Saturday, January 28, 2006

 

Should Precious Metals Be Held Physically?

A reader raised this topic for discussion. "Is it necessary to have physical possession of gold for ultimate safety?"

Another added, "I know I am old fashioned when it comes to this point. I think one should most certainly hold some gold & silver in physical form. There are those who will pop-up and talk about safety and storage. I've held Au&Ag for years it's not been a problem for me. No one knows what you have unless you tell them. I also think a person should hold on to some cash."

"In the event of an emergencey good luck with electronic money. Ask anyone who has been through a hurricane, tornado, earthquake etc. What a seller of goods & services will accept as payment when the electricity is off. It's best to look at precious metals as an insurance policy, in the event of an economic storm. There are some mighty dark clouds on the horizon. I'm no doom & gloomer, but as the old saying goes it is better to be safe than sorry."

Comments:
This is a very important issue. IMO, the unpredictable nature of an economic or natural disaster makes physical gold a neccesity. As the second reader pointed out, just don't tell anyone, and most of your security worries are fixed.

It also is an issue with the gold and silver question. I'm all for speculating in silver and have made more profit from it than gold. But silver is bulky compared to gold and it isn't as resistant to poor conditions. The ability to toss a bag of silver coins in a basement corner without worrying that the finish will be tarnished is a similar consideration.

Ron Paul once suggested that gold coins be kept in various sizes; ounces and smaller. This is because when you are actually making purchases with your gold in a crisis situation, you don't want to be forced to cut an ounce coin in half, etc. He also recommended that banks couldn't be trusted, and I agree. If you've ever had a safe deposit box, you know they watch you like a hawk. In an emergency, I think they just wouldn't show up for work.
 
Should Precious Metals Be Held Physically?

YES!!!! you should buy and hold some like you would milk and bread before a big snowstorm.
 
(But silver is bulky compared to gold)

I would say it's bulky in part because it's so cheap compared to gold. the gold/silver ratio is WAY out of whack. I remember being hesitant to buy silver at $4.25, I waited until it was around $6 to buy. it's less bulky the higher the price goes!!

I think a strategy is to hold all sorts of gold and silver. buy some in 1 ounce, 10 ounce, 100 ounce and etc. a bag of silver is probably pretty good, during a time of emergency/high inflation, it's probably better to have small denominations. right now I only hold 1 ounce silver rounds. if I were rich I'd probably hold some 1000 ounce bars.
 
I think a strategy is to hold all sorts of gold and silver. buy some in 1 ounce, 10 ounce, 100 ounce and etc. a bag of silver is probably pretty good, during a time of emergency/high inflation, it's probably better to have small denominations. right now I only hold 1 ounce silver rounds. if I were rich I'd probably hold some 1000 ounce bars.
# posted by john_law_the_II : 9:40 AM


John, I agreee with holding various size amounts. One thing to remember is when you have a bag of minted coins(eagles, maples etc. also) you are holding a face value coin. So they do have an edge on rounds and bars. I for one would not purchase a bar larger than 100oz's. 1000oz bars usually are not an exact 1000oz's. and my back is not what it used to be.

Ben mentioned Ron Pauls comment about owning gold in all sizes, and that's a very good plan, IMO. Most folks see no problem with our economy, they just know things cost more, and they have no real understanding of inflation.

Not being prepared for an emergency is a mistake. If we were on an honest money system we would not be facing the inevitable large correction, but those days are long behind us...
 
I'm think maybe I should pick up some silver dimes, nickels and quarters. in an inflationary spiral it may be better to have smaller denominations because they might not be able to break change for a silver eagle with something I'd want to hold. in an inflationary spiral a silver eagle could be worth $50+. silver dimes and quarters might be best for small purchases.
 
by the way, this website is good to show you the intrinsic value of what coins are worth from different years. it's updated all the time to current prices.

coinflation.com
 
Absolutely!, You need your insurance at hand. If the metals truly skyrocket ,it means the whole system is unraveling as the dollar drops, and people panic.Remember after the crash it was made unlawful to own. Hate to have all my eggs in a paper basket, but hey...I'm preaching to the choir.

