Silver and gold are lousy inflation investments
November 7, 2012 4:52PM
Updated: December 9, 2012 7:35PM
Dear Mr. Berko: Several months ago, we bought 1,000 U.S. $1 silver certificates, printed way back in 1935, when each of them was convertible into $1 of silver on demand. We know that they are not convertible into silver today. But we are told by a wealthy and knowledgeable member of our church that in the next few years, the government, in order to stabilize the dollar, will honor the convertibility of each $1 silver certificate into a 1-ounce U.S. silver dollar, which is worth about $34. So we bought the 1,000 certificates from him for $9,000, and we’ll be able to convert them into 1,000 silver dollars, worth $34,000, in three to four years and make $25,000. Is inflation going to be as bad as some people think it will be? He thinks we should buy more because he believes gold and silver are the best hedge against inflation. And if you agree, we’d like to buy 3,000 more silver certificates from our good friend, whom we plan to meet at his home after church next Sunday. We know that God is watching over us and that you will give us good advice.
— ST, Durham, N.C.
Dear ST: I’m not so certain as you that it’s God who is watching over us; I’m certain it’s the U.S. government! And that’s pretty close to God! However, I still will give you the best advice I know how. And I’ll begin by suggesting that your fellow congregant is a “Jesus thief.” A Jesus thief is an articulate, crafty at-will member of an evangelical or missionary congregation who quietly inveigles himself into the church community. His piety is a little overboard, but this cover allows him to humbly donate cash to the preacher and support many of the church’s endeavors. With this purchased notoriety, he preys upon the cupidity, the gullibility and the greed of the congregants and steals them blind but leaves them happy. These guys would make superb politicians if they could find good campaign managers.
Let’s get to the meat of this scam. 1) I’m going to give you a “24-karat gold guarantee” that the U.S. government will not, at any time in the foreseeable future, redeem your silver certificates for silver dollars. Your ability to redeem those certificates at the U.S. Treasury for Liberty Head silver dollars came to an end in 1968. 2) A few keystrokes on eBay shows more than 160 individual lots of $1 silver certificates that can be bought for $1.25 apiece, give or take a few dimes. So your wonderful fellow congregant probably bought those silver certificates on eBay or on a similar source for $1.25 and sweet-talked you out of $9,000. 3) Silver was trading at 80 cents an ounce when those certificates were printed in 1935. Today silver is $34 an ounce. For silver to increase in value from 80 cents to $34 an ounce in 77 years, it would have had to increase about 5 percent in value every year for 77 consecutive years. So I don’t think that silver is a good hedge against inflation. 4) Contrary to public opinion, gold is also a lousy inflation hedge. In 1935, an ounce of gold sold for $35 an ounce. So in order for gold to be worth $1,800 an ounce today, it would have had to increase in value 5.5 percent a year for 77 consecutive years. Certainly, the stock market, real estate, rare stamps, rare coins, rare books, classic cars, old maps and many forms of art have performed much better.
Unfortunately, you are stuck with a big stash of 1935-minted $1 silver certificates — which, by the way, were the last U.S. paper currency the nation printed without the words “In God We Trust,” and that should have given you cause to pause. I don’t think you ever will get your money back, but I’d call the cops, report the scam and hope he won’t be able to euchre other easy believers.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.