”There’s a lady who’s sure, all that glitters is gold…” — Led Zeppelin, Stairway to Heaven
My apologies in advance if you can’t get that song out of your head for the rest of the weekend…
It’s been in mine all day while I’ve written the answers to today’s QnA, which is appropriately entitled, “All About Gold” (and is almost as looooong as the song!).
But I hope it’s interesting (gold is a great topic), so please read on (or simply delete if you are already a black-belt gold investor).
Also I’d like to extend a warm welcome to our new subscribers, and let you all know that Kung Fu Finance is now mobile!
Thanks to an awesome KFF subscriber, Trevor, who hooked me up on Twitter (you can follow him here), I downloaded WP_Touch and mobilized the Kung Fu Finance website, so now you can view it on your iPhone or iPad or Android, and can also bookmark the homepage and save it on your home screen just like a true mobile app. Awesome.
Now onto this week’s questions…this one is a multi-part question on the important topic of gold:
In the past, I have enjoyed your thoughts on gold & gold ownership.
I have several questions, for which I would appreciate your thoughts:
1) In your opinion, is it best to buy gold BARS or gold COINS?
I would think that bars would be the most economical way to go?
Bars are more economical than coins, true, but it depends on what your purpose is for buying the gold.
If it is simply to preserve your wealth and not because you believe you will ever need to barter/trade with it in case of societal upheaval, then bars are definitely the way to go because they are the lowest premium over spot price so you will get the best bang for your buck.
However, if you are worried at all about hyper-inflation scenarios and associated social upheaval where you might actually need to use your gold as a means of exchange to buy the necessities of life, then you may also want to consider having some gold coins on hand.
Supposedly, coins are easier to trade/barter with other people as they are very recognizable, have a face value, and come in smaller denominations (even fractional-ounce coins). (I say “supposedly” because thankfully I have never personally been in a scenario where my country’s currency has collapsed, the dollar hasn’t been an alternative, and I’ve been forced to use gold/silver as a means of exchange!).
It’s a tradeoff though, because coins do sell at a premium over spot price, and those premiums fluctuate based on supply and demand (e.g. American gold eagles are very popular coins here in the U.S., but the premium over spot that you pay varies wildly with how currently in demand they are—same goes for silver eagles). This can work either in your favor or against it…
So, the right answer is really whatever the right answer is for you, but those are the tradeoffs as I see them. If you go the coin route, I would stay away from numismatics unless you are a bona fide coin collector who really knows your stuff.
2) What sources have you run across where you think we can get the best buys?
I’ve personally purchased from goldsilver.com, kitco.com, two local coin companies (one only sells locally in San Francisco, the other is Camino Coin company) and in the future will also be buying from Mish International, as I met Robert Mish in person a few weeks ago and really like him—he’s been in business since 1963, is a fellow La Estancia de Cafayate homeowner, very ethical, and a very nice guy—the majority of his business is word-of-mouth and he’s been my friend Gary’s dealer for years and years.
I also met the owner of Miles Franklin in person, Andy Schectman, at the Casey Conference (we had dinner together and I spent quite a bit of time at his booth talking with him about his business) and will also be buying/selling with them in the future—they are also highly respected, and I believe they have an affiliate relationship with Casey Research (who only works with reputable brokers and dealers).
Other friends of mine have purchased through Apmex.com and have found them to be fine, too.
I think you probably can’t go wrong with any of those—I haven’t set up official “affiliate” relationships with any of them yet (so sadly cannot offer you some sort of special “Kung Fu Discount”….yet!) ☺ but all are reputable and will give you a fair deal.
You can easily compare prices online at the “biggies” (GoldSilver, Kitco, Apmex, and Miles-Franklin), and they all ship and/or store for you—here’s a quick and dirty comparison of a gold buffalo coin, for example:
Apmex 1 oz. 2012 Gold Buffalo: $1,689.29
Kitco 1 oz. (no year specified) Gold Buffalo: $1,678.53 ea.