So, any suggestion as far as other Silver oppotunities? I have alittle:
hl,paas,cde ...Is there any other tips on silver as we run up to the etf?
 
This comment has been removed by a blog administrator.
 
Also, relatively new to the market ,and only bought some small bites through Scottrade. Has anyone purchased Co's like Farralon :fan.to
which is a toronto stock? Not sure how easy it is. I see they charge extra ,and seems you have to buy in $500 or bigger blocks. My research has taken me to alot of these juniors that have the potential to bolt ,and not sure of the process...Thanks bugs
 
I'll be the odd man out and say no. The mormons in Utah have some sort of order for each family to store a year's worth of food and suppiles. I tend to think in a crisis situation I would much rather have that than a bag of coins.
 
(I tend to think in a crisis situation I would much rather have that than a bag of coins.)

how about both? diversify!
 
Ben, Sorry to move off topic...
I'm starting to see more and more columns like these appear on sites that are normally unconcerned with economic issues...




http://www.rense.com/general69/goofa.htm




"There is a large class of people who believe that paper can be, and ought to be, made into money without any promise or hope of redemption; that a note should be printed: 'This is a dollar,' and be made a legal tender. I regard this as a mild form of lunacy, and have no disposition to debate with men who indulge in such delusions, which have prevailed to some extent, at different times, in all countries, but whose life has been brief, and which have shared the fate of other popular delusions. The Supreme Court only maintained the constitutionality of the legal tender promise to pay a dollar by a divided court, and on the ground that it was issued in the nature of a forced loan, to be redeemed upon the payment of a real dollar; that is, so many grains of silver or gold. I therefore dismiss such wild theories, and speak only to those who are willing to assume, as an axiom, that gold and silver or coined money, have been proven by all human experience to be the best possible standards of value, and that paper money is simply a promise to pay such coined money, and should be made and kept equal to coined money, by being convertible on demand."


--- Secretary of Treasury John Sherman, 1877. (Thirty-seven years later, President Woodrow Wilson sold his soul to international banking by helping to establish the Federal Reserve System. Since that day in 1913, the purchasing power of the American dollar has been eroded from 100 cents to precisely 2 of those 1913 cents. The missing 98 cents went into the pockets of those same international bankers, mostly foreigners, all of whom still own and run the US Federal Reserve System.)
 
I'll be the odd man out and say no. The mormons in Utah have some sort of order for each family to store a year's worth of food and suppiles. I tend to think in a crisis situation I would much rather have that than a bag of coins.
# posted by AmaDablamDream : 8:06 PM

In the event of a real crisis, when nobody wants worth, less & less paper dollars. The we would see a return to the age old barter system (IMO). Man must have food and water to survive, but you will always be able to swap gold and silver for them. Now nobody expects that type of scenario, I know, and I'm not saying it will happen. However it has happened before and could happen again. I have not built a bunker and loaded it with, food, water,guns,ammo, gold & silver yet... :-)
 
You people are kidding yourselves. If there is such a crisis that fiat money becomes worthless, then no one will exchange food or other staples for shiny bits of metal.

It's not the 1870's anymore, and no one is used to accepting gold or assaying it's true value. You'll discover a skeptical audience who'd rather receive something they can actually use, not soft heavy metal.

If they do perceive any value in it, they'll probably follow you home and kill you for it anyway. Good luck.
 
In the depression, US Dollars were secondary to PM Coins. YOU would get the purchase with a silver coin where as 20 dollar bills would be turned down.

Interesting isn't it.
 
(If there is such a crisis that fiat money becomes worthless, then no one will exchange food or other staples for shiny bits of metal.)

yes they will, they are far from shiny bits of metal. they are gold and silver, they've been money for thousands of years. if you want to barter, it's much eassier to trade a coin with a set weight and size than it is to carry around whiskey bottles or 2X4's. the divisibility is why it's been around for so long and is(was) money.

after hurricane katrina(within days) I saw someone who used bottles of beer to barter and another person used a big huge tire. it's a lot easier to carry around gold and silver coins.

besides, WE USE SHINY COINS EVERYDAY! have you ever received change at a store?
we're dumber now though, we accept change who's face value is less than that the underlying metal. our forebears were more educated about money than we were.

