Buying precious metals?

[John]

Very interesting discussion! I see two separate issues here, each with its own unique answer:

1. How can I hedge against the declining US dollar?
For protecting against a dollar decline I'd prefer investing in a foreign currency over investing in gold or silver. This way you're also collecting interest while your money's just sitting around. I like the "Currency Shares" ETF's. You can buy and sell them as easily as a stock, and they pay interest on your balance. You can see the symbols, current prices, and current interest rates for each here: http://www.currencyshares.com/ . I think the Euro (ticker symbol FXE) is a good place to stash some cash while the dollar's going down. If you're dead set on gold or silver check out the GLD and SLV etf's. They offer an easier way to buy and sell gold and silver if you don't mind not actually possessing the physical bars.

2. How can I protect myself if the poop hits the fan, banks close, dollars and paper assets become worthless?
For this you'll probably want to be in physical possession of gold or silver. In the unlikely event that everything goes really bad then pieces of paper saying that you own some gold in another state or some Euros in London are going to be next to worthless. To prepare for an event like this, you should get some gold and/or silver coins (not bars) and keep them somewhere safe, but close and available (home safe, safety deposit box...) I recommend coins and not bars because if currency becomes worthless it will be pretty hard to get change when bartering for food or gas with a $10,000+ gold bar. Go for well-known and easily recognizable gold coins with the weight stamped on them, such as American Eagles or South African Krugerrands. This will make it easier to convince people of their authenticity and value when you try to use them.

So, in summary, here's what I'm personally doing: I have some cash in FXE (Euro ETF). This cash is gaining in value as the Euro gains against the dollar, and is earning a small amount of interest as an added bonus.

Also, I have a safe stocked with gold and silver coins just in case. I understand that I'll most likely never need to use them, but I figure it's better to be safe than sorry. Call me crazy if you want. The safe also contains a gun and plenty of ammo, again, just in case.

 

[kidgas]

I consider silver and gold to be stores of value. In 1989, when I bought a few ounces of silver for about $5/ounce, I could get about 4 gallons of gas or 1 large pizza with that ounce of silver. Low and behold, at about $16/ounce, I can get the same gallon of gas and same large pizza. I am sure many other comparisons can be made (ounces of gold vs houses, cars, etc). Bottom line is that throughout history paper money will come and go but the silver or gold you hold in your hand can be exchanged for a certain amount of that paper money and used to buy the necessities of life.

 

[Edge]

With all the liquid markets of structured products out there (ETF, Futures, Forex, etc) I don't really understand the reasoning behind buying and storing the physical assets.

Why not to invest in precious metal:

No cash flow. You have to sell the asset to get to the money.

So, if you're considering it to be your passive cash flow reserve, it won't work.

Just playing Devil's Advocate, Easy.

Again, if you are using a liquid markets to trade these assets, you can generate cashflow by selling covered calls against the asset based on the risk:reward structure that best fits your goals.

 

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[EasyMoney_in_NC]

No ma'am, no bellies here! I have 2 young kids and 2 cats, I need nothing more in my life that create stink but I digress......

What I'm doing is nothing more than burying money in coffee cans in the back yard, except for the fact that instead of paper cash, its hard asset specimen, and if all goes as planned, its worth quite a bit more than what it is when I bury it, unlike the cash that pays for it today, which for the near future seems to be on a downward trend.....where as the specimen are moving northward.
I have thought about the derivatives end of it too, it'd be nice to make a little now money off of the upward movement, but..................

may still happen. One step at a time for me.

 

[Edge]

Here's the part that I'm stuck on - if, as I understand it, Easy wants to buy precious metals as a hedge against inflation, he would hold them in their physical state for long-term. On the other hand, you, as a trader, can make money if the value of the metal goes up or down. It's just a commodity and it creates short-term cash flow, but is not a hedge against inflation. Edge, you could make money using the same principal on pork bellies. Betcha Easy wouldn't want to take physical custody of those in the back closet for very long. So - although the underlying asset is the same, what you want to do with it and how you do it, is completely different.

Edge, Easy, did I get that part right?

I think you got it right for the most part. The only thing I would add is that if I was going bury bars of gold in my back yard I would probably still trade derivatives around that pile of gold to manage that risk that is buried in my backyard.

