The logic for buying gold/silver?

[Peter M. Eick]

I am trying to figure out the logic of buying gold and silver as an investment.

My premise is that gold/silver are a measure of buying power captured in metal. So gold today is worth $1600 (give or take) and it is not really getting any scarcer or more common. So any change in value is really a measure of the change in value of the dollar. So if the the price drops to $1000 per onz, then the dollar got stronger and oil should get cheaper, silver cheaper and most commodities will get cheaper. Now if it goes to 3200, then the dollar will basically be worth half as much and will best 1/2 of what it did today as it will in the future.

So if you buy that premise, and you buy gold, when you sell it you have to pay capital gains at currently 28% if you exceed the reportable amount and generate a 1099-b form. So you made a gain, but really all you did was hold the buying power fixed against inflation which depreciate the value of the dollar and effectively raised the price of gold. If this happens and you lose 28% to Capital gains, how is this a good investment?

Logically, the only way this works is if you buy small amounts (onz at a time) and sell it in small amounts so you don't generate a 1099-b form and don't pay capital gains. If you do this, then you effectively are holding buying power against inflation and you basically break even and hold your wealth.

But if you do this, you are effectively breaking the law by not paying capital gains taxes which again makes the whole metal play invalid.

The only way I can see you come out ahead is if during the time you hold the metal, there is an artificial scarcity created that is not filled by new mines and the metal becomes temporarily worth more then its inflation adjusted value. This could occur if for example a Cyprus type bank meltdown happens and the metal has value just because you have it. But for this to work, you have to have the demand price exceed the inflation adjusted value by at least 28% which seems unlikely.

So, where is my logic on this flawed? I am really trying to understand the financial play here.

 

[A10]

I know that gold, silver, and copper are supposed to hold intrinsic value, but I invest in blue steel and lead (I know, it sounds contrite but it's true). Their value for me is beauty and function, and I presume that will hold through time. I heard an analogy a long time ago from a good friend: "In 1873 you could get a Colt Peacemaker for a 1 oz $20 gold piece. Same holds true today."

 

[Coldshooter]

Buying gold as a hedge against inflation is a different investment. Gold especially Krands are basically untraceable. I doubt if many buyers are going to be interested in declaring gain on investment when it hits the fan. I see a statistic which shows that an oz of gold still has the same purchase power as it did 30 years ago. For investing for gain I like US gold coins from southern mints Charlotte, Dahlonega and New Orleans. The US half Eagle $5 was the only coin struck at all the mints. Interesting history good value.

 

[beemerphile]

I have some gold in a Roth IRA where moth and tax do not destroy. It has doubled in five years. Gold is a store of wealth, not an investment. Holding cash as a store of wealth is like leaving ice on the table to use later. It is not a substitute for investments having growth potential.

So many people think either/or in situations like this when what is called for is diversification. When given a choice - take both. Some gold, some silver, some stocks, some bullets, some rice, some real estate. Even some paper money. This a case where "spreading the wealth" is a good thing as opposed to giving it to someone who didn't earn it.

 

[pharmer]

Buying precious metals like guns are not the best "investments." They are hedges against unforeseen calamities like the ones looming just over the horizon. I bought a bar of silver for $760 in 1980. For most of the last 33 years it has been underwater investment wise. Inflation calculator says $760 in 1980 would be $2100 today. With silver being around $28 oz, not a raging success. The same $760 invested in 60 shares Disney stock @$13 at the same time, would be worth about $165,000 today (2 4 for 1 splits and a 3 for 1 in this period). I own both silver and guns but not for investment purposes. Joe

 

[max]

Someone once asked me if I owned gold and I replied that I owned lead. My 22lr has appreciated more in the past year than gold.

 

[ladyT]

Its reccomended that 10% of your portfollio be in precious metals. That said the only time gold pays off is a weak dollar/inflation.

If I was to make a reccomendation it would be enough land to to provide food for your family,easy access to water both well and free running, trees, tools, root cellar, guns,ammo, independent power source, cash, then gold,silver and other things. Oh and no debt. If you can do that in the next 5 years I would do it.

 

[looseman]

QE3 was announced on 13 September 2012. In an 11-to-1 vote, the Federal Reserve decided to launch a new $40 billion a month, open-ended, bond purchasing program of agency mortgage-backed securities and also to continue extremely low rates policy until at least mid-2015.


