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Saving with Gold

Subscriber Mark Cloney recently wrote to me with some great questions:

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!


Sir Charles

Comments on Saving with Gold

March 1, 2012

Daniel @ 9:02 am #

Though I prefer "junk silver" coins and 1, 5 or 10 oz bars myself Mark might also want to check out something like SilverSaver (I've just seen it, no personal experience) which allows you to accumulate a bit of silver at a time similar to a stock DRIP type program. I believe the metal is stored in Delaware, USA or you can request delivery.