November 05, 13
As predicted, the price of silver has continued to rocket. The story is being chronicled in near real-time by ZeroHedge, Max Keiser and Turd Ferguson. Silver is up a whopping 22% in the last 30 days. A massive short squeeze appears to be under way and picking up a head of steam into the March delivery month with record futures contracts setting up to stand for delivery in volumes that may well far exceed available supply. This is symptomatic of a larger issue — the synchronized collapse of fiat currency regimes around the world.
Why is the **** hitting the fan?
Massive amounts of printed currency is heading for the exits. Although the house of cards started collapsing in earnest with the failure of Lehman Brothers in September 2008, I believe the real problem traces it roots all the way back to Nixon’s decision to take the US Dollar off the gold standard in 1971. With no gold standard to put a collar on fomenting of more debt-based currency, the US government proceeded to run up the credit card — initially with petrodollars and treasury debt, and now with blatant debt monetization by the Federal Reserve.
I fully expect the situation on Main Street will not improve. Not helping the situation on Main Street, the synchronized collapse of decades of dictatorial rule in the Middle East provides more air cover for currency debasement. The price of oil shot up a ridiculous $7-8 today. The **** is definitely hitting the fan folks. All of a sudden, my February 14 forecast of $200 oil is not sounding quite so crazy.
One of the most popular hedges against currency collapse is physical commodities, notably silver which crossed $34 per ounce earlier today and has more than doubled over the past year.
Without question, the case for physical silver is strong. By all means, feel free to own some. However, for serious amounts of money, it has significant challenges as an asset class. In particular, here are a few considerations before going big-time on delivery of any physical commodity. I will use silver as a case study:
Taking Delivery is a weighty issue
A single futures contract is a whopping 5,000 ounces, or 312 pounds. In other words, that stuff is heavy. Mathematically, a $1 million investment is going to mean taking delivery on ~2,000 pounds of cargo. Good luck transporting it securely over any sort of distance!
Taking delivery means storing it securely
Physical delivery is not without risk. Earlier this month, a Canadian resident reported having $750,000 in physical silver stolen from his home in a violent robbery. His life savings in silver bars is apparently missing and untraceable.
Taking Delivery means accepting Confiscation Risk
In 1933, the US Federal Government imposed mandatory redemption of precious metals. This is spelled out in Executive Order 6102 which could be invoked in one or more variants in order to stop the dollar from completely collapsing.
Domain Leasing as Inflation Hedge
Epik’s domain portfolio has grown steadily over the past year and is now more than 17,000 Development-grade domains. For a number of reasons discussed at length elsewhere, I consider domains to be an excellent hedge against a number of economic scenarios. For investors looking for a versatile hedge, one area we are experimenting with is the notion of a domain lease with a fixed-price purchase option. This program will be available for any Epik-powered domains, including domains owned by network partners. We’ll be announcing details of this Domain Leasing program next month as part of continued commitment to developing domain names as a thriving Alternative Investment category for individual and institutional investors.