recent conversations about the economy and the value of the dollar diminishing have me wondering, is it time to take my savings and invest in gold?
i know there are those of you that prefer not to think about the possibility of a economic collapse (particularly, those in the US) but the more research I do about inflation, the more I am convinced we are in for something BIG in the next decade or two.
id love to hear your opinions. im also curious to know what is the best source to buy from?
Hi Maya, everyone has their own views on the subject, so here is mine.
Gold and silver are the ultimate preserver of wealth -- they hold the same buying power now as they did hundreds or even thousands of years ago. A popular rule of thumb in the gold community is that an ounce of gold has always been able to buy a nice man's suit. So while precious metals can be volatile over the short term, over the long term they are actually very stable.
If you are buying gold to preserve your wealth for years or decades from now, buy the actual metal and don't settle for anything less. You pay a bigger premium for the actual metal when buying or selling because the company you bought it from actually has to come up with the gold. It's not just a piece of paper that they hope you won't cash in on one day. In one of my previous posts I mentioned an article that said there is 400 times the amount of paper gold in this world vs. actual metal, based on the amount traded on the COMEX every day. That should tell you how scare real gold is vs. paper gold. That being said, paper gold definitely has a place as a trading vehicle to buy and sell out of as the opportunity presents itself. But if you are wanting paper gold or silver, I say just buy the gold and silver ETFs (GLD and SLV respectively) that are traded on the New York Stock Exchange every day and dispense with the certificates altogether. No fuss, not even any paper to worry about, it's all digital and the transaction fees are very small vs. the spot price of the metal.
Because gold is the ultimate preserver of wealth, it's not necessarily the best investment if you want to actually make money vs just maintaining what you have. If you want to speculate in precious metals, you should look into the stocks of precious metal mining companies. If you start doing your research you will come up with some good ones, or you can simply buy the gold miners ETF on the stock exchanges. The ticker symbol is XGD on the TSX and GDX on the NYSE.
My own personal favourite precious metal stock is Silvercorp (SVM to the TSX). They are a Canadian company but own the largest silver mine in China, so their labour costs are very low compared to mines in other countries; the CEO said they can start up a mine in China in two years vs. seven in North America; their cash cost of mining silver is actually negative because they have bimetallic credits (meaning they pull out a bunch of other metal when mining for silver that they can sell as "bonus money" to offset the cost of mining silver); and I am extremely bullish on silver itself vs. gold. While I have been a believer in the upside of silver for a while I read this article on silver recently and was in awe at how well the writer presented his case on an upcoming silver shortage. Have a look if you are interested:
http://www.thestreet.com/story/10691881/1/silver-supply-crisis-looms-part-1.html
As for buying gold and silver, my favourite choice is to purchase government-minted gold and silver coins like the Canadian Maple Leaf or U.S. Silver Eagle:
They are internationally recognized and so should be easy to trade, and you have a reasonable certainty that they have not been counterfeited or tampered with, and that the actual amount of metal promised is in the coin. The premiums are a bit higher, but to me the liquidity is worth the extra money.
As for where to buy it, if you are buying small quantities like $200 or less, the easiest way is to go to a coin dealer you can trust. If you are buying larger quantities, I recommend going to ScotiaMocatta, which is the precious metals branch of Scotiabank and the largest precious metals bank in the world. The downside to buying it at Scotiabank is that it is a bit of hassle -- whenever I buy I need to present two pieces of government identification and the transaction take about half an hour. On the plus side the premiums are relatively low, and if you keep your purchase receipt they guarantee you will be able to get the spot price of the metal back when you sell.
Hope that helps
P.S. A few common arguments against gold:
1) It's just a piece of shiny metal. To which I say: what is a dollar? It's just a piece of paper. At least gold took some work and effort to mine, rather than a bank just printing out more of it. It comes down to trust and do you trust the government to not debase your currency?
2) It doesn't earn interest. No it doesn't, but it doesn't have to because it has intrinsic value. Real estate doesn't earn interest either, but people don't seem to question it as an investment.
3) You can't eat gold, so it will have no worth in bad times. Let's say I had a whole truckload of hamburgers in my house. They would only hold value for about two days, after which they will have gone bad and lost their value. Plus some people will not eat beef or meat. The whole reason for money coming into existence was as a common form of exchange so people wouldn't have to barter using things they didn't want or that would go bad or were a bugger to carry around. Maybe everyone can use some chickens in bad times, but try carrying those around from place to place.
Aristotle defined what makes a good money and came up with the following characteristics: (1) it must be durable, (2) it must be portable, (3) it must be divisible and consistent -- if you cut a piece of gold in half each half is worth half of the whole, which sets it apart from say, diamonds, and (4) it must have intrinsic value. The only metals that really satisfy this is gold and silver.