LATIN AMERICAN CONGRESSMEN CONSIDER THE SILVER COIN
 
You people are kidding yourselves. If there is such a crisis that fiat money becomes worthless, then no one will exchange food or other staples for shiny bits of metal.

Well, that's not the historical experience, but maybe This Time It Will Be Different.

If they do perceive any value in it, they'll probably follow you home and kill you for it anyway. Good luck.

Um, why do you assume that the holders of the coins couldn't defend themselves?
 
In the event of a real crisis, when nobody wants worth, less & less paper dollars.

What is the likelihood of such a crisis?

Although I was quite upset that people would actually vote for an amoral scumbag like Clinton and his crooked wife or 'W', the ignorant religeous zealot, and his band of modern day imperialists, I realize that the U.S. is a rock solid democracy. From the day they are born, children are indoctrinated with the superiority of the American system to such a degree that it would make Kim Jong Il marvel at its success. The political system will not fall apart any time soon.

If the U.S. dollar were to take a large hit and Americans suddenly found themselves paying eight bucks a gallon for gas and that cheap plastic crap sold at Walmart cost twice as much, the United States is not going to disintegrate into a fuedal wasteland where people pay for bread with chickens.

On top of that I question whether gold is viable for use as money in the modern world. There needs to be certain amount of it in everybody's hands to work, yet most people have very little.

If I calculated it right, gold production is less than half a gram per person per year. I'll have to check the figures on the total amount in circulation, but off hand I would guess that the current production rate is less than the population growth rate. Thus a gold based monetary system would be deflationary.

Given that a large part of our economic system is based on mad consumerism (much of it unecessary and wasteful), a deflationary environment where people put off buying things because their money will be worth more later will slow economic growth.

People on forums such as this one like to rail about the evils of inflation, but moderate inflation is actually a good thing. It is a grease that keeps the economy running smoothly.

If there were zero inflation people could hoard their money under their mattress or in a hole in their backyard. With moderate inflation people are forced to invest. Less capital investment, less growth.
 
(People on forums such as this one like to rail about the evils of inflation, but moderate inflation is actually a good thing. It is a grease that keeps the economy running smoothly.

If there were zero inflation people could hoard their money under their mattress or in a hole in their backyard. With moderate inflation people are forced to invest. Less capital investment, less growth.)

1. moderate inflation is just a dream/scam advanced by the economists and central bankers and those who benefit from "moderate" inflation- the banks and financial industry.

2. "hoarding" money would constrain the fractional reserve system so they couldn't make money out of nothing and make our currency inflate away.

3. the US, and the world, was on a metal standard during the entire process of the INDUSTRIAL REVOLUTION. sound money actually makes the economic system more stable, not less stable. moderate inflation distorts the real economy. earlier periods of growth on a gold/silver standard were better than they are now.

they can't create moderate inflation under a fiat standard.
 
3. the US, and the world, was on a metal standard during the entire process of the INDUSTRIAL REVOLUTION. sound money actually makes the economic system more stable, not less stable.

Really? Then how do you explain the series of depressions that racked the U.S. during that time? Before we started Keynesian monetary policy after WWII, we suffered eight depressions in the previous century and half. After WWII, we suffered zero.

Fiat money is a great technological achievement of human society. It gives us the ability to tweak the economy, fight inflation, unemployment, etc. It can certainly be abused, but that's no reason to go back to using wampum.
 
(Really? Then how do you explain the series of depressions that racked the U.S. during that time? Before we started Keynesian monetary policy after WWII, we suffered eight depressions in the previous century and half. After WWII, we suffered zero.

