The ads are almost everywhere — on television, in magazines, the Internet and even scattered across the highways on billboards: “Protect yourself with precious metals like gold and silver.”
The basic idea is that precious metals can protect people in both financial and end-of the-world crises and there are many people who agree with this theory. However, there are also those who feel gold, silver, and platinum will be useless, regardless of the situation.
This argument has been raging for decades, ever since the elimination of the Gold Standard, with both sides publishing articles supporting their claims in numerous journals, magazines and online. Of course, with so much uncertainty and distrust in the government these days, proponents of both sides have ramped up efforts to persuade others to their beliefs. Even well-known news commentators have discussed the benefits of buying gold, bringing the controversy almost mainstream.
Even with the amount of information out there the question remains. Are gold and other precious metals a benefit to portfolios and survival caches? This, of course, is a question that has been asked since President Nixon ended the Gold Standard in 1971. In fact, some would say this all started when FDR declared private ownership of gold illegal in 1933.
According to Jonathan Kosares, Executive Vice President for Sales and Marketing with USA Gold, the most pressing reason for purchasing gold is financial — protecting assets in the event of inflation. “Gold and silver was very beneficial in the latest crisis,” said Kosares. “We had a loss across financial assets, but gold recovered first. It typically performs well in a financial crisis, but it went down at first in the last one.”
THE BENEFIT OF GOLD
Precious metals have a fairly strong record against hyperinflation. In the financial crisis of 2008, gold prices dropped just like all other assets, such as stocks, mutual funds and the U.S. Dollar. Gold, however, rebounded much faster than other items of value and actually ended the year with a five percent gain. As such, those with gold in hand or in their portfolios suffered less loss in net worth than some others. And while the economy has rebounded in some ways, there are many people who believe the Fed is handling things poorly by unnaturally holding down interest rates, which could lead to major inflation and a decrease in the Dollar. This, of course, is one of the reasons that people stockpile gold in safes, mattresses and backyards.
Gold, or other precious metals, in hand does provide some benefit in the event of a market crash, or if the Dollar becomes practically worthless for purchasing goods and services. This is because the government, which is still running in this type of scenario, will be working to bring the markets back through a variety of methods, such as freezing prices, pumping money into the economy and securing banks. This, of course, takes time and those who have backup funds, like gold, will be a little better off than most, in theory.
IF THE MARKET CRASHES…
The problem is nobody really knows what would happen. If the market crashes, people who have bought stocks on margin will be selling to cover their losses, which could include gold stocks. If people with gold stocks start mass selling, gold stocks will deflate in price and bring down the price of gold in general. As such, gold will not have the purchasing power that many believe it would. No one is going to go to the grocery store with a handful of gold coins or bullion to buy a loaf of bread. Instead, they will sell gold to purchasing agents and then use the government-backed money to buy what they need or want. At the same time, even if gold stocks drop significantly, coins or bullion will continue to have some value, probably much higher than gold stocks, and should also recover faster than most other assets.
“AS LONG AS SOCIETY EXISTS YOU BUY GOLD AND HEDGE YOUR BETS.”
In fact, in a situation where inflation is rampant, gold should become even more valuable than its current value of almost $1,300 per ounce, as there will still be people willing to trade for gold in exchange for currency. “As long as society exists you buy gold and hedge your bets,” said Kosares.
Kosares does admit, though, that gold isn’t beneficial against the “grocery store” argument, where people spend $100 for a loaf of bread. In those situations, the government revalues currency and sets prices. It also won’t be very effective if the government fails, like if a foreign government sets off an EMP and takes out technology or a terrorist attack renders Washington D.C. useless.
In situations where local communities are cut off from all forms of government help and people must work together to survive, assets like stocks and currency will only be worth the paper on which they are printed. Even precious metals like gold and silver might be practically worthless, despite what some people believe. While precious metals were some of the first currencies used throughout history, they were still backed by some sort of government. Their ability to be used in trade was based on the value placed on them by the rulers of the time, with their seals stamped into the soft metal coins. Gold only has monetary value when backed by a government. If there is no government, gold is reduced to its uses outside of monetary value. So, the question remains: Should you stockpile gold as a hedge against inflation?