Now imagine what is happening to the value of our dollar.

 

[tops]

Gold is the same as paper money. It has no value other than what somebody says it has. It doesn't matter what the value of land is because it can be used to live on and grow food. Food can be eat and it doesn't matter what the value is. Guns, powder and shot can protect you, your land and food. When it all gets to the bottom line the only thing any good is food, land and guns. Larry

 

[jaykellogg]

Gold only makes sense to me if it is in coins that can be individually sold. Gold is a hedge against inflation. As someone pointed out, the USA is monetizing its debt (printing money to pay the debt). This is bound to create some amount of inflation sooner or later. We saw what the government of Cypress did recently. The Government of the USA did something similar during the great depression. They decreed that it was illegal to own gold, bought it up at $35/oz and then they devalued the dollar. I don't have a "problem" with debt. I kind of like the idea of paying it off with cheap inflated dollars. My current strategy is to invest in real estate. It provides some income. One problem is if I rent something for $12,000 and I pay $6000 interest, it looks like I have made a nice $6000 profit and I pay tax on that. Trouble is I am paying payments and the difference between the payment and the income isn't much. As rents increase that should get better. I had a friend at work tell me that during the depression his father bought houses to rent. The town would not let his father evict people for nonpayment of rent, but insisted his father pay the taxes on the property anyway. His father lost the houses to back taxes one by one.

I wish I knew of a "safe" investment that would protect for inflation and provide a small additional return. I am not sure there is such a thing.

 

[Old TexMex]

University of Texas went to around a billion and a half in gold bullion(not shares) last year. (It went up from 1450 to 1800, then came back down.) That accounts for about 20% of the outfits holdings. So I followed their lead. Those guys can't care less about politics other than knowing which side their bread is buttered on, and they aren't selling yet.
My silver has certainly gone up, but the aussie dollar went from .50 in 2000 to 1.04 nowdays. That was pretty impressive, but it was just the result of a fallin US dollar.
Australia is pretty expensive now, and taxes are pretty high.
"something of value...."

 

[BobC357]

10 Year Gold Prices

10 Year Silver Prices

I trade through Monex and prefer silver.
I NEVER play with margin! I only have physical possession when I'm playing.
I prefer silver because I can have more ounces per dollar. Thus, a $1 increase in silver and a 1000 oz bar is a $1,000 increase. That same $1 increase in Gold is only $20 (20 oz bar for almost the same price). Even if Gold moves at $10 when Silver moves at $1, the ratio between the two is about 56:1.

Due to new fiscal cliff legislation, capital gains & dividend tax rates are increasing from 15% to 20% for singles earning over $400,000 and couples earnings over $450,000.

Individuals making in the $36,250 to $400k range will see their capital gains continue to be taxed at a 15% tax rate. Meanwhile, earners in the lowest two income tax brackets will pay 0% on investment income.

There will also be an additional 3.8% investment income tax applied to singles earning over $200k and couples earning over $250k. The purpose of this new tax is to help fund Medicare.

I would guess that most of us on this list aren't in the $400K plus bracket so, the rates really aren't that bad.

I would always hold for the long term even though I do short term trades in Silver when the market is volatile (it's a fun side hobby).

Anyway, I don't have any annuities, stocks, bonds or CDs making anywhere near the gains that the metals have turned over the past 35-40 years.

Choices as other have mentioned.. All kinds of Gold/Silver coins (don't forget about the 90% silver US coins) and bars (large and small). Both are liquid, easy to store and generally always go up (don't buy high and sell low!)

There is always somebody willing to buy and sell and prices are set by the global metals markets.

