Should I stock up on silver or gold?

Kenneth wrote in with the following excellent questions:

Hi Charles,

Thanks for your great insight. I have been planning to buy gold and silver early next year and I just have 2 questions.

1. Why is gold priced in US dollars and what are the chances that gold will be priced in euros or yuan when the dollar collapses?
2. Should I stock up on silver or gold?

Thank you in advance,

PS: Great website by the way.

Hi Kenneth,

Thanks for the kind words!

Regarding your questions, 1) gold is already priced in several currencies – the London Bullion Market Association, which publishes the London AM and PM fixes, does so in USD, GBP and EUR each day (updated twice a day). The World Gold Council publishes daily prices in 15 currencies, updated weekly. I think that the USD price is the most widely reported number, but certainly not the only one available.

As to whether the USD or the EUR will be the first to collapse, that's anyone's guess! All the world's fiat currencies are in a race to the bottom… that's why your second question is so important! And my answer to 2) is YES! The real questions are, how much, and in what form.

I see physical gold as the best form of cash. Gold is not an investment. It will never make you rich, it just sits there. It doesn't grow, it doesn't pay interest or dividends, it doesn't make anything, or improve the world in any way. It is just some lumps of metal. BUT: It is not anyone's liability. There is no counter-party risk. No bank failure or currency crisis can cause it to disappear. No government can inflate its value away. Your only risk is physical theft. Thousands of years of experience shows it will keep it's value while other forms of money come and go. So while gold cannot make you rich, it can keep you from becoming poor!

By physical gold, I mean coins, bars, and other forms of the metal that you have direct custody of, stored in a safe place you have direct access to and control over. Once you give it to someone else to take care of for you, you begin to lose the essential protection of gold, because you now have a partner you have to trust to give your gold back when you need it. This applies to bank safety deposit boxes, gold certificates, and other storage programs. The reason to take on this risk is convenience and efficiency of transactions, and to mitigate the risk of physical theft. You have to judge that trade-off for yourself. My suggestion is to diversify your holdings so that if one approach fails, you have not lost everything.

Other forms of gold ownership, such as ETFs like GLD, closed end funds like PHYS and CEF, and so on, are really stocks that should hold their value in terms of gold, and can be used as a holding account for money that is awaiting investment elsewhere, rather like money market funds. But they are not cash, and may not be good vehicles for long term savings, as they carry lots of counter-party risks.

How much gold to own is also something you need to decide for yourself. How much cash do you feel comfortable holding? The more you have, the safer you are if there is a crash or other financial disaster, but the less you have at work growing for you. If you are confident about the future, hold very little gold, and invest the rest in stocks, businesses, real estate, and other opportunities that will be worth more and more gold every passing year. If you are worried about the future, hold lots of gold, and invest only what you can afford to lose.

Silver, which has extensive industrial uses but very little monetary use at the moment, is more of an investment – it can gain or lose value relative to gold. I see it as a speculation, but one that is much less risky than the USD or other fiat currencies. It shares many of gold's desirable characteristics, so it makes sense to include it in a diversified plan. Keep in mind that it is much bulkier than gold, and has much higher storage costs. But this bulk also means that silver coins could be useful for small transactions where no gold coin is small enough. And don't forget that while it can rise in gold value, as it has for the last few months, it can also fall in gold value – sometimes a lot.

I hope this is helpful. Keep those questions coming, and keep your wealth growing, as measured in gold!


Sir Charles