Hello, Sir Charles – I have a couple questions for you:

• How can someone on a tight budget best get invested in silver and/or gold?  I don't have a lot of savings, but I do not want to see them destroyed by more and more "quantitative easing".
• Seeing that I'd practically have to spend $2000 to get one ounce of gold, would silver be a better way to go?  I know it's price is high too, but maybe more manageable for someone who isn't starting with a large initial investment.
• I've seen some things where you don't get actual silver or gold in your possession, but a certificate (or something like that) instead.  Are these plans liable to leave investors defrauded or to have the actual metal confiscated by the government?

I know you may have better things to do than answer basic questions like these, so thank you in advance for your time and advice.  If you know of a site or blog that can answer these types of questions, please send me a link.

Thanks again!

Mark Cloney

Here is my reply:

Hi Mark,

Thanks for visiting Priced in Gold.

Re: Salaries – I do track production wages and the minimum wage in gold, as well as per capita disposable income – and they are all UGLY, probably comparable to Great Depression levels, though my datasets don't go quite that far back.  If you have some old paystubs or tax returns, it's pretty easy to figure out your own income history – just divide each value by the price of gold on that date.  Go to the London Bullion Market Association gold fixings page to find the gold price on any date after 1967; before that use $35/oz and you'll be pretty close.

As to how to safeguard your savings using gold and silver, don't worry about the price in USD.  Just buy what you can afford, as often as you can.  Small gold bullion coins (like 1/10 oz and 1/4 oz Eagles, Maple Leafs and Krugerrands) are quite affordable.  The only drawback is that they command a higher premium over their gold content than 1 oz coins, but this is usually recaptured when you go to sell them, so it's not as bad as you might think.

Steer clear of anything collectable or numismatic, unless you are truly a collector and know what you're doing.

Silver also tends to have a larger premium, and it is more bulky to store, but it should work better for smaller "barter type" transactions in a SHTF scenario, especially the pre-1965 "junk" silver dimes and quarters.  But silver is also much more volatile due to it's strong industrial importance, which will tend to pull it down in times of recession.  Beyond some barter coins, I tend to see silver as a speculative investment rather than as savings.

Platinum is another metal than can be a good speculation.  As of early 2012, it is trading below parity with gold, a rare circumstance.  I have been buying a little of it to take advantage of that spread.  If the economy really tanks big time, platinum and silver could go much lower.  But eventually, I think platinum will return to a premium over gold.  Silver might go much higher, but then again, it might not… I think it is a lot more of a gamble, but could have a larger payoff.  So it is strictly for speculation, not for savings.  Since silver was demonetized, it has been subject to several bubbles, as you can see in it's long term chart.  If silver does rise rapidly (perhaps to 1.5 grams/oz – almost triple today's price) the trick will be to get out quickly to the safety of gold before it crashes again.

The key is that the price of gold never changes.  It is the value of the fiat currencies used to "price" it that change.  Gold is not an "investment" that will make you rich.  It is the best form of cash, and will hold it's value, no matter what kind of monetary insanity the Fed and the rest of the central banks indulge in.  Once your savings are in physical gold, in your possession, you have no counter-party risk… only risk of physical theft, which needs to be considered carefully.  Diversification in your storage plan is a good idea – maybe a home safe, some midnight gardening, an overseas storage box, etc.

Paper certificate programs have always bothered me for the reasons you suggest.  As another form of diversified holding, they make some sense, but I wouldn't make them the main event.  For instance I like and use Goldmoney.com, but not as my primary form of gold ownership.  Same goes for ETFs like GLD, PHYS, etc.  Great for trading (shorting the USD) but I don't consider them part of my savings plan.

I hope this is helpful!

Cheers,

Sir Charles

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,
Kenneth

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!

Cheers,

Sir Charles

I would love to see a long running value of the U.S. M3 in gold. I've wondered if this pool equals a relatively fixed gold value while the dollar price of gold reflects mainly the fluctuation in the amount of money in the pool. Thanks.

I'm not sure which measure of the money supply would be best for that purpose… M3 hasn't been published since 2006. I did do a chart of M2 in gold, but it looks pretty much like GDP – for the most part the change in USD purchasing power relative to gold overshadows the changes in M2 or GDP, making the charts look pretty similar:

There are many other measures (M0, M1, M2, MZM, etc. as well as private measures like Paul van Eeden's Actual Money Supply) that might be more informative. I have not tried to investigate them all.

To my mind, the direct mathematical relationship between number of dollars and their purchasing power is only a minor part of the story. The dollar really has no basis on which to have any value at all, and it is simply people's confidence that someone else will take them that gives them utility. So things that shake that confidence tend to drive down purchasing power in a big way. This shows up first in highly liquid, heavily traded commodities like gold and oil, but eventually works it's way through the system into everything else.

