Precious Metals – A Store of Value (Real Money)

Real_Wealth - 1

Well, as readers are well aware by now, I’m kind of a big fan of precious metals (both gold and silver). Over the last year, I have rambled on and on and on and on some more about the merits of owning both atomic element #47 and atomic element #79. To sum it all up, in 2015, I felt like the gold and silver mining stocks were the bargain of a decade, if not lifetime… But all along, I’ve ALWAYS felt that the mining stocks were only suitable for use to play the Greed Trade.

The Role of Physical Precious Metals

In other words, although mining stocks can help an investor amass a great deal of wealth, that game is inherently risky and never a sure thing… Mining companies go bust all the time, poor management teams who make terrible decisions can and will erode value by diluting their shareholders constantly just to stay afloat, unstable countries with corrupt governments will increase taxes or revoke mining permits/licenses altogether out of the blue, etc., and the stocks themselves are beyond volatile (you’re dealing with day traders, algos, big money institutions, etc.)… So, you really have to have an iron stomach and a high threshold for pain to even want to consider adding some miners to your portfolio…

On the other hand, owning physical bullion is the complete opposite of all that; there’s no drama. Acquiring some gold Canadian Maple Leafs, or silver American Eagles, is perhaps the most prudent thing a person can do to preserve their purchasing power; particularly during times of calamity, gold and silver will get to participate in the Fear Trade (flight to safety), which help the assets hold up and outperform almost everything else out there.

For thousands of years now, people have put their faith and stored their life’s work and wealth in physical gold and silver (typically through the means of coins or bars from a verified source); gold and silver are just as much money today as they were back then.

Screen Shot 2016-06-21 at 10.38.31 PM

 

A store of value.

Zero counter-party risk.

 

It’s not gold and silver that are volatile and fluctuating on a daily basis…. It’s the USD, and other fiat currencies around the globe that are unstable

 

Gold is what it is… 1 oz. of gold today will STILL be exactly 1 oz. of gold tomorrow. Ditto for silver.

 

But in a world that is going increasingly negative interest rates, you tell me what you would rather own?

 

A debt instrument? Or real money that has withstood the test of time?

Negative Bonds

How about gold vs. the good ol’ greenback?

From Monetary Gold.

goldvs

purchasing-power-of-the-us-dollar-1913-to-2013_517962b78ea3c_w1500

The above pictures are a little outdated, but you get the idea…

 

Precious metals are an inflation hedge.

The USD is a depreciating “asset”. Same for all the other fiat currencies out there.

 

You can print fiat currencies to infinity (or oblivion)… Well, these days, you simply use a keyboard and input a bunch of binary 0s and 1s to create more “money”… As for gold and silver? If you want more of the stuff, you gotta go put in physical work and dig it out of the ground! You cannot just create more physical precious metals at the drop of a hat, or on a whim, sorry…

Time and A Place

I think readers of this blog can appreciate the role gold has in a modern day portfolio more than most, but unfortunately, in the world we live in today, usually if a person has a nice thing to say about the precious metals, they will be accused of being a conspiracy theory tin-foil hat wearing nut job… Or a prophet of “doom and gloom”…

Just over 1 year ago, I started making the move over into precious metals… and, well, let’s just say that this blog didn’t exactly increase in popularity… No, quite the opposite!!

Anyway, the journey to early FI isn’t about being popular or liked… Sometimes, we do things that others won’t agree with, but that doesn’t mean it’s the wrong move to make, either… As always, you have to simply do what is best for your own unique situation…

In my case, this means owning a good amount of physical gold and silver…

My Visit to the Vault

I’m just about ready to start the next chapter of my life… But before I went ahead and did that, I thought it would be prudent to check up on my vault one last time, just to make sure everything was in good working order before I departed for Hong Kong.

Today, I visited the local vault (private and decoupled from any financial institution!), and I am pleased to report back that the same number of ounces of gold and silver that I counted on my last visit remains the same today… The physical coins and bars in my possession didn’t all of a sudden decide to go crazy and start getting smaller in size… What a relief!!

Same number of ounces…

For me, I couldn’t ask for anything more than that… I have peace of mind that I can go run off to the beach (or elsewhere) for the next year, two, three, or longer… And when I get back home to the states?

I’m 1,000% certain that the physical gold and silver I own will be worth A LOT more (in nominal terms of depreciating USD)! In real terms, this means that I should be able to purchase the same quantity of goods that I’d be able to buy today.

So, all my hard work — blood, sweat, and tears, will have NOT been for naught!

By owning some physical gold and silver coins/bars in my portfolio, I am able to sleep well at night, assured that my purchasing power will be preserved.

That’s the plan, anyway…

Overvalued Money?

But just so readers are absolutely crystal clear, I ain’t no goldbug… Nor am I a silverbug…

 

I can see the value of owning precious metals, but at the same time, as I’ve stated on numerous occasions on this blog, my allegiance is to early financial independence, first and foremost… That’s the ONLY team that I am loyal to!