GoldSilver 1 oz. 2012 Gold Buffalo: $1703.10 (and must buy 20)
Miles Franklin 1 oz. 2011 Gold Buffalo: $1698.30
Once you knock out price/premium and shipping/storing, I would base your decision on ease of doing business with them, because one day you most probably want to sell your gold back, and you want that process to be smooth and seamless, too.
Whatever you decide, don’t let doing it “perfectly” hold you back from just “doing it”, because at the end of the day, many of these factors, while important, are not going to make that much difference in the end. (e.g. whether you shave off a few dollars from one coin or bar purchase…of course you always want the best price, but you also want to buy from a reputable company and one that’s easy for you to work with).
You’ll also need to decide how you want to make your purchases, because there is a tradeoff between getting a volume discount and averaging into the market.
All gold dealers offer volume discounts, but the gold price is very volatile, too (although not quite as volatile as silver). So, you may want to average into your position—buy some gold this month, some more next month, etc.
This helps you “dollar-cost average” (as we say here in the states) so that you are buying more gold when prices are lower, and less when it’s more expensive. But you’ll need to do the math and determine what makes most sense for you…good luck!
3) Since I do not have any resources to keep the gold out of the country, do you have any other suggestions on where & how to store the physical gold?
Actually, if you do want to store your gold out of the country, you can buy physical gold from a company like GoldMoney.com (very highly respected, started by James Turk) or from the Australian Perth Mint.
These of course each have their own plusses and minuses, but all of them store your gold for you in various locations overseas (GoldMoney stores it in Zurich or Hong Kong or London, and the Perth Mint stores it in Australia).
So that is an option for you if you are interested in keeping it out of the country—with GoldMoney you can buy fractional ounces of gold called “gold grams” so you can invest with less than $100 at a time.
But your question was really, how do you store your gold in the country, so let me tackle that (try to).
There is no “perfect solution”—you have several options, and again, it somewhat depends on your purpose for the gold (investment? emergency? etc.) and on your personal view of the banking system. As with all things in life, each choice has its pros and cons, and each person will choose differently depending on his/her circumstances, but let me try to show you the options and what I think.
A. Bank safe deposit box
If you’re not worried about the banking system or about having access to your gold in case of a dollar / banking collapse, then one option is to store it in a bank vault in a safe deposit box. It’s relatively cheap to do so, and you don’t need to worry (much) about theft or fire. (However, contents of bank safe deposit boxes are not insured.)
However, and it’s a big but, you most likely won’t have access to your gold if in fact the banking system does collapse, and you also won’t have access to it on weekends, holidays, and any other non-banking hours—you’ll only be able to get to it when your bank is open for business.
Also, many people believe that if our wondrous (ahem) U.S. government confiscates gold as they did in 1933 with Executive Order #1602 which forbade “the hoarding of gold coin, gold bullion, and gold certificates within the continental United States”, that safe deposit boxes will not be “safe” at all and your gold will most likely be seized (you must register your contents, and boxes with gold were all sealed immediately in 1933). So those are some serious drawbacks to the safe deposit box idea.
B. Private reputable storage vaults, e.g. Brinks
This is quite feasible and an excellent choice if you have one reasonably close to where you live, but depending on your resources it can be expensive. I’ve never called a large nationwide facility like Brinks to get a quote (we have some smaller local options in the Bay Area) so I can’t comment on the exact fees, but if you have private vault storage options in your area this might be a good option (provided it’s not too expensive).
C. Home sweet home…
This is where many gold owners store their gold, although it also has drawbacks, namely theft and fire.
On the plus side, it’s free and easy, and accessible if and when you need it. This makes having an “emergency stash” at home a decent idea.
However, theft and fire are big drawbacks. Many people do “midnight gardening”, but you have to worry about the elements and it’s not a great idea if you want to keep adding to your stash. (And not so great if you abhor bugs and creepy-crawlies, like yours truly).
Doug Casey and Louis James did a great interview on this several months ago:
And Jeff Clark (also of Casey Research) wrote an article on how to think like a thief with respect to your gold that you might want to check out, too:
Again, there is no one “perfect” solution and you might decide on a combination of options that meet your personal needs.
