Monday, March 15, 2010

Precious metals vs Cash, gold business, Inflation and Greece.

Ok guys, I’ve been replying to emails from 8 AM to 11.30 PM straight, stopping only for lunch and dinner, no, I kid you not. I lost count of how many emails I’ve replied to today.
Here are a few of the most interesting ones I read. I’ll drop dead over the bed and when I regain conciousness I’ll keep answering ok?


Thank you so much for sharing with us so much information on your experiences in Argentina! I have been wondering about this question for some time and need your guidence. Maybe others would benefit from your answer:

There are ongoing rumors of a bank holiday in the near future. Whether it actually happens or not remains to be seen. If a person had a choice of:
· taking $10,000 out of your bank account (most of what savings you have in the bank) in cash and keeping it at/near home with anticipation of a bank holiday and having the cash readily available or accessible to use to pay bills etc during an exgtended bank holiday
· take the $10,000 cash and buy more gold or silver with it. (even if you already have a pretty good stash). I could envision being able to take the gold or silver to a coin shop and sell it at a tidy profit during the bank holiday. Maybe I’m wrong…..
Which would you choose??

In my opinion at least, I’d keep half of that in cash. 5000 dollar is one or two months (give or take) worth of expenses depending on family members, lifestyle, location, etc. But it’s a good amount of cash to keep for emergencies. I’d put the rest into 1 ounce Silver Eagles and rolls of pre 65 dimes given that its culturally accepted as “junk” silver in USA.
Here in Argentina junk gold would be wiser. If I can get it for the gold content price, a few wedding bands and or broken jewelry chains might be good to have to. Again, just a few, and only for the right price.
How much of each? I’d go mostly for silver eagles (60%-70%) and the rest on pre-65 silver dimes.

Also, during the long Argentina banking holiday what became of gold and silver prices or their availability? I would think most people WOULDN’T want to sell their PMs—OR--- people wanted to hang on to their scarce cash to survive and pay bills and have no interest in buying PMs during that long period of panic. Share your experience with this scenario. Thanks.

Roy Houston

Well, you may suppose that but with 25% unemployment people somehow needed to put food on the table!
Gold and silver kept its international price while the peso lost value. up to 25%, then went back to 33%.
Without jobs people ended up selling family heirlooms and gold jewelry to do so. It became good business and the gold business (of buying it ) went up 500% the years after 2002.


Hey Ferfal,

Question, you mentioned the gold buying business in your blog today. That with the collapse in 2001 people were selling gold jewelry.. Here we're starting to see "Cash For Gold" buyers all over (mostly sharks) paying pennies for gold jewelry.

My question is, do you think this could be a good business ie. buying rings, necklaces etc. as people need cash to pay bills... For good honest businessmen to enter the market and offer better prices. Seems the prices being paid are way too low..and people don't know the value of their gold. (in some cases mailing it to a stranger and hoping to get a check in the mail!).

Thanks for your great blog, keep it up!


Indeed, at least in that regard its following the same patern we saw in Argentina. Yes, I think that those that know the business can make good money buying gold jewelry, melting it or reselling it.
Sharks are of course immoral, and you can do good business while keeping a fair margin profit on both sides.
The free market will eventually take over and I venture to guess that good, fair dealer will be the most successful ones, not to mention they still be able to look at their neighbors to the face.


I haven't seen you write up much on the situation in Greece. I watched a documentary on the collapse of Argentina and one of the things that stood out was that outside forces like the IMF came in and forced Argentina to sell off state assets/property for pennies on the dollar as well as dictate budget cuts, even to items like education.

Seems to me that is the same thing happening in Greece. There are now strikes and violent protests as well. Do you see parallels between what happened in Argentina and what is happening in Greece? Within the overall collapse of Argentina, wasn't this somewhat of an early warning to what followed... closing banks, seizing retirement assets, etc? These things seem to follow a certain script and timeline.


Hi Scott, sure it is pretty similar, the economy reaching a melting point, banks going on holydays.
Not only Greece, but what happened in Island too. Even the news headlines are alike and the protest signs say the same thing!
It is a textbook collapse and the similarities are many and surprising in spite of the cultural differences. Hope it doesn’t get that bad in Greece.



1) I was wondering if you could help me understand your inflation rate. It seems that the US Dollar/Argentine Peso exchange has remained pretty much unchanged since the collapse. I seem to remember reading in your book that it was 1/1 and then 3.5 to 1, about where it is today. So how many pesos did a loaf of bread cost then, in 2002, and how much is it now? How much would a typical lower middle class worker make (say a bus driver) now versus in 2002? That would give a good idea of the drop in the standard of living.


Hi Mike Sorry for the delay in replying.

Now the dollar is 1 dollar, 3.85 pesos.

Example about food, A kilo of bread used to cost 1 peso, now it costs 5 or 6.
The government says you can get it for less but that's the price in every store you ask around. Maybe a peso cheaper if you go to an extremely poor neighbrohood.
A bottle of coke? used to be around 2 pesos, now its 8 or 9, sometimes even 10.
So as you can see, as of today, most food items cost 4 or 5 times as much. On average according to some private statisitcs, we've had a 40% inflation per year since 2002.
As for salaries, an average worker , your bus driver, used to make around 1000 pesos, maybe 1200. Now a bus driver, working all day, makes 2500-3000 pesos. Its a very streessful job and working conditions are much worse than in USA because of stress, crime, etc, so they are paid relatively well. A more typical salary would be 2000 to 2500 for a clerk or low to average office worker or employee.
The minimum wage is 1500, and lots of people are paid that, some factory workers, Mc Donalds and such.



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Merovingi said...

Ferfal, in reference to the workers salaries, is that weekly, bi-monthly or monthly pay?

Anonymous said...

that's montly, merovingi.