 

[Kinman]

I might be old school but I have no interest in gold stocks or investing in gold that isn't either physical or backed by physical gold. The beauty of holding gold is that a one ounce coin has the same current value as around $1500 and depending on when you bought that coin depends on what your investment is worth. If you bought gold in the not to distant past when it was around $500 an ounce you have basically tripled your money, but you have to sell...alot of people have trouble selling their gold and silver. At the time I bought some I had the money sitting in a savings account where it was drawing next to nothing in interest, I dumped the bank and bought Kruggerands, a much better savings account. You have to be willing to let go of your investment if you go that route. My wife doesn't understand my line of thinking, when I trade a Krug I paid $500 for a couple years ago for a cherry C-code Browning Hi-Power I'm laughing, she says "That krug is worth a thousand dollars and the price is going up' I told her "I don't care, its just my savings account." I drop into the gold store to sell a Krug and get three times what I paid for it, the guy says "Better than money in the bank, ain't it?" You got that right, but your timing has to be right...Back during the Hunt brothers silver fiasco I got caught buying silver on the way down...had to hold onto that stuff for years but the way it usually goes, its value came back up much better than money in the bank. The part I like best about investing in precious metals is unlike stocks and bonds...you got something in your hands, it will always be there and will always have a value regardless of what happens to the economy. Guns, Tools, Gold you can't go wrong.

 

[BJoe]

P.M's, precious metals, really aren't for INCREASING wealth, more for protecting you from major loss.

 

[BJoe]

Gold is the same as paper money. It has no value other than what somebody says it has. It doesn't matter what the value of land is because it can be used to live on and grow food. Food can be eat and it doesn't matter what the value is. Guns, powder and shot can protect you, your land and food. When it all gets to the bottom line the only thing any good is food, land and guns. Larry

Actually gold has held value for 5000 years from Egypt, to Africa, to Mexico. Probably be OK for the next few years also.

 

[Peter M. Eick]

Thanks for the comments.

So in general I had it right. Metal is good for holding value not gaining it. I have not really invested in metals much (other than a bunch of lead and copper) so I will keep watching and learning.

 

[deralte]

You buy it so someone else can get rich and when it drops in value the seller will more than likely have gotten rid of all of his gold and silver.

 

[cmore]

In my opinion buying gold is more for a SHTF situation.
in such a world a 24K gold necklace could be broken up small
enough to use as payment. a car maybe , a gun a place to camp etc.
I believe ammo will be the defacto payment of choice for small purchases
like chickens , etc

 

[rwsmith]

Invested in silver

I knew people that invested in silver when the Hunt brothers tried to corner the market. Lesson, beware of artificial and manipulated prices.

 

[Mike7.62]

I am trying to figure out the logic of buying gold and silver as an investment.

My premise is that gold/silver are a measure of buying power captured in metal. So gold today is worth $1600 (give or take) and it is not really getting any scarcer or more common. So any change in value is really a measure of the change in value of the dollar. So if the the price drops to $1000 per onz, then the dollar got stronger and oil should get cheaper, silver cheaper and most commodities will get cheaper. Now if it goes to 3200, then the dollar will basically be worth half as much and will best 1/2 of what it did today as it will in the future.

So if you buy that premise, and you buy gold, when you sell it you have to pay capital gains at currently 28% if you exceed the reportable amount and generate a 1099-b form. So you made a gain, but really all you did was hold the buying power fixed against inflation which depreciate the value of the dollar and effectively raised the price of gold. If this happens and you lose 28% to Capital gains, how is this a good investment?

Logically, the only way this works is if you buy small amounts (onz at a time) and sell it in small amounts so you don't generate a 1099-b form and don't pay capital gains. If you do this, then you effectively are holding buying power against inflation and you basically break even and hold your wealth.

But if you do this, you are effectively breaking the law by not paying capital gains taxes which again makes the whole metal play invalid.

The only way I can see you come out ahead is if during the time you hold the metal, there is an artificial scarcity created that is not filled by new mines and the metal becomes temporarily worth more then its inflation adjusted value. This could occur if for example a Cyprus type bank meltdown happens and the metal has value just because you have it. But for this to work, you have to have the demand price exceed the inflation adjusted value by at least 28% which seems unlikely.

So, where is my logic on this flawed? I am really trying to understand the financial play here.

Your premise about gold/silver, or precious metals (PM's) is flawed. PM's are not an "investment" they are money. The ultimate money.

Money has three properties to be called such. They are:

1. A unit of account

2. A medium of exchange

3. A store of value through time

The paper currency that we euphemistically call money, the Federal Reserve Note, is worthwhile on the first two, but sadly lacking in regards to the last one, which is the most important.

PM's become an "investment" when they are let out at interest, the same as paper notes.

