The Value of the U.S. Dollar vs. Precious Metals.

Several months ago I started investing in Silver bullion as an addition to my investment portfolio. The idea of investing in precious metals is not new as metals have been used for thousands of years as a form of currency. Investing in silver can be kind of fun as there are numerous ways to buy silver. Most countries mint silver coins that are absolutely beautiful as they are stamped/minted with extremely intricate artwork quality designs. Bullion rounds and bars from private mints can be found that are equally detailed. In fact a lot of people refer to these bullion medallions as "Art Rounds" due to their quality. The most popular way of investing in Silver now is basically paper stock trades.

Since silver was taken out of U.S. coins after 1964, and Richard Nixon abandoned the Gold Standard in 1971 which had backed the U.S. money supply, the U.S. dollar became what is known as Fiat Currency. Like I said before, often one thing leads to another. I had not heard the term Fiat Currency before, so I looked it up on my favorite information web site, Google. I was shocked to find out that our current U.S. monetary system is really just a fancy version of Monopoly money. After a little bit of web surfing I learned that since the Federal Reserve System was put into place in 1913 the value of our U.S. dollar has been continually shrinking. Most of the time this shrinking is referred to as inflation. What is really going on is the purchasing power or value of our dollars is just evaporating. Prior to 1913 the U.S. dollar would purchase whatever the value of 0.77344 troy ounces of silver would trade for. Today's (2010) U.S. dollar will only purchase about 4 cents of what that 1913 dollar would trade for. Having started in investing in something solid has made me feel better about my family's future and my ability to provide for them.

There are charts all over the web showing the current value of silver, gold, platinum, and palladium. The charts bounce all over the place on any given day. There are charts that show how the value of precious metals has changed over the last day, 30 days, year, and even multiple years. I began to get nervous about my silver investments after seeing these rapid market changes. This led me to wondering about why the value of precious metals changed so often and so drastically. After a little pondering on this matter a light bulb suddenly came on over my head as I had a sudden understanding of the ups and downs of the precious metals markets. THE VALUE OF THESE METALS WAS NOT CHANGING AT ALL! What these charts are really saying is that the value (purchasing power) of the dollar is what is changing constantly, not the value of the metals.

What led me to this conclusion was so simple and obvious that it is easily overlooked if one is not paying attention. I went down to my local coin shop to purchase a few 90% Silver pre-1965 coins. When I asked the price of Quarters, I was a little dismayed at first as $3.15 seemed like a lot to pay for a non-numismatic quality "Junk Change" Quarter.

Back when I was a kid and there was real Silver in our money, a U.S. Quarter would by a loaf of bread. While no one would sell a loaf of bread to you today for a Quarter, they would probably sell you a loaf of bread for about $3.15. That is when it hit me. The value of the silver in the pre-1965 quarter did not change at all. The silver in that pre-1965 quarter that purchased a loaf of bread in 1960 would buy a loaf of bread today. The value of the U.S. Dollar is what has been changing, not the value of precious metals.