One day in August, 1964, I noticed that the gas gauge on my ’55 Chevy was closing in on “E”. I pulled into a gas station and the attendant came out to my car. Regular gas that day, on average across the nation, was 28 cents a gallon. The other choice was hi-test at 31 cents. I couldn’t afford the hi-test. “I need a gallon of regular,” I told him. He opened the gas cap and pumped a gallon. I paid with a quarter and three pennies. There was no such thing as plastic to swipe. I was 17 years old.
I drove from the gas station to the brand new hamburger place out by the malt shop near my high school. I paid 25 cents (another silver quarter) for a big ole honkin’ hamburger with all the trimmings, and I paid a nickel for a Coke in a bottle. “Still Only 5 Cents” was the greatest slogan Coca-Cola ever had. The new hamburger joint was called McDonalds. Just a few months later, another new place opened, called Burger King, with an even bigger hamburger for a quarter than McDonalds was selling. That became my favorite burger joint. Hey, my folks taught me to be thrifty.
I made $1.15 an hour at my after-school job bagging groceries at the first Winn Dixie built near my neighborhood. Plus tips, usually a nickel or a dime, for carrying the groceries to the car. That was big money, and it was a big step up from my first job, where I was paid One dollar for Two hours on Saturdays, wrapping catfish in newspaper for old Captain Bill to sell from his truck near the tracks downtown.
I was 14 when I worked Saturdays that summer for Captain Bill. My Mom sent me straight to a bath when I got home from that job, I’m here to tell you. My folks encouraged me to mow neighborhood lawns instead, for $1.25 a lawn. That’s per lawn, not per hour. We had our own push mower that I was allowed to use. And a few years later, Dad even bought one with a gasoline engine on it.
The quarter I paid that August day in 1964 for the gas, a quarter made of 90% silver, is today, July 26, 2012, worth $4.93, as silver hovers around $27.69 an ounce, according to the silver value tables today at Coinflation. http://www.coinflation.com/silver_coin_values.html A silver quarter ($4.93) also paid for the hamburger, and a silver dime (worth today $1.99 in silver value) would have bought two Cokes, which would match today’s Big Gulp at the Stop ‘n Shop.
A gallon of regular gas in my town is going for about $3.30 today. It has been as high as $4.50 not many months ago. I can find the biggest burger at the best burger joint for about $4.95 anytime I like. If they took silver in payment, I could buy that burger for a silver quarter today, and I could buy almost a gallon and a half of regular gas with another silver quarter (but I’d have to pump it myself…and no one would offer to check the oil and clean the windshield and say “thanks for stopping by.”)
Today, a kid in the neighborhood charges about $25 to cut a lawn. He’s paid in paper money. US government Federal Reserve Notes. Probably a twenty and a five. If he took the value of his labor in silver, he would be cutting lawns for $1.25. If the burger joint took silver, I could get that burger for one silver quarter. Same as 1964.
Of course, I can take that silver quarter, convert it to dollars by selling it to a coin or bullion dealer, and still have the same result. I’d convert the silver to the local currency (dollars) in order to spend it, just as I would convert my dollars into euros if I flew to Paris or Berlin and needed to use their local currency. And, upon leaving Europe, I’d convert my euros back to dollars. Same difference.
President Johnson ended silver coinage for circulation at the end of 1964. They went to the mystery metal we still use today, a clad coin of copper and nickel. Beginning in 1965, the government still made silver half-dollars, but cut the silver content to 40%. That was because the half-dollar had John Kennedy’s portrait, and there was respect for the recently murdered President that just wouldn’t allow his portrait to be cast in cheaper metal. Hardly mattered, though. Immediately silver coins were being yanked out of circulation by far-sighted folks who saw the opportunity of a lifetime. They held onto every silver coin they could get – stored away at face value – which years later would reap enormous profits.
Gold is more difficult to characterize over the past many decades. Using gold as currency was illegal in this nation from 1933 until 1976. Rare gold coins were in a different category, and no one bought those to turn around and spend them. The price of gold was set by the government, no matter what the purchasing value the dollar bill might hold. No one under the age of 90 has any memory of spending gold to illustrate the store of value, but the correlations are the same. Historically, gold’s value has been roughly 15 or 16 times that of silver. Today it’s around 58 to 1, but that just means that silver is very, very cheap, relatively.
And that is what you need to know about the values of precious metals. That’s the whole seminar, right there, folks. The value locked in precious metal endures, while the value of paper money evaporates. Since 1913, when the modern Federal Reserve was handed control of the US dollar, the dollar has lost 95% of the value it had 99 years ago. The dollar bill, that is. Not gold, and not silver. And that was before the US governments’ reckless and criminal handling of the current economic crisis piled trillions upon trillions more debt and dollars on top of the dollars already in circulation. The full effects of the outrageous polices of the past several years on the economy, on the dollar, on gold and silver are yet to be seen, even as the lives, fortunes and futures of many Americans are now in ruins.
Precious metals will hold value. They will protect savings. In some cases, for some products and services, precious metals hold a little more value, and for others a little less. It is never a perfect correlation – they don’t move in lockstep – but it tends to even out. The values of quarters and dimes and hamburgers and gallons of gas and freshly cut lawns are just about the same today as they were about 50 years ago, when you put their cost in silver or gold.
The difference in savings and investment is easy to see. Savings is what you keep, and investment is what you turn over to someone else in hopes of making a profit. Savings is in your hands – in your control. An investment is in the hands of someone else – in their control. I see gold and silver as a store of wealth, as the best way to preserve wealth over time. If you want to see gold and silver as an investment, that’s fine. It’s true that gold and silver in your possession, kept as savings, won’t make interest income for you. It’s also true that neither will a dollar bill make interest for you, until you hand it over to someone else’s control. That goes for any kind of store of wealth – any form of money – on Earth. The ‘risk’ part of ‘risk and reward’ is that you won’t get that dollar back.
Gold and silver and other metals move up and down in dollar terms everyday, just as euros and yen and British pounds do. It’s called currency arbitrage. Buying gold and silver today with an eye to selling next week could make money for you or could backfire. Investments have a way of handing your head to you if you don’t know what you’re doing. Ask the professional traders who lose billions every year on Wall Street in currency arbitrage and Forex (foreign exchange). And that includes arbitrage in gold and silver. Gold and silver work best financially when they are used for what they do best - as a store of value over time.
Until next time.