Gold stocks in a 401K or an IRA can protect wealth until the market rebounds, and gold in hand could provide some purchasing power if the crisis lasts longer than most experts anticipate, if a recession becomes a depression. Gold would not, however, work very well without a backing government. In that type of scenario, people would likely resort to a barter system, where goods would be traded for other goods, and value would be evaluated by need, supply, want and desire.
Here, food, water, medicine and other crucial items would be much more valuable, but typically not traded because the owners will need the commodities for themselves. Instead, consider stockpiling small, non-perishable items that would be beneficial, but not absolutely necessary, such as toothbrushes, sunscreen and razor blades. If the situation lasts, these items can be used or traded as needed. And if the government comes back online, or another government rises in its place, those with these objects will more likely be in a little better shape than others in the area.
Another thing to consider, though, is that gold in a cache would eventually provide some wealth and bargaining power if a government does rise to power, as governments need a source of currency and precious metal would be a fast way to establish that currency.
Personally, after conducting research for this article and talking to a seller of gold, I can see the benefits of having some gold as a bet against inflation, and as a way to purchase goods until the federal government acts to protect the country and the economy.
Because of this, I’m considering purchasing some gold coins to store in a secure location. While I’m not truly sold that gold is an absolute need in all forms of crisis for which I’m preparing, there are definitely scenarios where it could be quite useful. And since I’m working to prepare for every imaginable situation that could arise, I consider it a decent bet. Now I’m not worried about securing wealth — don’t really have any — I do want the ability to provide comfort for my family in every way possible. And, if gold and other precious metals could help with that, then I would like to get my hands on some. Gold won’t, however, take precedence over other equipment that could actually save lives and enhance survival. I would much rather obtain ammunition, especially .22 Long Rifle. Gold is just something that could be useful in the right situation. Otherwise, it’s just something pretty at which to gawk.
TYPES OF GOLD AVAILABLE
There are two types of gold available for purchase — gold stocks and physical gold. Gold stocks can be purchased through a commodities broker, just like any other type of commodity, similar to pork bellies and orange juice, or funds in 401Ks and IRAs can be converted into gold stocks. Gold purchased this way is a hedge against drops in the market and can possibly protect wealth. Gold can also be purchased through dealers and kept on-hand as an asset for purchasing goods and services. Purchasers must decide whether they want coins or bullion, both are available. Look up the current market rate and make orders. This is a physical gold purchase, which must be stored and protected.
Other Uses For Gold
Sure, gold and other precious metals can be used to protect wealth and purchase goods, but there are other uses for gold that are less known. Gold is actually used to treat a small number of medical conditions, such as rheumatoid arthritis and lagophthalmos. It can also, along with other precious metals, be used as a conductor of electricity. Copper is traditionally used because of cost, but in cases where other conductors were unavailable, gold wire could be used as a last resort on say a generator or other device from which wiring had been stripped. Finally, gold is heavy, easily melted and malleable, making it an excellent fallback for making bullets if lead is unavailable. Yes, gold, silver and platinum bullets fired from modern firearms or muzzleloaders would be expensive in today’s world but it’s something to remember.
9 THINGS You Might Not Be Storing, But Should
There are many things most people realize would be good if things get bad. Here are a few that you might not have thought of but might want to consider. If you don’t need them, you can trade them.
Pet food – Your animals need to eat too, and commercial pet food can be consumed by humans.
Buckets – Good way to carry water and other items, and collapsible buckets are available for easy storage.
Superglue – It’s compact and useful for many types of repairs, including minor cuts and slashes.
Spray paint – Camouflage, rust prevention and a multitude of other functions.
Shampoo – Personal hygiene and trade; people will want this.
Musical instruments – Music improves morale, and instruments can be traded in a pinch.
Games – Once again, morale is important, and kids’ games could help teach skills for later in life, such as reading and math.
Sunscreen – Skin cancer will still be possible, and some people would trade almost anything for some protection.
Baby powder – Prevents chaffing and has many medical purposes.
Editors Note: A version of this article first appeared in the March 2015 print issue of American Survival Guide.