for most survival/barter situations because it comes in smaller denominations.  These silver eagles would end up being more like your $50 or $100 bills that are used for large purchases.

Source.


How beneficial is a fully recognizable money to the economy? This paper answers this
question for the commodity money system. We build a model in which money is made of
precious metal coins, yet its intrinsic quality is imperfectly recognizable by sellers. Based on
historical evidence, we allow buyers to resort to a fixed cost coin certification technology.
known as coin assaying.that fully reveals the quality of coins to sellers. We show that
the two inefficiencies associated with imperfectly recognizable commodity money. lower
quantities traded or lower trading frequencies. are reduced thanks to this technology. We
characterize pure and mixed strategy equilibria in which agents certify their coins, and show
that certification coexists as a pure strategy equilibrium with the low-quantity inefficiency
but does not coexist with the low-frequency inefficiency. The coin inspection technology is
welfare improving when it removes the low-frequency inefficiency, but welfare deteriorating
when it removes the low-quantity inefficiency.



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