When people feel things are on the right track and improving, like they did under Reagan in the 80s, the dollar gains strength even though the government is running big deficits that logically should be pushing it down. Bank failures, defaults, bailouts, rising unemployment, stock market crashes ("flash" or otherwise) etc. shake confidence and lead to concern about the future viability of the fiat money, whether or not they cause net additions to the number of dollars actually chasing after the available goods in a monetarist calculation.

But eventually, the numbers will have their due. We now have so much debt, and are creating more at such a great rate, and have announced plans to do so for the foreseeable future, that the whole house of cards pretty much has to tumble at some point. We are already past the point where there is any reasonable hope of repaying the principal in a meaningful way. Interest can still be paid, but there is a finite tax base from which to pay it. As the amount owed continues to rise, and interest rates continue to rise, and taxes continue to rise, there will be more big downdrafts in the USD value, followed by smaller updrafts as the fear eases off from time to time. When super high taxes can't confiscate enough to cover the interest due, default, either explicit or through hyper-inflation, will occur.

This is one point where my view differs fundamentally from that of most analysts and economists. They are looking at gold and wondering how high it can go. They think gold will enter a "mania" phase that will push it up like tech stocks at the end of the 90s, or gold and silver in late 70s. They want to be able to recognize the top of the gold market so that they can get out before it falls like it did back in 1980.

I do not foresee a gold mania. I foresee the end of the dollar (really, the end of the fiat currency experiment all around the world.) Others talk about "the end of the dollar", but in the next paragraph, they talk about how to recognize the "blow off" in gold prices, and the importance of selling at the right time. This totally misses the point.

There is a basic difference between fiat money and gold, silver, real estate, tech stocks, or even tulips. The fiat money HAS NO INTRINSIC VALUE AT ALL. The others all have some real value, independent of what their "price" in some monetary unit is. They serve a real purpose, even if it is only to decorate your window box or make your house smell nice. Someone will always want them for what only they can do better than anything else.

Although I often point out that gold can be priced in dollars or dollars can be priced in gold, and that one is just the mathematical inverse of the other, gold and dollars are not in fact interchangeable. Dollars can, just like all the earlier failed fiat money experiments, go all the way to zero. Disappear from the monetary scene. Become a footnote in the history books. Become "as worthless as a Continental", just like the current dollar's predecessor, the bills issued by the Continental Congress during the American Revolution. Gold will not. It is too useful in its own right, and has been through the fire that has consumed hundreds of other forms of money over thousands of years and always come out shining.

Will the dollar eventually be replaced by the "New Dollar"? By the "Amero"? By the Renminbi? Or the Euro? Or the Islamic Dinar? Who knows – and who cares!

Use gold as your money. Keep your savings in gold. Measure the prices of things in gold. Watch the demise of the dollar from the comfort of your easy chair, drink in hand, as it continues to head, in fits and starts, toward its intrinsic value of zero. If the dollar enters an updraft, or even a mania, feel free to speculate a little, but watch carefully for your exit point near the top of the rally, or use trailing stops to get you out. The same holds true for stocks, real estate, and other investments. Keep the gold value of your investments growing. Take some profits off the table from time to time, adding them to your store of gold savings.

And whatever happens to the US dollar, you will still have your gold. And you will be able to exchange bits of it for whatever you need: to eat, to start a new business, to help your friends and family, to travel, to LIVE!

And that's what it's all about.

This may seem like a dumb question, but I am unsure of how to actually price things in gold myself. Is it on a per gram basis? Could you provide me with an example of how to price something in gold, say dollars?

Thanks for asking, Daniel! That's a great topic that I haven't covered lately.

The exchange rate between dollars and gold is most often published in the form of US dollars per troy ounce of gold. If you take the price of anything in USD, and divide it by the price of gold in USD/oz, you will get the price of that thing in ounces of gold.

I prefer to use grams instead of ounces, as this allows quoting small prices (a few cents to a few dollars) in mg, large prices (tens of thousands to millions of dollars) in kg, and really big numbers (billions and trillions of dollars) in metric tons of gold, just by sliding the decimal point around.

To get the price of one dollar in grams of gold, take the price per ounce, and divide it by 31.1034768, the number of grams in one troy ounce. Then divide the USD price by that to get the price in gold grams.

If you are looking for a historical price, let's say, to find what you paid for a house in 2003, you need to get the price of gold on the purchase date, and use that for the conversion. My favorite web source for "recent" gold prices (back to 1968) is the LBMA (London Bullion Market Association). Their website publishes the London AM and PM fixings for gold, which are widely used. This page also gives prices in GBP and EUR for dates since 2000.