 

So, there will no doubt come a point in time when the purchasing power of gold and silver are peaking (relative to other assets, not fiat currencies), and it will only make sense for me to start selling. When the right time comes, ideally, I will be able to swap out of some physical precious metals and into some cash flowing, income producing assets (the investments everyone really wants)…

 

There’s a time and place for most everything… I refuse to chase passive income investments 24/7 with no regard for fair valuation!

 

From Macro Trends.

Screen Shot 2016-06-21 at 10.05.20 PM

The Dow Jones to Gold ratio is currently about 14.6. At its nadir, it’s been as low as about 1.30 (January 1980). During the dot-com peak in the stock market, we hit a high of 42.

 

In general, I prefer comparing the purchasing power of the precious metals to other assets, like the Dow Jones index… This way, you can remove the super volatile USD/fiat currency from the equation.

 

So, it becomes more a question of — Would I rather own shares of the Dow Jones, or ounces of gold?

 

At 14.6, I think gold is the better buy…

 

But let’s suppose the Dow Jones to Gold ratio drops back down to the single digit range… Say about 7 or 8

 

Well, then I might be very tempted to make the swap and get into shares of the Dow Jones… Or S&P 500… Or dividend stocks… Or real estate… Or whatever…

 

Don’t forget, there’s a time and a place for everything!

 

And I am a very patient person… I don’t mind staying in physical gold and silver for a few more years if I have to… You all know damn well, though, if Class A real estate ever comes crashing back down to earth again, I’ll be looking to jump back into that with full force!

 

In the meantime, I’m very, very content with parking a good portion of my net worth into physical gold and silver, which are a store of value and thus REAL money!

 

Fight On!

Print Friendly, PDF & Email
Sharing is Caring:

19
Leave a Reply

avatar
11 Comment authors
Rudy SMTFI FighterChristian in HKboonchillywit Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Pepe
Guest
Pepe

Another great post, another one! Jejeje.

I really like your way of thinking, I think the same way as you.

Income Surfer
Guest

Jay,
I just have to say it’s a huge relief to read a blog where the writer thinks for themselves…..and isn’t afraid to have an opinion that goes against the grain. I’m right there with you on paper assets and physical commodities. Bubbles can (and have) show up in any asset. Credit and paper assets are two such bubbles I see today. Tina is a load of crap, but what did you expect from the Federal Reserve. “To everything there is a season”……..
-Bryan

Investment Hunting
Guest

Hey FI Fighter is the cover photo of your metals stash? If so, that’s awesome. Nice work sir.

Reepekg
Guest
Reepekg

I don’t know about holding physical gold… it just sits there and is not a productive asset. Like you say all the work to dig it up is done up front, so holding physical just doesn’t mesh with my mindset of adding value and building wealth.

The real insight from your blog is to buy the miners who are creating the value, yet still have performance correlated to gold pricing.

Either way, its a good day in the asset class when GDX is up 5.25% on Brexit nonsense.

BeSmartRich
Guest

Gold is up again! My gold stock is doing pretty well. Your gold focused portfolio would be killing it by now!

Greg
Guest
Greg

Gold was at 250 US-Dollar in the early 2000s, then Went up to almost 2000 US-Dollar and down again to about 1.000.
Now you come along saying this is a fabolous “Investment”?
It doesnt even provide a regular return
Is this a prepper Blog of what???

boon
Guest
boon

Hello Greg,

Gold is money, and money don’t have a yield, risk or return.
Therefore it isn’t an investment.

In this case Gold is not a prep, it’s a hedge.

It’s also important to have tangible wealth like gold, silver, land, real estate, art… etc
Why? Digital wealth isn’t enough, take a look at what happened in Cyprus or Greece few years ago.

Last thing…
Dividend investing is not the only tool available…
Don’t believe me? Read for yourself http://www.berkshirehathaway.com/news/feb03981.html

chillywit
Guest
chillywit

Although the USD lost 95% of it’s value from 1913-2013, as the chart above shows, it can still lose 95% more in the future. My guess is that will take less than hundred years to replicate this loss if the dollar loses its hegemony in the future. At the pace that foreign central banks such as China, Russia, and India are currently accumulating gold important commodities such as oil might not be priced in dollars any longer. Perhaps they’ll be priced against a basket of currencies, but not exclusively in dollars.

Christian in HK
Guest
Christian in HK

Im a big fan of your earlier FI posts . ur finally coming to Hongkers! I work on Kowloon side. Give me a shout once you’re settled in. cheers

Rudy SMT
Guest

Hi Fi Fighter,

another sexy article about gold. Well done.

Yesterday I went down the gold shop and bought US$ 4,000 of physical gold.

Tomorrow I buy US$ 6,000 more.

I realized that it takes much less space than stack cash and fit very well inside the picture on the wall.

I think is safer than a vault.

Close Menu