Silver, the Dollar and Interest Rates

Silver prices fell about a dollar per ounce today as the U.S. dollar strengthened in response to Federal Reserve Chairman Jerome Powell’s remarks, implying that interest rates will go higher.

It’s good news for anyone wanting to put aside some silver as the cost for an ounce of silver flirted with $20, but the raising interest rates is bad for most Americans. Higher interest rates mean higher borrowing costs for companies. That makes doing business and expanding an existing business more expensive. Business that borrow to fund their expansion, whether they are a small business borrowing $250,000 or a big business borrowing $2.5 billion, will think twice and a good number of them will delay their expansion. A recent example of this is when Amazon delayed construction of a new building at its Virginia “second headquarters” not long after laying off employees.

When a company decides not to build a new factory, we lose jobs. If oil exploration companies don’t drill more oil wells, we not only get less oil, we get fewer jobs. When a steel company that makes I-beams sees demand drop because of less construction, they lay people off. When people get laid off, they spend less money, which hurts local restaurants and other small businesses. They then either lay people off or close. It’s a cycle that spirals towards the bottom.

Escaping a Recession

The country has been skating along on the thin line separating us from a recession for about a year. I think these “good times” are going to come to an end. Credit card bills are building. Car repossessions are climbing. Food prices continue to go up. I can’t help but think that thin line won’t hold for much longer. We’re going to wake up one day to a Lehman Brothers-type collapse that stuns the market and tips everything over the edge into a recession or worse.

Lots of people are buying gold and silver to prepare for that day. They expect precious metals will insulate them from the vagaries of the U.S. dollar and other fiat currencies. If you have the cash on hand and the willingness to tie it up in shiny metallic disks, this might be a buying opportunity.

The good news is, if interest rates drop, the price of silver should increase. The bad news is, the price might drop further and you might kick yourself if you buy now.

Silver for Spending

These days, silver is called “the poor man’s gold” because most of us can’t afford to pay $1,850 for a one-ounce gold coin. Most one-ounce silver coins are around $23 or $24 as I write this. Believe it or not, so-called “junk silver” is even more expensive per ounce. I don’t get why the silver in a worn quarter from before 1965 is worth more than the silver in a Canadian Maple Leaf coin, but that’s the case. Perhaps there’s not much on the market after almost 60 years, so it’s a scarcity thing. I guess it’s not so “junky” any more.

From a prepper perspective, the theory is that silver coins are useful because you can spend them after the SHTF. Even if the government no longer exists and its paper dollar bills have no value, the silver in a coin they issued should have value because the base metal itself is valuable.

Of course, this means there must be someone willing to accept your silver in return for whatever it is that you want to buy. They might prefer to barter for something of immediate value, like some food or a pair of warm socks. Immediately after a disaster, it could be difficult to use silver to buy something of value, but after things stabilize, local markets get established, or merchants start making the rounds, silver might be a very useful medium of exchange.

Right now, 20 rounds of 5.56 ammo cost more than an ounce of silver. I am hoping that lead and brass will retain their value during the collapse. I have far more bullets than I do silver or gold!

Gold for Saving

An ounce of gold is currently worth as much as 90 silver coins. You aren’t going to be using that at the local market to buy a pair of wool socks or a ham. But you might use gold to buy a pregnant cow or a trained four-year-old horse. The other benefit of gold is that it will have value even after order is re-established, making it a good way to carry your wealth through the collapse and out the other side. So consider silver your spending money and gold your savings.

If you can’t afford silver or gold? Don’t worry about it. Focus on food, water, shelter, self-defense and medicine. If you don’t live to spend your gold and silver, it isn’t going to do you any good. As many have pointed out before, you can’t eat gold.