In answer to your question, I would most definitely buy PM's now, as it has been decisively proven over the last five years that contract law is dead in this country and indeed, worldwide. The investments and "money" that you think is your property, if it is in the banking system isn't yours at all. It is the governments according to the recent decisions made IRT financial assets and bank deposits.

(note to moderators-this is in no way political, it is economic, and not aimed at either political party or figure, as all are guilty)

A few examples are the GM bailouts where senior bondholders were thrown under the bus in favor of other unsecured creditors. I won't go into the particulars of Chapter 11 v. Chapter 7, but they are different as to seniority of creditors.

Another example is MF Global and the (dis)honorable Jon Corzine who literally stole $1.2 billion of customer segregated funds, and is still walking around free for various reasons.

A third is the US Seventh Circuit Court of Appeals recent decision on Sentinal v. Bank of NY Mellon, again concerning customer segregated funds.

The most recent is the Cypriot banking debacle where unsecured depositors had anywhere from 40% to 100% of their deposits "requisitioned" in the closure of two Cypriot banks.

I won't go into the particulars, but the bottom line on ALL of these is that the assets that you think are yours are not considered to be such by .gov or the financial sector. Everything, including bank deposits, 401k's, IRA's etc., are not considered yours, but can be hypothecated and rehypothecated at the whim of the custodian or their clearinghouse, and used to make their bad bets good, and there is not any recourse for you.

In that type of environment, there are literally only a few things that you may hold that are outside of the system and beyond reach of the financial powers that be and .gov. Those items are PM's, currency, and other hard assets of value that are IN YOUR POSSESSION. I cannot emphasize that enough. ANYTHING not physically held by you is subject to counterparty risk or confiscation.

That is the virtue of PM's. They are insurance against a collapse of the system. They are universally recognized as having value, they maintain purchasing power, and they are untraceable. Other things such as firearms usually do the same, but are not as fungible as PM's.

If you want to "trade" PM's, do so in the paper markets using ETF's or futures contracts, not in physical. My personal opinion is that you will have your a** handed to you by the bullion banks and hedgies, as they play with information that you're not privy to. For speculative investment, you can try the mining shares. They are at all time lows and losing money because the cost of production is above the spot price, and as as been said before, the best time to buy is when there is blood in the streets, but again, that is speculative at best.

The bottom line is that if you trust the promises of politicians and the honesty of bankers, save in the vehicles that they encourage. If you do not, save in something that has a proven track record of holding value through time, and has a history of being money for 5000 years.

 

[old bear]

gold, Sorry to be morbid but…

I just don't see gold or silver as the "great" hedge against inflation. Any medium is only worth what someone else is willing to pay for it; I So my gold is worth the number of dollars someone else will pay for it, correct?
Now when I'm paid for my gold it's going to be in dollars. If the dollar is so weak that I need more of them to acquire what I need and I sell my gold what have I accomplished but to have more worthless dollars, which may be a short term fix at best.

Now if things really go bad, and the dollar as we think of it is totally worthless and I'm forced to trade, work, or steal for what I need to survive. Well I'm about to old and beat to do anything close to an honest day's labor, so working is out for the most part. Most of the items I own, I would be willing to trade, don't have great value to anyone but me. Let's assume that I have several two ounce gold wafers. Now I decide I need gas for the car, a gallon of milk, and a loaf of bread, so I stop at the local shop and rob where I'm allowed to buy 10 gallons of gas, a stale loaf of bread, and a gallon of milk, so how do I pay for the above? Just how much of one of my gold wafers will I be required to give Mr. shop and rob owner? Using my scenario I think we all know the answer to that, right. So I have three options; I can pay roughly $3,000.00 for the gas, bread, and milk. I can do without the items I want, or worst case I can kill Mr. shop and rob owner and take everything he had that I can carry off. None of these options appeal to me so what are my options here?

 

[BJoe]

I have a bit gold and silver. I did not buy it as an investment, rather a way to preserve wealth. Not unlike food, ammo, SMALL denominations of cash, or utility guns ( no bling bling ). It has its place in a portfolio and also in a SHTF situation.

When people were leaving N.O. because of Katrina there were reports of people NOT giving change for a purchase. If you bought $25 in gas and only had $50 bills it cost one $50 bill. Same way with some stores who would not take credit cards only cash in exact amounts or more.