Fiat money is a great technological achievement of human society. It gives us the ability to tweak the economy, fight inflation, unemployment, etc. It can certainly be abused, but that's no reason to go back to using wampum.)

fiat money has been an absolute disaster all over the world. they can't control the economy. they created the biggest bubble in financial history which we are seeing unwind. inflation have been rampant for years and silently steals money.

I think what has happened now is that we call depressions recessions. to say they've gone away is not true.

wampum is a good example. wampum used to be accepted as money because it's supply was sort of inelastic. you had to make it by hand. as soon as a machine was made that made wampum easy to make it became worthless.

the simple fact is, the whole world industrialized on the gold standard. the only thing the gold standard inhibits is the creation of money out of nothing.
 
I think what has happened now is that we call depressions recessions. to say they've gone away is not true.

You can think that, but you would be wrong. This is not simply a redefinition of what constitutes a depression. The 19th century was wracked by severe boom bust cycles. It was hardly the picture of sound money and stable economics that you portray it to be. It was the exact opposite.

the simple fact is, the whole world industrialized on the gold standard. the only thing the gold standard inhibits is the creation of money out of nothing.

And it would create instant deflation.
 
(And it would create instant deflation.)

why?
 
If the U.S. dollar were to take a large hit and Americans suddenly found themselves paying eight bucks a gallon for gas and that cheap plastic crap sold at Walmart cost twice as much, the United States is not going to disintegrate into a fuedal wasteland where people pay for bread with chickens.

Well, we can hope, huh?

In fact, the US has largely been spared the sort of upheavals that the Old World has undergone routinely (except during the 1860s, and then only in the South) not because of our "democracy" but because of our abundance of resources--first land, and later oil and minerals. Those advantages are going away, and it's not clear they're going to be replaced in time. It's very easy to have democracy and rule of law when few people are truly desperate.

Go look at the contemporary literature on the 1930s--the social fabric was a lot closer to snapping then than most people now realize. Those of us who remember time spent in 1970s gas lines also tend to be a bit less sanguine about the resilience of American society. The writer Jerry Pournelle has commented that any city is only three squares away from bread riots--and when there's no bread, the mobs often burn the bakeries.

Another writer, S.M. Stirling, has commented that it's only the availability of cheap energy that's kept the US (and some other fortunate parts of the modern world) from the post-Neolithic norm of history: "starving peasants ruled by bandits."

Interesting times we live in…
 
(You can think that, but you would be wrong. This is not simply a redefinition of what constitutes a depression. The 19th century was wracked by severe boom bust cycles. It was hardly the picture of sound money and stable economics that you portray it to be. It was the exact opposite.)

and the 20th century hasn't been? the 1970s were the longest sustained decade of inflation in US history. stocks were down more than 70% that was right about the time when silver was taken out of coins and we defaulted on our agreements to exhange dollars for gold. the 1987 crash was the worst since the GD. the value of a dollar has value a lot during the 20th century. we've lost much of our industrial base. we're sitting on the largest financial bubble since the 1920's, maybe even the largest bubble in our countries history.
 
You people are kidding yourselves. If there is such a crisis that fiat money becomes worthless, then no one will exchange food or other staples for shiny bits of metal.
# posted by betamax : 10:36 AM

Of course you know it's happening in front of your very eyes. The dollar lost another 52% of it's purchasing power during the 18 year reign of Lord Greenspan. The crisis is upon us. I'm not saying we will see fire and brimstone, just the natural death of another paper currency. Your house as did most others went up in price, why? There is nothing different about the bricks and mortar or sticks and vinyl. The purchasing power of the dollar went down. INFLATION! The long slow death of all paper money backed by nothing but faith. As to the shiny bits of metal, try this test. Place a paper dollar on a table along side a shiny metal coin, do this in front a a three year old. Watch which one attacts his/her attention. My father has done this before in classrooms. Without fail they pick up the coin first. No coaching, just human nature and it knows no color or race barrier. One last thought why on earth do ALL of the worlds central banks hold gold?
 
This comment has been removed by a blog administrator.
 
