Friday, May 6, 2011

Silver is driving me Crazy, not

“The exchange member raised the margin to 17% to discourage buyers. They want to obtain physical silver for themselves. I would suggest keep buying. Even if it keeps going down, consider it cost averaging. It will go back up.” Alan Zee   this statement was in my Facebook traffic this morning. Silver has just fallen from an all time high. It really doesn’t matter what the numbers are! I’ll explain this in a moment.

     First of all let me say this. A good many of the people I know that make jewelry from precious materials, silver and sometimes gold, do so as a hobby. They use the materials and their acquired skills as a release from their days stresses. They will tell you that making jewelry is their therapy. Rising metals costs do affect their production of jewelry. The effect is much the same as rising theater tickets or higher popcorn prices at the movie theater effecting how many movies they get to see annually. I suspect rising or falling metals prices affect the entertainment or therapy columns of their budgets. OK I’m cool with that. I’m not a therapist and I don’t consider myself to be in the entertainment industry.
     Now if you on the other hand have some desire to make these skills you’ve acquired and the use of  precious materials your occupation, your principle method if producing an income. Buying metal in a volatile metals market can drive you searching for a therapist. This blog is about hammering out a living not about driving yourself crazy.
     Alan’s statement contains the wisdom necessary to survive and prosper in a changing market.  First observation:  The market price is a measure of what investors are willing to pay for the commodity. You and I have little if anything to do with determining its value. This market price, in these times, has little if anything to do with the actual use of the commodity. But you and I want to produce a product from this material. It’s in our best interests to purchase it at the lowest price.  Here’s where we drive ourselves to distraction.  We can avoid the distraction by changing out goal. Suppose we intend to purchase our materials at the annual average price. We can do this by continually buying.
This might look something like this… We have an actual demand for 1000 ounces of silver. We could attempt to purchase that amount at the lowest market price.  It will never happen intentionally. We could however buy in this changing market at a rate of about 80 ounces each month throughout the year and have avoided the annual high. In a volatile market the method used to preserve sanity is to purchase smaller amounts more frequently. In other words buy going up buy coming down. There’s good news to this approach. You will never be stuck with over priced material.
    In previous blogs I’ve said don’t over buy. If you have a market for 1000 ounces don’t buy 2000 ounces.  I’m going to rephrase that statement with this analogy.  You are pretty much faced with this decision play roulette or play chess. I prefer chess. I prefer a game of strategy.  The commodities market player is a gambler armed with what he considers inside information. I don’t have a crystal ball. I doubt he does. We have the ability to take an ounce of silver or gold and through the application of our skills, time and abilities increase the value of that material by 2 to three times. The advantage, the likelihood we will prosper is ours.  We need to have the advantage of time on our side.  
    With a purchasing strategy the daily price of a commodity has a lesser impact on our emotions, as business men. Enjoy

1 comment:

  1. Another insightful post Brad! Thanks.

    ~ Kathleen Krucoff