Mrs. PolyKahr and I have been weighing the merits of buy gold as a hedge against the inflation we are sure is coming. One thing that gives me pause, however. Each night as I watch the news, G. Gordon Liddy comes on and tells me to buy gold where he does. But if they believe that gold will go up, and the dollar will shrink, as Mr. Liddy says, why are they willing to trade my dollars for their gold? And how much gold is enough gold?
Here's what I am thinking-and I could be totally wrong on this: after TSHTF event, there must be some medium of exchange. One can't go around throwing gold coins at the farmer for a dozen eggs, and the butcher for some meat for the week. Living as we do now (and I expect we would live more frugally after such an event) it still takes us two and a half months of going to the grocery store to add up to one a 1oz gold coin at current prices.
I know, we're late jumping on this bandwagon, but I remember when gold hit the $800 per oz price point in the late seventies, only to fall back to around $350 per oz and stay there until this latest run up. If you had gold then, and wanted to sell it, you would have taken a bath. I can't help but believe that this is yet another bubble that has been manipulated by those who stand to profit from it. Just my $0.02 for what it's worth. Can someone explain the business model for places like Goldline and Rosland Capitol? Why are the willing to trade dollars for gold? What do they do with the dollars to hedge inflation? Wouldn't it make more sense for them to simply keep the gold they have?
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They charge a stiff seigniorage on the gold they sell, Poly. Something like 15% over spot-market metal price. That profit enables them to increase their inventory (and continue in business, of course), but alongside that they might be hoping to exploit the "horizon effect."
ReplyDeleteIf, in the middle of a fight, you can see the edge of the cliff but your adversary can't, one tactic of note is to get both of you charging toward it, hoping to get him committed to the drop while you maintain enough braking reserve to avoid going over. If this is the explanation, at some point in the acceleration of our inflationary spiral a firm like Goldline plans to "haul up short," leaving its suppliers with dollars and itself with gold. Hitler tried something of that sort and almost pulled it off.
As a rule, it's unwise to purchase gold from a firm that advertises widely on late-night and cable-TV. I call this "The Curmudgeon's Anti-Ronco Principle." Rather, buy in smaller markets, and remain aware of the spot price of the metal. Never pay a seigniorage of more than about 6%; that's like throwing your money away. Alternately, buy silver, which is also an excellent inflation hedge, can be accumulated more gradually, is more likely to be used as hand-to-hand money in the event of a dollar collapse, and isn't nearly as easy for the "nocturnal aviators" to glamorize or exploit.
I counsel a reserve of about 20% in precious metals: half in gold and half in silver. That is, for every $1,000,000 you have in savings -- I know, I know -- keep $100,000 worth of gold in recognized mintages -- the Canadian Maple Leaf and the American Eagle are both good -- and $100,000 worth of silver in "rounds" or "bars." That's about as well protected as most of us can afford to be.
Thank you sir. That does explain a lot, and is pretty helpful besides.
ReplyDeletePolyKahr
After TSHTF, .22 ammo will buy those eggs.
ReplyDeleteSofa,
ReplyDeleteWell, true enough, though "I'll be needing that" ammo-"for squirrels and such." Good point, there will be other stuff to trade, and the above post doesn't really look into that.
Thanks,
PolyKahr