Derivative investments don't need to be defined only as a "short term" cash flow trade. I think it makes sense to trade derivatives to manage the risk of long term investments also. In fact I think that is why folks started structuring derivative products. It wasn't necessarily the speculator that created the demand, it was the long term holder that wanted to hedge and manage their risk.

 

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[EasyMoney_in_NC]

Just curious to know if anyone is buying precious metals, not trading Forex or anything but actually buying hard pieces of gold, silver etc....as a hedge against an ever declining dollar.

If so or not, why or why not?

 

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[EasyMoney_in_NC]

no one here is?

 

[6.0_bull]

Gold is always a good bet when the dollar is in decline and the economy is suffering , good time to put some of your assets in Gold with prices possibly reaching $2,500-$3,000 an ounce in the Future...You might also want to look at your Euro-Bonds since most of Europe is not as indebted like the US is currently , there for the Euro should remain out performing the US dollar for a long time ......

 

[Jonleehacker]

Yes, a friend and I went on a buying spree about 2 years ago and bought a bunch of sterling silver items off of ebay. Our average price was 10.50 and today it sits at $17.18.

It was clear there is a nice trend on metals and also I know that if things get really bad, I can pull out an old candle holder and head to the grocery store and still buy a few things to eat!



In the 80s peak gold was over $800 for only 5 trading days and the inflation adjusted price for that would be over $2000. Seems clear that we are headed back to the same place, if not higher.

Silver, many including myself believe, has significantly higher upside, due to the fact that it is not only a precious metal, but is also "consumed" (meaning is used up, never to be recovered) by many industrial processes.

 

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[PEERless]

I am not a metals trader, but I can offer you one piece of advice: buy coins and stamped bars only. Jewelry, silverware, ingots, and other knick-knacks can only grow in value according metal prices. Coins also grow in value as collector's items and antiques. Now, how 'bout some rep.speed? :smxB:

 

[EasyMoney_in_NC]

I've started buying the hard asset, figure it can't hurt. History always repeats and with the information age the way it is, I would venture to guess that values (for everything really) will increase and decrease rapidly. I too have been watching fleabay and can't understand why it is that people are regularly spending $20 + an ounce even before ship'g for something only worth $17 and change. Now I know there's the "the market is what someone is willing to pay" but come on, what do all these people know that they're willing to pay a huge premium?

 

[andviv]

what do all these people know that they're willing to pay a huge premium?

Maybe the question is, "what do these people DON'T know" and may be overpaying? (i.e. speculation)

But yes, I do believe there is some room for the price to go up. But it is just what I believe, it is not a fact.

 

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[Diane Kennedy]

We just moved and in the process of moving, there was this VERY heavy box in our closet that I kept tripping over. I couldn't even budge it.

I complained to my husband and then he opened it to show me it was full of freshly minted silver and gold coins that he'd held on to for something like 40 years.

They're now in our safe. I wonder, though, how much is really in there (it is just one box full) and although I know they've gone up in value, how much would we have made if he had taken that money and just bought a piece of real estate 40 years ago. On the other hand, it's a hedge in case something happens to our businesses, real estate and the economy, all at once and in one fell swoop. We know we've got precious metals. But I suspect we'd need more than just one box full.

So, that's my only story as an unintentional and unaware precious metal investor.

 

[Bilgefisher]

A friend of ours use to go to Montgomery Wards and buy gold. (They use to sell it right at the store). She would spend half her paycheck at times. It use to drive her husband nuts. Long story short, she paid for their retirement. I kinda laugh when I hear the story and she got the last laugh.

 

[EasyMoney_in_NC]

Well you may be better off with that box than you think Dianne. I know I'm preaching to the quire when it come to discussing money with you, but keeping in mind that our dollars are no longer backed by gold, think of what precious metals will be worth in the event the dollar takes a real dump! Could it be worth thousands an ounce if the dollar collapses? 10's of thousands? who knows?
When people talk about long term stock investment, the old adage is "if you had invested XX back in XX it would have become XX today" so I figured since the commonly used value is either 1000 or 10,000 I figure if I go 10,000, who knows what'll happen in time. Good bet it doesn't go to $0, and although its value isn't a compounding one, if the dollar goes south, we'll be all be back to caveman days bartering and trading for what we need and want..........sort of like what I think will happen if the "fair tax" ever gets enacted

