This post is meant to be more of my personal reasons for saving in gold and silver. There are many different ways to invest in precious metals. So, I am going to talk about the some of the more popular ones as well as do a few name-drops on people you should investigate if you are interested.
Preservation of wealth (saving in gold)
The main reason I buy gold and silver is because it is a preserver of wealth. Gold has been some form of money for over 5000 years. I gave an example of how gold preserves wealth in my post “Gold: both sides of the coin” that I will link in the bottom of the page if you are interested. I need to make a very important note, I buy PHYSICAL gold and silver for this reason. When you start to deal with precious metal ETFs, futures, and even mining stocks you are playing a very different game.
Now, just saying buy precious metals is not very helpful. A few questions probably come to mind like how much should you buy, and where do you put it? I will give my answers to these questions and some other ideas and answers that I have heard.
To answer the first question on how much you should buy, I basically hold myself to a 10% gold standard. Basically, 10% of my investable assets are in gold and silver. I do not include the money I need to pay bills and live life, only what I have invested. Currently, I am a college student, so this is a very important distinction. I chose 10% because I think that it is a good ratio for insurance on your wealth since that is exactly what PHYSICAL gold and silver are, insurance for your wealth.
Fundamental Concept
A very important concept needs to be addressed that is applicable to everything in your financial life. Saving in gold requires understanding the distinction between value and price is a subtle but pivotal concept to understand. Price is just a number; it changes depending on the currency you are transacting in. Price could be in U.S. dollars, Euros, or even seashells. It really does not matter. It is simply a measurement of value with respect to the unit of measurement (the dollars, euros, or seashells).
Value is something that never changes no matter what the unit of measurement is. A loaf of bread is worth the same no matter if you are buying it with dollars, euros, or whatever form of currency you are using. It is that value that is important. It is value that puts food in your stomach. It is value that puts a roof over your head. It is value that keeps your children warm and safe at night. The amount of currency units you use to buy that value can never change that value in any way.
Some examples
With this concept in mind, lets tie this into investing in gold and other precious metals.
What if we have severe inflation and it costs $100 for a loaf of bread and $40 for milk? Well, your gold will have “appreciated” enough to whatever dollar amount that would be. The value of the gold has not changed, only its price in dollars. The amount of gold that could buy you a loaf of bread when it was $5 is the same amount of gold that would buy it at $100. Now, you cannot go to WalMart and buy bread with gold coins, but you can trade your gold for the dollar equivalent then use the dollars to buy bread.
What if we have severe deflation as could be seen by asset prices during the great depression and the great financial crisis? The dollar price of the gold would fall as well, but that really does not matter. You shouldn’t buy gold because you think the price will increase, you should buy it as insurance and to preserve your wealth. You bought the value of the gold, not the price of it.
Why?
All of this falls back on the fundamental reason of why you bought the gold in the first place. If you bought it to see the price go up, sell it at the higher price, take the tax hit and get a “return”, then good luck. You either ignored or misunderstand the concept of price versus value.
On the other hand, if you buy gold because you want its value and its preservation of wealth, then you shouldn’t care about the price because it does not affect the value of the gold itself. Gold has been used as a form of money for over 5000 years, has been used as a currency by empires and countries throughout history, and is still hoarded in the vaults of major world powers like the United States, China, Russia and many others to this day. Why? Because of its value, not because of the price.
Something fundamental about precious metals is that their price when you buy them is called a spot price. The spot price is special because it is the exact same in every country around the world. It does not matter if you are in the United States, Russia or Columbia, the spot price is the same. That is how you know something has value, it is worth the exact same no matter where you are on the planet or from who you are trying to buy it from.
Storage
A quick note on storage since you must have somewhere to put this physical gold. Do not put it in a bank vault or a safety deposit box because when a situation arises that you will legitimately need your gold, the banks will be closed and will have confiscated everything you have in there anyway. One option is to keep it with you, in a safe or tucked away in a closet or buried in the yard. That is great if you only have a little, but not so much if you have a lot you need to store.
If you have a lot, there are private storage facilities that you can use to store your gold. Many have private security and many other forms of protection. You will probably pay an arm and a leg for it, but if you have enough gold to merit that form of storage, you are probably affluent enough that the cost of that security is not a big deal. Also keep in mind that you must be able to get to it. There is no point in storing your gold in New Zealand if you cannot there when you need it. Everything like this is extremely case dependent and you will have to thoroughly plan through for your personal situation.
Excellent Mentors
I want to end with the name drops of people to look up and why. George Gammon is a great source for the concepts of macroeconomics and other financial ideas. It was his YouTube videos that really helped me understand the distinction between value and price. Peter Schiff is a great source for learning about gold. He owns a gold company that sells gold and silver among other related financial products. Always keep in mind your source’s biases, so keep in mind that he is a major gold bug. However, he is so knowledgeable about precious metals investing that any education about gold without him would be inadequate.
Finally, Robert Kiyosaki is another amazing source of knowledge, not just in the gold and precious metals arena, but in almost everything business and investing related. It was from him that I learned who to follow for more specialized information. It was from listening to his Rich Dad Radio Show that I learned who George Gammon, Peter Schiff, and many others all were.
Do your own research because no one cares about your money more than you do. Think critically and independently because it is always your decision to make.
To your wealth and future,
James Forsythe
link to “Gold: Both sides of the Coin”
George Gammon YouTube Channel
https://www.youtube.com/channel/UCpvyOqtEc86X8w8_Se0t4-w
Peter Schiff YouTube Channel
https://www.youtube.com/user/SchiffReport
Robert Kiyosaki YouTube Channel
