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.
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?
How about gold vs. the good ol’ greenback?
From Monetary Gold.
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…
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.
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!