Mr. Rawles,
I have been a reader of your blog for about a month now and as some one who believes in being prepared for any situation. I have found a lot of your comments very useful.
I am confused though about your suggestions to invest in gold and silver. I am just learning about these things so hopefully you can help clear up my confusion.
If you look at the track record for gold and silver over the long run these assets have just kept up with inflation. Over the same historical time period the stock market has been a much better investment. Most certified financial planners I have read and talked to recommend no more than 5% of this asset class in any investment portfolio and never hard assets such as coins, bars, etc. With the buy premium on hard assets the return is even less.
If these assets are going to go up in the future any where near as much as you have stated then why would the anyone or any company holding these assets sell them now? Why would they not hold on until a higher peak? So why would I want to buy these assets now when they are so high? I just wonder if gold is such a great future investment why are so many will to sell it to us now?
As far as having these hard assets in case of TEOTWAWKI what purpose would they serve? As an exchange token to make barter easier? How and who would set their value? Would there even be any intrinsic value to gold and silver after such an event? If you come to me to buy my surplus of bread why would I exchange them for your gold or silver instead of the shoes I really need? And if bread (or any item) is in short supply and I have excess and you have none and want some then a bar of your gold or a bag of your silver coins may not last you very long. What am I missing? Regards, – W.F.
JWR Replies:
Re:
>….Over the same historical time period the stock market has been a much better investment.
Looking at the past 50 to 100 years, the current bull market in precious metals is a bit of an anomaly. The precious metals, in general, are not an “investment” per se. Rather, they are more like insurance. They are insurance against the destruction of the U.S. dollar. With the exception of the present day–which again is anomalous–people can expect to buy precious metals with no firm hope of a “return.” Rather, they can be expected to just keep up with the rate of inflation. I recommend that every family have a core (non-speculative) holding of 5 to 10% of their net worth in precious metals. Yes, that is ultra-conservative. Yes, your investment will likely be “non-productive.” But at least you’ll have the ultimate in safety–even when greenbacks are used for kindling. In the long term, that is the fate of every paper currency that is not fully redeemable in specie. Again, think of it an insurance–not an investment vehicle.
And Re:
If these assets are going to go up in the future any where near as much as you have stated then why would the anyone or any company holding these assets sell them now? Why would they not hold on until a higher peak? So why would I want to buy these assets now when they are so high? I just wonder if gold is such a great future investment why are so many will[ing] to sell it to us now?
There are buyers and sellers in every market–bull, bear, or bust. People choose to liquidate investments for many different reasons: for example, to pay medical bills, to finance a college education, to buy a house, or to re-invest in another asset. How long someone holds on to a particular asset cannot be predicted. Simply stated: If there are more sellers than buyers at any given time, then prices go down, and vice versa.
We are just in the opening stage of a bull market, so don’t feel that you’ve missed the boat. I strongly recommend that if you own any metals that you hold on until the market goes into the final phases of the bull cycle. In the nascent run-up, that probably means tops of around $90 silver and $2,500 gold. That equates to a 9X gain for silver and a 4.4X rise for gold over current spot prices. I’m not kidding. In this bull, I think that silver will outperform gold considerably. For one well-informed concurring opinion on this subject, see Edgar Steele’s commentary titled “Peak Silver”, at: http://www.conspiracypenpal.com/columns/peak.htm
And Re:
>As far as having these hard assets in case of TEOTWAWKI what purpose would they serve? As an exchange token to make barter easier? How and who would set their value?
Precious metals will have their greatest utility as a recognized store of value to facilitate barter, in the latter stages of a post-collapse economy, as regular commerce starts to resume. Before that, you can only expect canned foods and common caliber ammunition to be accepted in barter. The free market will determine their value, as it always has. If there is a full scale dollar crisis, you can expect gold to zoom up past $4,000 per ounce. If the dollar is completely wiped out, the old dollars will probably be declared worthless, and a new currency unit will be established, most likely pegged to gold. OBTW, silver took a nice jump yesterday, to around $10.20 per ounce. See: http://www.kitco.com/charts/livesilver.html
Buy on the dips!