4) How does one go about redeeming the gold? Is it costly to do so?
To redeem or sell your gold is quite easy (as long as you’ve stayed away from numismatic coins that you would need to get appraised/graded or would have to sell back to a dealer well-versed in numismatics).
But the vast majority of gold bullion you can sell in many different ways and through many different dealers.
For example, I sold some silver last year that I had bought from GoldSilver several years ago. The silver was in sealed mint boxes and I simply drove it 15 minutes up the road to Camino Coin company (after calling them and getting a quote for what they would pay for it—just like when buying, you can shop around for the best deal when selling, too).
I dropped off the silver and received a check that I deposited at my bank, and was instantly quite a bit “richer” (more liquid) than before—there was no hold on the check and I deposited it before the magic cutoff time of 2pm. Your mileage may vary depending on your local coin dealer and your bank, but in my experience it was extremely easy and efficient—the whole process from door-to-ATM-to-door took less than an hour.
Online dealers will also buy your gold, but you need to ship it to them, so you incur a lengthier turnaround time (and I believe that you pay for the shipping, so that is more costly than dropping it off at a reputable local dealer).
But it’s a very easy process.
Honestly, buying and selling physical gold and silver, once you have even a little bit of financial education, is just as easy (if not easier) than buying and selling stock—you don’t need to open up a fancy brokerage account, nor learn how to read financial statements and value companies…you can literally just drive down the street (once you find a reputable local dealer), buy (or sell) some coins or bars, and drive home.
It’s just like any other shopping—shop around for the best deal and customer service, and buy your items (gold and silver in this case). And just like other kinds of shopping, you can buy it online now, too!
5) In the remote event of a major economical collapse in the U.S., how would having gold bars help us? In other words, how can we exchange it and for what? Do we chip pieces off and use it as barter? My question really is … In an upside-down world, how can we USE (or spend) the gold?
Great question. This is why many people prefer coins over bars—they are well-recognized, have a face value, and are extremely easy to transport and exchange.
People are “used” to having and using coins in day-to-day transactions, whereas swapping gold bars, even the small ones, might be slightly stranger. (This is what I’ve read and understand but is supposition on my part; luckily I’ve not been through this scenario personally before!).
If there were a major economic collapse in the U.S., I could see two main ways your gold could come in handy:
1. Buying the necessities of life for survival
If the economy were to collapse, the government could declare a bank holiday and simply close all banks (and exchanges).
You would not be able to go down to the bank and withdraw any of your money until the banks were re-opened. (By the way, this isn’t a crazy doomsday scenario—bank holidays have happened many, many times throughout history, even in the U.S.).
Without access to your dollars, you would need to find a way to obtain the necessities of life for yourself and your family in the short-term.
For example, if you ran out of milk and went to the store to buy some, and the store was no longer accepting credit or debit cards while the financial system was in turmoil, those with cash (assuming the cash was still accepted) or with known items of value like gold or silver coins (or perhaps whiskey or fine wine or cigarettes—heck, whatever the store owner valued) would get first crack at the milk.
Unfortunately, people become desperate when the basic necessities of life evaporate, so while in a civilized society those with gold and silver coins, or perhaps whiskey or cigarettes would leap to the front of the line to buy milk while others patiently waited, perhaps a desperate new mother’s husband with no gold but a strong gun might simply force the issue and take the milk (or formula)—just a wild example, and nothing against new parents (I’ve been one!), but hopefully you understand my meaning…this is why many people are buying not only gold and silver, but also guns and stores of necessities to ride out any shortages, and are looking at places outside the country to go to in case hard times do hit here.
Depending on the severity of the collapse and on how long the bank holiday, city water supplies could shut down, black- and brown-outs could occur, etc.
So, if you live in a civilized community with wonderful neighbors and friends who all band together in times of crises and share resources (e.g. Mrs. Smith shares the milk from her cow, and Mr. Jones shares the eggs from his hens, and Bob down the street has flourishing fruit trees that he shares, etc.) then you would probably be just fine (although I’m sure they would appreciate your gold/silver coins if you had nothing to share in return!).