For example, suppose you purchased 100 shares of the DIA ETF on March 15, 2004, for 112 USD per share. Your total cost in dollars would be $11,200. To find your cost in gold grams, first find the price of gold on March 15th, 2004; on that date, gold was fixed in London at $399 in the morning, and $398.10 in the afternoon. Let's choose the London PM fix for this example. If we divide 11,200 by 398.10 we get the price of the shares in ounces of gold: 28.134 oz. To get the price in grams, we would divide 398.10 by 31.1034768 giving 12.799, the price of 1 gram of gold, and then divide $11,200 by that to get 875.05 gold grams. (BTW, at todays close, those shares were worth $10,831, pretty close to the original purchase price… but only worth 257.67 grams of gold, a loss of over 70%, due to the falling value of the US Dollar!)

Of course the easiest way to do conversions, if you have an iPhone or iPod Touch, is to get the free Priced in Gold app! The universal version, which works with iPad as well, should be in the store shortly. It's also a great way to keep in touch with this blog, and access charts and other information when you're on the go.

Hope this helps!

Using gold pricing to get an accurate measure of your investment performance will enable you to do more than just survive the upheavals ahead – you will be able to make a fortune!

I urge you to watch the video, understand where the actions of governments and central banks are taking us, and most importantly, I urge you to look over your portfolio, to look over your life, and take action!

If you have questions or comments, send me an email, leave a comment, or call the Priced in Gold Hotline at 888-868-5656.

I've been wondering about that for some time now. My kids are young enough that I still have about 10 years before they will be looking at colleges, but it raises an interesting question: how much gold do I need to save now to cover their college costs in ten years?

After looking around for tuition numbers, I decided to focus on Yale University. They publish A Yale Book of Numbers and an update that contain all sorts of interesting data about Yale (including tuition costs) from 1701 to 1999. More recent data is available in news reports, press releases, and from Sallie Mae. I've compiled some of this data into the chart of Yale College Tuition, and I will update it annually going forward.

Although dollar costs for tuition, room, and board have risen tremendously, from about $700 per year in 1900 to $48,622 per year in 2009, their price in gold has only risen from 1,053 gold grams in 1900 to 1,726 gold grams in 2009. It's been a wild ride, though!

Before we continue, re-read that last paragraph carefully… in dollars, prices have risen to 70 times their starting price! SEVENTY TIMES! In gold, they are up 64% over a 109 year period. Interestingly, Yale tuition was almost exactly the same in the 2008-2009 school year (1,633 grams) as it was in the 1932-1933 school year (1,589 grams). It works out that 2008's annual tuition is just $30 more in the gold coins of 1932. In fact you'd get a couple of silver quarters and a silver dime back in change from your $10 eagle and $20 double eagle. This is in spite of a 44x increase in dollar prices, from $1,056 in 1932 to $46,000 in 2008.

Prices were quite stable until World War I, when they began to rise, peaking in the early 1930s at around 1,600 grams – not far from today's price! Although tuition prices in dollars were stable or rising very slowly, the collapse of the dollar in 1934, from about 1.5 grams to .88 grams, lowered tuitions as measured in gold dramatically.

They stayed low until after World War II, when they began to rise strongly, from about 1,000 grams to a peak of 3,441 grams in 1970. When Nixon gave up the defense of the dollar and closed the gold window, the dollar again collapsed, and although tuitions doubled in dollar terms, they fell in gold terms to a low of about 450 grams in 1980. As the dollar doubled in value from 1980 to 1999, and tuitions continued to rise in dollar terms as well, tuitions priced in gold rocketed to a new all-time high of 3,929 grams in 1999.

Since then, despite rising about 50% in dollar terms, the plunging value of the dollar has cut the cost of tuition to less than half of its old high.

As for the future? I don't own a crystal ball, so I can't be very specific… Still, it looks to me as though the current economic troubles could pull tuitions (priced in gold) lower from here. Technically, there seems to be good support at about 1,000 grams, and 500 would be a real bargain. It may take a few years to reach those levels, though. And 5 years after that, when I'm looking at college expenses for my kids? I suspect that the same 1.5 kg of gold that would cover most of a year today will still do the job then, even if the US Government is printing $1,000,000 bills and it takes a wad of them to buy a Big Mac.

This series is similar in appearance to the long term DJIA, but with less volatility.  This makes sense, as stocks tend to follow in the footsteps of the overall economy.  But the Dow has it's own sense of timing, peaking about 4 years before the GDP in the 60s, and falling much further during the 70s, then rising over 36 times in value from 1980 to 1999, while the GDP rose a little over 9 times from it's low.  Once again, the Dow peaked first, in 1999, while the GDP kept climbing until 2001.

The last 6 years have been devestating, with the GDP falling by 47% from 1,222 Gg in the Spring of 2001 to 647 Gg  2007.