Friday, October 16, 2009

Buying Gold?

I wrote about this about a month ago. Aside from throwing some more cash into the precious metals piece allocated portion of the savings account not a whole lot has changed. Maybe it will slip way down and maybe it will go to $2,000 an ounce like a bunch of folks who aren't economists guess it will do.  Hell if I know what is going to happen with the market. I am going to mull it over but am generally inclined to buy. We may or may not face serious inflation but I would like to hold as much gold as possible either way. It might cost me a couple bucks more for the same thing but worst cast I will just laugh about that when I buy for less in a few months.

Thoughts?

5 comments:

reinkefj said...

Gold -- bullion; not "collectibles" -- currently has a 10% premium. Silver seems to be about 12%. Unfortunately, that's a lot of "commission" to pay. (A loan shark's vig?) In the past it was as low as 2%. A mutual fund with a 10% load would be found unacceptable; why should we treat bullion any different. Hold it for 10 years and it doesn't feel as bad.

The other consideration is what are your protecting against. In an "orderly" inflation scenario, other investments may "surf" the riding tide of inflation (i.e., real estate; stocks). In a "disorderly" inflation scenario (e.g., hyperinflation like Rwanda or pre-WW2 Germany), then you want the bullion coins in your possession. (Or, where you can get to them in a pinch.)

Bottom line: In hyperinflation, bullion coins will overcome the premium in a heartbeat. But what's the probability of it happening? Tough call.

occdude said...

Thats the beauty of gold, it holds its value in inflation AND deflation.

In fact since gold is money and in deflation money is in great demand and short supply, gold actually outperforms almost all asset classes (except federal government bonds) particularly in crisis.

So sit tight in gold. Silver is subject to price declines due to its industrial uses and in deflation industry contracts, so its not AS money as gold, but it aint bad either.

Of course your hell in a hand basket account should have actual staples of food, consumables, clothes, ammo and even such vices as cigs, alcohol and other "nasties". If you have the room, it wont spoil and you are definitely going to use the item, that would be the best investment of all.

Gold is a savings mechanism which before currency was developed, was the most accurate way of preserving purchasing power due to its unique properties.

Adam said...

Gold is fine and dandy, and may help you preserve some of your wealth if the SHTF, but in most of the scenarios where you'd really want to be holding gold, you'd probably rather have more food/supplies/ammo/land.

My personal threshold for buying gold would be after i have everything ELSE in place.

For example, I can't justify buying a nice shiny gold coin for $1,000 when I have less than a year's supply of food on hand.

theotherryan said...

reinkefj, I do think the premium ebbs and flows with demand but one existing is really unavoidable. It costs money to get PM's out of the ground and to refine them plus also the people who do this want to make a profit for all their trouble. I buy PM's because they are tangible, non dollar denominated and have a long history of keeping their value. As for stocks they are fine and good but inflation and the value of the dollar can be a down side. I put money into the market for my retirement.

Land, particularly productive land with water is a pretty safe place to have your money. It does however have 3 downsides which immediately come to mind. First to get worthwhile pieces of productive land with water you need a good amount of money. I can spend a couple hundred bucks and get several ounces of silver or a small gold coin but can't do that with land (yeah there is the junk land thing but I am not sure about it as an investment).

For the other two lets look at a little scenario. Two friends cash in their 401k's and each have $50,000. I am not suggesting doing this but lets just stick with the scenario anyway because it is convenient. Tom buys precious metals and Jim buys land. So Tom has a big bag of silver and a nice stack of gold coins and Jim has a couple nice plots of land. They are both protected from inflation because their investments are not dollar denominated. Tom however has the benefit of his stash being pretty easily divisible. He gets jammed up or whatever and needs some cash so he sells a gold coin. Jim has two plots so his stash is not readily divisible. Also Tom does not have to pay taxes for merely holding onto his stash while Jim is going to have to pay property taxes.

Tom has the benefit that if he needs to GOOD he can toss that bag of precious metals into his car and go. It is pretty hard to take land with you. On the other side of that coin someone could conceivably steal Tom's PM's while (except eminent domain, failure to pay taxes or a genuine TEOTWAWKI and breakdown of rule of law) you can't 'steal' land in the traditional sense.

I think for larger amounts of money land as an investment is a good option but I would probably get at least a nice little bag of PM's first.

occdude, tis true. I agree that if you need resources to put towards essential preps then holding off on PM's would make sense.

theotherryan said...

Adam, I am inclined to agree with you in principle with the exception of land. If someone had $275 to choose between a gun (if they don't already have one) for home defense or a pantry full of food or a quarter ounce of gold (or a comparable value of silver) I would tell them to go for the gun and pick up the food piece mil as their budget allows as it is hard to buy a shotgun that way.

I disagree about the land because with the exception of junk land (good for cheap shelter but I am not so sure about it as an investment) it is pretty darn expensive. Waiting to buy a few dozen ounces of silver and maybe a couple little gold coins until you have already saved up the 100k you need to get that little farm/ hunting cabin does not make sense to me.

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