But if you live in an urban area where there is no “Mrs. Smith down the road with a milk cow” and instead all of the stores and shelves are bare, it might be a little tougher.
Honestly, no one knows. (At least I don’t.)
I hope of course that nothing like that ever happens, but one look around the world right now proves that it’s best to be prudent just in case—prepare for bad times and you will only know good times. People have died in Greece (riots, looting, fires) and it’s happening now—sadly this isn’t just a piece of “ancient history” from a more barbaric time…it’s today, in a first world highly-educated country.
So while I “hope” nothing bad ever happens, I am still buying gold and silver just in case, have bought a homesite in Argentina, and am extremely glad that Kung Fu Grandma lives in a highly rural farming area in Northern Michigan where the community spirit is strong and fresh water and food are plentiful.
2. To Get Out of Dodge
You could also use your gold to buy gas, or a plane ticket, or to
bribe various officials (of course I would never condone that, cough cough) if you needed to get out of the area due to too much social unrest because you didn’t make it to your “bolt-hole” or escape pad quickly enough. (This is where the saying, “it’s better to be a year early than a day late” comes into play.)
If weeks had passed and you couldn’t access your money due to continued bank holidays, or your bank had re-opened but the government / central bank had converted all of your dollars into “Special Drawing Rights (SDR’s)” and then immediately devalued them so that you didn’t have enough to buy a now-very-expensive plane ticket, you could hopefully use your gold to help get you out of the country (or out of your area) to a safer locale.
This is all conjecture on my part, however, and focuses on the “emergency” aspect of owning gold. From the “investment” perspective, most gold owners view gold as a way to preserve your wealth in case Option 2 (the SDR→ immediate devaluation) were to happen.
At that point, your net worth that was stored in dollars would be halved (in this example—who knows what it would be worth in reality), but your gold would have held its value (and most people believe it would not only hold its value but be far more valuable) as it has proven to be in the past.
6) You mentioned that many people keep their gold out of the country. In an economic collapse in the U.S., would that not also bring major upheavals to most other countries around the world? So … what good having gold outside the U.S. do us?
Yes, it absolutely would cause major upheavals in most countries, because the dollar is the reserve currency of the world economy (currently).
The primary reasons for storing your gold internationally are:
A. Government confiscation (e.g. if the U.S. government confiscated gold)
The thought here is that storing your gold internationally would make it more difficult for the government to track it down and take it from you. However, it’s not a sure thing, as you are supposed to report all foreign holdings of precious metals to the U.S. government unless you store them in a non-bank safe deposit box, and even that might have changed recently (these rules change ALL THE TIME so check with your personal tax accountant on the latest foreign reporting requirements).
B. Capital controls
If the government imposes capital controls as they have in Europe, preventing you from moving your assets out of the country, you would be in a far better position if many of your assets already were out of the country, particularly in a jurisdiction like Singapore or Hong Kong where they aren’t as exposed to the U.S. dollar, are well capitalized, and have never had a bank failure.
This is one reason why people are so interested in anonymity and in the history that various banks have with cooperating (or not) with the U.S. government. For example, if you have a bank account denominated in Hong Kong dollars and another one in gold at a Hong Kong bank, and that bank values its customers more than it values cooperating with the U.S. government, you would presumably be able to preserve your wealth better than someone with 100% of their assets in the U.S. who just woke up one day to find that their dollars were now devalued, and possibly another currency altogether.
No one knows for sure what will happen…all you can do is do your best to prepare.
I am just exploring the thought of accumulating gold, as many of your readers are working on it. Any help & guidance you can give us on this subject would be much appreciated! – Anton
I can definitely discuss gold much more in a future post (and can come up with a Kung Fu Finance cheat-sheet that nets it out!). There is a lot to consider, but at the same time it really isn’t that difficult to buy some physical gold, and if the unthinkable ever does happen (and I’m personally afraid that it’s more possible than you might think…), you will be very happy you did.
Good luck, and have a great weekend!
To your financial success,
— Kung Fu Girl
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