 

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[Diane Kennedy]

Well you may be better off with that box than you think Dianne. I know I'm preaching to the quire when it come to discussing money with you, but keeping in mind that our dollars are no longer backed by gold, think of what precious metals will be worth in the event the dollar takes a real dump! Could it be worth thousands an ounce if the dollar collapses? 10's of thousands? who knows?
When people talk about long term stock investment, the old adage is "if you had invested XX back in XX it would have become XX today" so I figured since the commonly used value is either 1000 or 10,000 I figure if I go 10,000, who knows what'll happen in time. Good bet it doesn't go to $0, and although its value isn't a compounding one, if the dollar goes south, we'll be all be back to caveman days bartering and trading for what we need and want..........sort of like what I think will happen if the "fair tax" ever gets enacted

Easy, you and I have a tendency to hijack threads. But, you started this one, so maybe it's okay.

I totally agree with the issue of the shrinking dollar. I've been thinking of doing some investments in Europe for that reason. One of the things that really sticks in my mind is that if I'd taken $1 mill US over to Europe and just put it in Euros, with no interest, nothing...and took it back to the US in 2005, it would then be worth $2 mill. Whew!

What do you think of that strategy? I'm not as much into currency trading, but more thinking of just buying a rental property. Let it pay for itself and just see what happens.

A friend of mine bought rental property in Mongolia 2 years ago. He rents it out to ex-pats.

Oh, one more gold bar story. I grew up in Oregon. In the winter, the roads got really icy. My dad would always put weight in the trunk of the car to help with traction. One time I borrowed the car and Dad told me not to open the trunk. That seemed weird and being a typical (at least for me) teenager, had to then open it to see what was in it. It was full of gold bars! That was back in the day when gold was hitting its highs. Dad ended up selling near the top and did very well. He didn't do it as a hedge, more as an investment, figuring gold would cycle.

 

[EasyMoney_in_NC]

Starting from the end of your post, I think everything cycles. I applaud your ol' man, that's forward thinking. I am trying to do the same as I grow older (think forward).

As for your strategy, we apparently think alike. I recently started looking at doing the same thing, although my wife is not keen on the idea of sending money to ANY foreign country, hell she won't even let me send it to other banks in THIS country without a fight
I went to the UK a few years ago when the pound was 1.73 to 1. Had I been a forward thinker, I may have seen or even understood a shrinking dollar and had I sent 100K over there somehow then, I would have gained as much (recently) as 40 cents on each dollar in currency price differential not to mention any interest on the initial money.........if I had only been a forward thinker :bgh:

I'm not sure what the best way to send money over seas is, so I can't help there. I realized the other day that I had a 5 pound note still from when I was there. Realizing it was worth almost 10 dollars, the reverse bothered me. If I had just brought back British currency...........

I was just trying to provoke discussion about hard assets, this is a great so far. I would like to get opinions on why or why not to buy metals. Someone here must have experience or know someone.

 

[Jonleehacker]

I would like to get opinions on why or why not to buy metals. Someone here must have experience or know someone.

The reason is simple: Inflation.

Every time the US gov pours money into the system to keep all the consumers spending, the result is inflation.

Inflation = greater amount of money chasing after the same number of goods and services...therefore everything is worth less. With the exception of hard assets which historically rise in value in times of inflation...makes sense due to limited supply.

During the Clinton period the US changed the way inflation was reported, so that it no longer includes items like food and fuel. This was so they can report that inflation is low and continue to pump money.

But in 2003 total US money supply was about 10 trillion...in 2006, 13 trillion and that means a 30% increase in total money supply in 3 years, which is about 10% inflation per year.

Or put another way, if you are investing with US dollars and you aren't earning 10% a year on your investments, then your real buying power is eroding.

Any hard assets should do well under inflation...have you looked at the price of wheat for the past year?

 

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[EasyMoney_in_NC]

I can't say I've specifically for wheat, but I do know I've heard its up huge like all the other agri-commodities these days (corn, wheat, etc....) But I can't buy a wheat field (locally). I can buy metals though. I don't want to get into the discussion of stock, etf and spider markets, I don't do those and don't want to. I'm an old school guy, just shy of money in the mattress. I like investments I can roll in ( or on ) touch, smell, whatever you want to call it.
hmmmm.....to listen to the noise box, we aren't in an inflationary or recessionary period, yet the costs of everything is going up, what do we call that?

