Howdy James,
I hope you and yours are doing well. I recently came across the Preparedness Podcast and in Episode 5 – Gold, Silver, and a look at what’s coming in 2009 is an excellent primer on investing in gold & silver.
Basically silver is your ‘checking account’ and gold is your ‘savings account’. A 20% silver and 80% gold ratio is suggested as good mix of spending power and portability. A few gold coins take up a little space when you have to bug out, but the same dollar amount in silver will weigh you down when you need to carry other items. I do think silver is the better choice for a ‘barter society’, but gold rules when you got to travel light! Later, – Mark in North Carolina
JWR:
Don’t even think about buying gold bars, unless you are a multi-millionaire s already swimming in coins! To quote Gary North, rather loosely, “You are now entering an area only gold dealers ever venture into”.
Gold bars do save a small amount of premium – initially – but this is “penny wise, and pound foolish”. For a small premium for coins, 5% to 8% currently, you get all these advantages:
1. Much easier to verify authenticity. How do you know that you are getting real gold when you buy bars? How do you prove a bar is gold when you sell? This is easily a deal killer. Even if you are not a numismatic expert, common coins can be verified with a scale and calipers to conform to the published weight and dimensions for the coin. It is extremely difficult for fakes to conform to specifications – read the expert, Mr. Fisch. Even more conveniently you can use the Fisch coin test kit. These are highly recommended, not just for assurance purchasing today, but a great service to offer in post-TEOTWAWKI “Barter Faires”
2. A wider market for coins means a better price, and much more liquidity. You may take a nasty discount trying to get rid of a hard-to-verify bar that more than negates the premium saved.
3. No need to assay. Forget the cost for a moment – what if assay services are not available in a crisis?
4. Smaller units so you have a much more divisible means of payment. Bars are only good for large transactions. To dollar cost average in or out of an asset you need smaller units.
5. A small premium is not an expense, but part of the value inherent in the coin – value you will recoup on resale. If you don’t overpay, you can recoup much of the premium even upon resale to a reputable dealer, e.g., see Tulving’s buy versus sell prices.
You should be able to get most or all of the premium back from a private buyer – if not even more premium in a bull market mania. Do you think a newcomer to gold will even consider risking hard-earned cash on a unverifiable lump of gold? The only exception I can think of are some of the Credit Suisse or Pamp Suisse “coin-like” bars that are well known and minted like coins (not cast in a lump like ingots). Weight and dimensions can be verified on these coin-like bars, Fisch even has a verification tool for the 1 oz. Credit Suisse [bars]. Still, I prefer coins – why limit your market when you want to sell?
Leave the cast ingot bars to the big bullion banks that can document the chain of custody from bullion foundry to bank.
An argument for silver bar investing can be made, given the recent high premiums on silver. But, even here, why not have your silver investment do double duty to add to your barter junk silver?
Regards, – OSOM
JWR Replies: I’d just add that serialized 100-ounce Engelhard and Johnson-Matthey silver bars are typically re-purchased by coin dealers without any assay required. After you have your barter silver coins squared away, silver 100-ounce silver bars are the the most cost-effective vehicle for silver investing, at least for the small investor.
Mr. Rawles,
I have been reading your blog and others (like FerFAL in Argentina, [also see FerFAL’s SurvivalBlog Profile]) and completely believe that having some silver coins is a good thing to have when the SHTF. However, someone asked me recently, “So how would you use them? How many people know a “standard” [modern, debased] coin from a “silver” one?” Well, I didn’t have a good answer for that. Can you help me explain the use of silver coins in a SHTF scenario? Who would recognize their value other than another prepper? Even all of them might not know. Thanks, – Coinless in the Mountains
JWR Replies: I estimate that nearly half of the US population is familiar with the fact that dimes, quarters, half dollars minted before 1965 are silver. (Although most folks don’t know that they are 90% silver, with base metals added. for the hardness required for the rigors of circulation as pocket change.) Most of these same folks know to look for copper showing on the rims of later (post-1964) debased coins, to distinguish them from the earlier, genuine article. In the event of a monetary collapse, there will surely be a rapid education for the rest of the populace. The beauty of free market economics is that prices very quickly reach equilibrium. I anticipate that within just a few weeks, new prices denominated in pre-1965 silver coinage will be set for most consumer products, and a daily trading ratio of silver coin-to paper currency will be pegged. (No doubt with a steadily-declining value for the fiat paper currency.) Have faith: The marketplace will quickly adjust, and people will quickly adapt to using silver coinage and practical tangibles in barter. (As I’ve written before, in the early stages of an economic collapse, ballistic wampum, i.e. common caliber ammunition will likely be even more sought-after than silver.)
On a related note: Few Americans are familiar with the 40% silver content half dollars minted between 1965 and 1970, so I do not recommend buying any of those for barter.