I'm not saying we will see fire and brimstone

I agree that gold is a great hedge against the declining value of paper dollars. I just think that, if a complete collapse of fiat money comes to pass, then people will be too busy surviving to worry about gold.

Even gold retains its value because of universally shared assumptions of arbitrary worth, and because accepted methods of determining and guaranteeing that worth exist.

If fiat money collapses, then IMO it'll be Mad Max time, and not even gold will be accepted as currency.

Sorry if I overstated my case, or if I misintrepreted other posts as postulating an economic apocalypse.
 
Of course there are worse case scenarios and prudent people should include them in their plans. As far as gold not being useful in a 'Mad Max' situation, I have long advocated investing in gunpowder and lead surrounded by brass.
 
The dollar lost another 52% of it's purchasing power during the 18 year reign of Lord Greenspan.

And that works out to inflation of 2.4% per year, hardly the road to financial ruin. Given the choice between moderate inflation like that and the deflation of a gold standard, the choice is easy.

And that house you mentioned actually went up in value, in real terms--even without the current housing bubble. Meanwhile, gold is a fraction of its old price in real terms. Of course, anyone who put their money in a broad stock market index does not have much to complain about.

Place a paper dollar on a table along side a shiny metal coin, do this in front a a three year old. Watch which one attacts his/her attention.

And if you perform the same experiment with a raven, it will also pick the shiny object. Are we to choose our monetary system based on what fascinates children and animals?

When the revolution comes and we are all searching for a tank full of juice to power our muscle cars, I'll put my faith in a good leather outfit, a supply of food, and a few boxes of ammo. If worst comes to worst and people really want to trade food for shiny bits of metal, I'll simply rob you guys.
 
amdadablamdream,

Physical possession of PMs is psychologically in line with storing cash, food, water & weapons. The idea is being prepared for any eventuality, especially knowing how typical humans react under crises situations (i.e., very badly). That leads to two conclusions...

1) You will not be adequately prepared unless you have PMs in your possession (thus I suspect you do).

2) Anyone on this blog that does have PMs is no doubt equally or better armed, and attempting to rob them will quickly put a permanent end to all of your worldly problems.
 
And if you perform the same experiment with a raven, it will also pick the shiny object. Are we to choose our monetary system based on what fascinates children and animals?

When the revolution comes and we are all searching for a tank full of juice to power our muscle cars, I'll put my faith in a good leather outfit, a supply of food, and a few boxes of ammo. If worst comes to worst and people really want to trade food for shiny bits of metal, I'll simply rob you guys.
# posted by AmaDablamDream : 6:24 PM

You miss my point. Metal has real value and unbacked paper does not. At one point in time if you had a silver certificate bill you could take it to the bank and get a silver dollar for it. What happened? The government changed the rules of the game.As to choosing a monetary system based on what fascinates children and animals, well tell me then what is our system based on? Once again why do ALL of the worlds central banks hold gold? Plastic and credit are what keeps things rolling along. We all know that and over time that will also come to a dead end. The dollar will fail and we will move on. Will I be around to see it? Perhaps not, but that does not change the fact that it will happen. Your children and their children have a large debt being left to them, and at some point it will be paid! Final thought on robbing of people for their shiny bits of metal, you would more than likely end up dead with a silver quarter placed over each of your eyes...
 
...I'm not sure why critics have to go to the farthest extreme? Madmax scenario? After the GD it was tough, people went hungry ,but it wasn't the end. It won't be after the next one.
As said above it is simply insurance that has held value for 5000 years...Now it's passe? The N. Koreans have been counterfiting are money for awhile now. Our govt has been running the presses on overdrive...Do the math, an Oz of gold with inflation is a great way to hold that value.When the dollar drops even further what do you think the value of PM will do? It's not only about us anymore. The world, Asians; Middle east, India, China, Japan has always kept their weath in PM ,and now they are becoming able to afford more of it.You're correct there is only so much to go around, and I have my little bit...Hope I never have to cash it in ,and only if I want to..
 
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