 

[EasyMoney_in_NC]

Name me one thing that hasn't gone up like that.....no really anything? Sort of my point, thanks for the wheat update, I was unaware its that high!

 

[PEERless]

have you looked at the price of wheat for the past year?

My girlfriend's family owns 4,400 acres of wheat in Washington. Any other year, agriculture is a tough biz, but DAMN! They've just bought another house and more land! Quintupling your average annual profits is an astounding change in income.

 

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[Jonleehacker]

we aren't in an inflationary or recessionary period,

The only reason we aren't, is like I mentioned, they just changed the inflation reporting criteria to make it look like inflation is low (by not reporting things like food & gas), but in reality (take away the government spin) we are in a period of HUGE inflation.

 

[Diane Kennedy]

I mentioned in another thread that I had the opportunity to speak with the CEO of Domino's Pizza the other day, and one of the things he mentioned is that, while the gov't is claiming inflation is low, the pizza business is indicating otherwise. Specifically, he mentioned that for the past 9 years that he's run the company, the average price of wheat has been about $3 per bushel, yet in the past year, it's run up to over $15 per bushel.

And, no, it's not just wheat...but considering the discussion above, I thought that statistic was most relevant...

Wheat prices are rising as a result of the increase in gas and oil - at least according to the local bread store where I get ciabatta.

 

[Diane Kennedy]

Why not to invest in precious metal:

No cash flow. You have to sell the asset to get to the money.

So, if you're considering it to be your passive cash flow reserve, it won't work.

Just playing Devil's Advocate, Easy.

 

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[EasyMoney_in_NC]

Yeah I understand, and appreciate that. Being one that has positive passive cashflow that provides a nice little income as well as my businesses that pay me in various ways, I think purchasing metals (lets say) is more of a hedge investment than a "now money maker". If the appreciation continues up, then I look at it like a piece of dirt, its value is increasing and unlike RE, I'm not spending more $$ on taxes etc, in the end the investment will pay for itself . And in the spirit of "diversification" if I may use a stock trader term, for me, the investment will most likely end up being a small % of my net worth. The idea of cash being worth less and less bothers me. My money in the bank will be worth (what) verses a non renewable commodity? Now I understand this could be many years down the road, but still......
Even our (collectively as RE investors) RE investments could be greatly reduced by a complete monetary fallout, no.....?

 

[EasyMoney_in_NC]

The only reason we aren't, is like I mentioned, they just changed the inflation reporting criteria to make it look like inflation is low (by not reporting things like food & gas), but in reality (take away the government spin) we are in a period of HUGE inflation.

Well sure, that's how "the man" keeps the peasants at bay. Could you imagine what these days would be like if the media was able to claim "the sky has fallen!". Its really no different than corporate mis-representation as it pertains to their balance sheet. Its the governments "Enron" way of pacifying the people.

 

[andviv]

Please keep the thread away from politics. The topic is interesting, but we don't want to see posts about politics.

 

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[EasyMoney_in_NC]

I agree, but I don't see "politics" here. The question is whether or not to buy hard assets. Part of the answer is whether or not we are in a recession or if inflation is here or not yet . And whether or not now would be the time to buy based on your idea of recession/inflation by hedging against the dollar.
My personal opinion as stated above may be a wee "jaded" but it is how I see things and is what is spurring my pursuit of both the asset and this thread. I'm looking for other opinions and validation or not, to buy. But I don't care to get into true politics, this is about making a solid (or not......no pun intended) investment.

 

[TheGreatBear]

Any hard assets should do well under inflation...have you looked at the price of wheat for the past year?

But wheat is up due to droughts in Canada and Australia right? The whole biofuel mess is sending more acreages to corn and sending prices for both soybeans and corn up.

 

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[PEERless]

In 1989, when I bought a few ounces of silver for about $5/ounce, I could get about 4 gallons of gas or 1 large pizza with that ounce of silver. Low and behold, at about $16/ounce, I can get the same gallon of gas and same large pizza.

A VERY unique perspective. Great point. Rep.

The whole biofuel mess is sending more acreages to corn and sending prices for both soybeans and corn up.

Agreed: I'm not sure we should be fueling our wasteful lifestyles with the food of others.