1/4 to 1/2 silver rounds or gold, and a few hundred in $20's should be enough to get you out of 'Dodge' if need be.

Interesting though that this predator pricing stuff didn't happen when the floods hit the midwest 2 years ago, when the hurricane hit the North East this year, nor the looting, just in Louisiana. Glad I am in the midwest.

Bob

 

[Mike7.62]

Your options are to own silver, in particular pre 1965 US coined silver, aka "junk" silver. Silver is the transactional metal vice gold. Gold is the wealth preservation metal. It has and can be used transactionally, but only if you hold it in small enough coins or wafers, i.e. pre 1933 $5 or $10 US coins, Brit Sovereigns, or the like. 1 gram gold wafers may also be used if you have them, or as a last alternative, you could use a cold chisel and powder scale to weigh out the requisite amount.

edited to add, this is from where the term "pieces of eight" came. Back in pre and post revolutionary America, a milled Spanish dollar was the coin of the realm, and in order to make change for a purchase, the parties would use a cold chisel or similar implement to cut the coin up into eight pieces. Two bits, four bits, six bits a dollar now makes more sense when seen in that light.

The major problem with continuing to use the paper issue as transactional currency is that it will take increasing amounts to do so, and your wages will not keep pace with the inflation, especially if you are on a fixed income, i.e. a pensioner. I seriously doubt that the government will explicitly default on its obligations to social security recipients or .mil or civil service pension recipients, but the paper/digital currencies in which they are compensated will likely not buy them a cup of coffee. The same logic will apply to anyone on an annuity from a private pension too.

As to being able to buy something at the local "stop and rob" that is also very unlikely as the replacement costs for inventory will be increasing exponentially, and it is unlikely that they will be able to replace their inventory at all due to supply chain disruptions. If they do have inventory, they will likely say that they don't to preserve it, and unless you have something of value to trade for their inventory, or something recognized by both of you as having value (PM's) you will likely not consummate a deal.

The death of paper currencies has happened numerous times before in history, and at least 100 times in the 20th century alone in various countries. The collapse of the Federal Reserve Note/US Treasury Bond will be the largest such collapse in the history of the world, as this is the first time in recorded history where every country in the world uses some sort of unbacked paper issue, and ALL of them use the FRN as their reserve. They are all derivatives of the FRN. When it goes, they all go. The knock on effects will shake the foundations of everything built upon it.

You may place your trust in politicians (liars) and bankers (thieves), and in the currency they issue, or in something that is an honest value, has a history of being used as money, and has no counterparty risk, which are gold and silver. The choice is, of course, yours. Choose wisely.

 

[COL Jagdog]

I bought some "silver" from Thibodeaux at the Bayou Chene Bar, Bank and Grill -- it was a deal -- 10 rolls nicely packaged for $20 a roll, 4 years ago --I have it tucked away in my safe -- big, long rolls full of "silver" -- it has "Reynolds Wrap" printed on the box -- who knows what it's worth now!!

 

[loutent]

I learned my lesson early when in my late 20's - I scraped together enough to buy a couple Kruggerands (sp?) for around $750 each - this was in the late 70's - I figure with inflation I would have to get close to $3K to break even today. If you can time it, you might do ok, but in my (limited) market experience nobody outsmarts the market (any market) in the long term.

Bottom line - around 1980, the DJ was 700 - today it's 20X higher. If you are young and have faith in your country, continue to invest and don't panic - or use those panic times as opportunities.

This advice is worth every penny you paid for it

 

[Frank46]

I well remember the buying spree of the Hunt brothers. My mom worked as a cashier and would swap out the silver coins for either bills or clad coinage. She had heard about the selling of silver and we went to one of these places. There was a line out front as they would only let in a few people at a time. One woman had a complete sterling coffee and tea service and all sorts of silverware. Lotta money changed hands in the short time we were in there. From time to time our local paper runs a full page ad by some people who buy gold,silver, antiques,and other stuff. These you have to watch out as they do not pay anywhere near the spot price for precious metals. Oftentimes its the older folks who go to these shows and get screwed. If the foo ever hits the circular air mover than silver and ammo will most likely become the medium of exchange. Frank

 

[chief38]

I do not have the answer to the question anymore than others do as to where gold will be 10 years from now. All I will do here is express my personal feeling based on common sense.......

