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April 1, 2013 / 74

“are precious metals a good investment?”

A friend recently asked me this question:

“Are precious metals a good investment?”

I’ve been asked the same question by quite a few people lately, and I finally decided to put a few answers (just my opinion!!!) here on the old blog. And full disclosure says I have to tell you if someone is paying me to write this – the answer is no. Or maybe the answer should be “I WISH!!!” ;-D

I get absolutely no compensation or benefits from writing this blog from anyone, and most people who read it don’t even say, “Gee, THANKS for the information.” So I write it because my traffic is high enough that I think someone out there is getting something out of what I write.  So… on with my answer to the person who asked last…

Yes and no. Depends on how the crash goes down.

A Few Scenarios
If radical deflation occurs, then cash is better – UNLESS the govt defaults in which case the cash would become like Confederate money – worthless and sold in museum gift shops as curiosities. (If the govt is going to default you’ll probably see the Rich and Powerful moving their wealth into other things – like gold/land/tangible property/foreign currencies/etc.) And those who say the US government has never defaulted need to study the phrase “Not worth a Continental” and then argue with someone else about whether that was a default.

Precious Metals (PM) will always have some VALUE – which doesn’t mean you can “spend” it – and if the govt just devalues the currency, then the VALUE of the PM will remain steady against the currency and tangible goods. ie if you buy an ounce of silver today for $30, then if the dollar is devalued 90%, you will be able to buy whatever you could have bought for $30 with the ounce of silver. Generally PM RETAINS value. So in a world where the dollar disappears, then you’ll PRESERVE the value of your wealth with PM. ie generally speaking, PM does not “depreciate” but neither does it “appreciate.”

For example – people who bought gold at $300 per ounce could sell it today at somewhere around $1600 per ounce. But again, generally speaking, that $1600 will only buy what $300 would have bought back when you bought the gold.

There are exceptions to this – as when the market is being manipulated – which it is now. (For a more narrow answer to “are PMs a “good investment”” you’d have to define what you mean by “good investment.”)

Will you get rich buying PMs? Probably not because even though the price of PMs are now being manipulated, you don’t know in advance (like the Rich & Powerful) which way the price will move. And I believe it’s likely that PMs are near peak and falling off in price. (Which can mean that we are entering a deflationary period – whether the FED likes it or not.)

But in a hyper-inflationary environment, the “dollar cost” of PMs could skyrocket. I’ve heard estimates of $20,000 per ounce, but the people forecasting that never say that under those conditions a hot dog at the ball park will cost you $40 – assuming $3 cost now.

Generally, look at what the big countries are doing… China, Russia, India are all buying as much gold as they can get their hands on… but they are buying it to back their currency. Not to “make” money. (And from there it gets complicated – insert discussions of “Global Reserve currency, Petro dollars, etc” here). China and Australia are proposing deals  using their respective currencies without remediation of their respective currency values in US dollars first – which means they are moving away from the US dollar as the world reserve currency. (It also means that when the Yuan/Renminbi crashes, Australia will get hammered.)

Especially watch for oil deals to happen without being priced in USD – that’s a bad sign for the US because it may mean that the Petrodollar is dead! But remember also that the US can back it’s currency’s status with the (currently) strongest military and one of the strongest economies in the world.

Another issue is if you buy gold and the US government decides to go back on the gold standard, then it will do what FDR did in the 1930’s – which is to say they’ll make it illegal for YOU (private citizen) to own gold – and they’ll take it off your hands at a VAST reduction in the price and value that you paid for it. ie the Govt can STEAL your savings by confiscating your gold. IN the past, exceptions were made for jewelry and for “coin collections” which really are collections of rare coins and collections having numismatic value. (Having a collection of 20 gold coin-shaped discs won’t cut it. ;-D)

And you must also understand that if/when the crash happens, things held in bank safety deposit boxes cannot be accessed, and may be subject to search when you take them out of your box. (ie if you have a $million in gold in a box, and the govt confiscates gold, you won’t get out of the bank with yours without it being confiscated/bought by the govt.) If you keep a large sum of cash in that box, and the banks collapse, you will not be able to even get IN the box – it will be behind the locked bank doors.

But owning PM also carries RISKs – such as it’s transportable and unidentifiable – which makes it subject to theft. (And it’s generally uninsurable. Cash held in homes/safes/coffee cans in the back yard are also subject to theft and are uninsurable.)

So as you can see, the answer to this simple question isn’t so simple. There are traps and pit falls all along the path, no matter which path you take. No matter which path you take, your BIG concern will be security. ie you don’t tell the folks at work or your neighbors (or most of your relatives) what you are doing and how.

My wife and I are not accumulating either cash or PMs – figuring the best use of our money today is to pay down debt. (And no one can steal the paid-off accounts!) Last Friday we paid off the mortgage! WHOOPEEE!!! But as mentioned elsewhere, if the country goes full Socialist – eh! We’re screwed. ;-D Even houses/land can be stolen – it just requires different methods.

Are PMs a good investment? The best answer I can give you is, “It depends.”

If your main goal is to have security, the best way to be secure is to put your trust and faith in Jesus ’cause there is no other kind of real security! Certainly not on this world!

Further questions?

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One Comment

Leave a Comment
  1. Anonymous / Apr 1 2013 15:59

    Gee, thanks…..I think?

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