Gold Is Your Life Insurance / Commodities / Gold & Silver 2019
I have always secretly wanted to work at aprecious metals bullion dealer. I love gold. And silver and platinum. I lovethem philosophically, and I also just like shiny rocks.
But if you think about it,trading metals is a really weird business.
Say you are bullish on silver and want tospeculate on it, thinking it will appreciate in price. You can buy the ETF,yes, or you can buy silver miners, but the most straightforward way to investin silver is just to buy coins or bars.
The most popular coins come from the U.S. Mint,but you can get coins from other countries, too. The most popular silver barsfor retail investors are the 100oz bars, which are typically manufactured byone of a few silver refiners. Asahi is the new standard, after Johnson Mattheysold its gold and silver refining operations to them in 2015.
Anyway, you can go to a bullion dealer, tellthem you want a 100oz bar, and they will charge you the spot price of silverper ounce, times 100 ounces, plus a small markup.
So you buy it, and now you have a shiny rock. Itis satisfying to have shiny rocks, especially the 100oz silver bars, which makeyou feel like a baller.
But the shiny rocks don’t do anything. Youaren’t going to use them to sew a button, wash your car, or paint your ceiling.They just sit there. You hold them for a while, and if the price goes up, youare supposed to sell them.
But most people don’t sellthem, and then the price goes back down, and they end up in an estate sale, andthe dealer buys them back at a discount.
Paraphrasing Warren Buffett, someone watchingfrom Mars would be scratching their heads.
There really is nothing more useless in theworld than a shiny rock. But we love ‘em.
The Bigger Picture
I am not going to get too deep into thephilosophical reasons for owning shiny rocks, but briefly:In recent history, the government has had a habit of abusing its currency.Most governments abuse their currencies.Gold, is an objective store of value, while the dollar is a subjective store of value.Big deficits will probably be monetized. Some lunatics want to inflict Modern Monetary Theory (MMT) on everyone.Inflation is trending higher, measured and unmeasured.Trump is literally going to take over the Fed and do what he wants.
That is my elevator pitch on holding preciousmetals.
I have a theory that computers started to suck whendumb people started to use them. The same is also true of precious metals,which turned into a speculative football in 2011.
Those geeks are gone, and only the die-hards areleft—the shiny rocks passed from weak hands to strong hands.
Gold prices have hit new 5-year highs, which didnot get a lot of attention in the financial press.
Precious metals also improve the riskcharacteristics of your portfolio.
In a 35/55/10 portfolio—with 35% equities, 55%bonds, and 10% commodities—it’s not unreasonable to allocate the entirecommodities portion to gold and silver. Most other commodities have a prettyhigh cost of carry.
And there’s a general ruleof thumb that youshould have 5–10% of your portfolio in gold, anyway.
A Hedge on Your Life
Here is the keypoint: Goldisn’t an investment; it’s a hedge. And it’s not a hedge on your portfolio. It’s ahedge on your life. It’s a hedge on this place turning into MadMax Beyond Thunderdome.
So if the price of gold goes up a lot, you mightbe happy, but you will probably be unhappy about political developments in thiscountry, including your marginal tax rate, and lots of other things.
I’m not saying that we’ll someday be reduced toa state of nature where people barter for cans of condensed pea soup withSilver Eagles. The more likely scenario is that things will mildly suck and theprice of gold and silver will be a lot higher.
I spend most of my time thinking about howthings can go wrong rather than how things can go right. That’s how I’m wired.If I see Mel Gibson running around outside with a chainsaw, I’ll probably befinancially fine.
People buy insurance ontheir houses, cars, and even themselves, but they won’t buy it on theirportfolios. Seemsstrange to me.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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