It would seem to me that if TSHTF and we became a nation of survivalists, gold would be practically worthless. You can't eat it, drink it, defend yourself with it, and as a monetary system to barter with, it would be just about useless. The commodities that would be truly worth something are Food,Water, Firearms, Ammunition, Gasoline, Shelter. Gold in brick or coin form can't really be used for something pertinent to survival unless you use it to cast gold bullets. Gold in paper form (in a crisis) would be good for toilet paper, but that's about it.

Gold is a commodity like oil, coffee, coal, copper, etc and is bought, sold and used to make profits with in "safe times" but these commodities along with gold & silver would not be all that valuable or practical in a true crises. This is just MY opinion of course and hope we never have to find out if I am right or wrong!

Chief38

 

[Comrad]

I look at it as doomsday money. I began as a coin collector but gradually began adding Morgan dollars then Eagles then gold Eagles. It's nice and portable, unreportable and can be liquidated one coin at a time for cash as necessary. For reasons beyond me, people want it and I think it's smart to have some if the SHTF one day.

 

[Stevie]

Yeh...gold..silver...for buying beans, bread and toilet paper after the monetary collapse....just that nobody's sure what the rate of exchange will be...hopefully you will be able to get lots of beans, bread and toilet paper for a Krugerand....but maybe not

 

[Mike7.62]

I do not have the answer to the question anymore than others do as to where gold will be 10 years from now. All I will do here is express my personal feeling based on common sense.......

It would seem to me that if TSHTF and we became a nation of survivalists, gold would be practically worthless. You can't eat it, drink it, defend yourself with it, and as a monetary system to barter with, it would be just about useless. The commodities that would be truly worth something are Food,Water, Firearms, Ammunition, Gasoline, Shelter. Gold in brick or coin form can't really be used for something pertinent to survival unless you use it to cast gold bullets. Gold in paper form (in a crisis) would be good for toilet paper, but that's about it.

Gold is a commodity like oil, coffee, coal, copper, etc and is bought, sold and used to make profits with in "safe times" but these commodities along with gold & silver would not be all that valuable or practical in a true crises. This is just MY opinion of course and hope we never have to find out if I am right or wrong!

Chief38

I hate to disagree, but IMO you're incorrect. The reason that people invented the concept of money was because the barter that you describe becomes unwieldy or impossible if the parties involved in the trade do not or cannot fulfill the needs of the other. PM's do nothing more than facilitate trade by having something that is intrinsically valuable that both parties recognize as being such, and using it to conclude a transaction for an agreed upon weight/amount.

If the SHTF/zombie apocalypse should happen, the items that you listed will be important to have, but unless you have something that someone else needs/wants, and they have something that you need/want, you can't trade. PM's will be used to get around this, most especially silver.

They will also be used to set up the follow on monetary system, whether it's a new PM backed paper currency issued by whatever government is in charge after the collapse of the Federal Reserve system, or a true gold coin system that we had in this country before 1913.

It would be wise to see beyond the dystopian SHTF scenario that everyone assumes may happen, to envision what comes after. Men always rebuild some semblance of civil society after a collapse of whatever system that had been in existence prior, and they had to trade to survive. Metals will fulfill this role again, as they have for over 5000 years. PM's were used to facilitate trade after the collapse of the Roman Empire, and all during the Dark Ages. IIRC, the Roman Denarius was still being used in trade some 400 years after the final collapse of the Western Roman Empire.

It is only recently that people of the West, especially in the US, have had such an antipathy for metals. 50 years of constant propaganda from the Federal Reserve and the banking/financial system which has grown up around it have done their work well, especially in the con of seeing PM's as some barbarous relic no longer needed in the system, and placing increasingly risky, and for most people, incomprehensible financial instruments as vehicles for saving the fruits of their labor. IMO, it is much better to save in something that holds its purchasing power through time, has a proven track record of doing so, and has no counterparty risk, than it is to save in some rehypothecated piece of paper or digital entry that is in reality a chimera, and subject to being confiscated by either a financial entity as collateral for its debt, or by .gov in their increasing quest for more revenue. YMMV.