Au vs the Apocalypse

[digitaldiscipline]

Over on FB, a friend shared this link: http://www.thesimpledollar.com/2010/05/10/why-you-shouldnt-buy-gold-as-a-hedge-against-devastation/

In reply, here's what I had to say:

"I think what a lot of people (such as the author) overlook is that people who invest in precious metals or other similar commodities are not hedging against an apocalypse, they're hedging against inflation and basically betting on the purchasing power of the dollar to weaken. Thus, if you bought gold two years ago at $800/oz, and sell it today at $1200/oz, you haven't made any new gold, but you've got 50% more dollars (which you can use to pay for things you need, or pay off debts, or whatever).

I can't be the only person taking this approach (though I'm doing it with silver, because I can't afford gold)."

No, it's not exciting, or sexy, but, what the hell, it's working.

Comments

[mighty-man.livejournal.com]

The opinion that gold is only worth something because we *agree* it has value is mostly true. However, gold has some limited industrial uses (primarily due to its physical properties such as conductivity, malleability, etc)).

Silver in many ways is similar, but the primary reason it doesn't enjoy the same value is because it's somewhat more common and more importantly -- it's reaactive (whereas gold is relatively inert).

As for it holding it's value? Granddad bought some bars of silver back in the 50's and 60's. Then we went off the Gold Standard (and silver as well). The value of the bars dropped like a rock and has never recovered.

Frankly, speculating against inflation can really be applied to just about any commodity -- they're called futures. But yopu can use just about anything -- gold, silver, baseball cards, comic books, antique autos, etc. At least the cars have some utility and the comic books you can read.

[etcet.livejournal.com]

100 troy oz silver bars make excellent, if kind of boring, bookends. :-)

[hellsop.livejournal.com]

Especially since what a rather large number of these people are buying is not the actual hunk of metal, but rather some shares representing set amounts in a supposed repository of gold someplace. Oh, they'll send you the metal, if you really think your house is safer than their vault. Delivery can take up to a month, and is insured against everything but war, natural disaster, civil unrest, acts of God, and pretty much any other reason why you might want to actually HAVE the stuff in your pocket. Whether their vault would last ten minutes under a rigorous audit, you'll never know though.

[smaugchow.livejournal.com]

My hedge against the apocalypse is a high powered rifle and lots of ammo for when I need to go grocery shopping at the neighbor's house.

[the_axel]

The problem with that is that as a long term investment metals are poor hedges against inflation.

http://host.madison.com/ct/news/opinion/column/article_68f99b80-4258-5f44-a817-5cc64c6e1884.html

It's a good speculative commodity to buy into when people start to panic as they did when the financial crisis hit, and in '79. you just need to get out when the economy starts to improve.

http://en.wikipedia.org/wiki/File:Gold_price_in_USD.png

The spikes in prices are becasue:
1) A market was created in '68, although that was limited because it was a 2 tier market with the US government defining the price in one tier.
2) The market was fully opened in '73, coupled with the oil shock and stagflation lead to the '75 peak.
3) The 1980 recession and inflation.
4) Internet trading (which increased the number of uninformed traders) leading into the financial collapse.

You'll see that adjusting for inflation, the price today is still 1/2 of the peak price in 1980.

Silver is a worse choice (the blue line is the most relevant set of numbers).

http://realterm.de/images/SilberinEuro_max.png

If you want a rock solid hedge against inflation get TIPS.

http://news.morningstar.com/articlenet/article.aspx?id=168086

[cheez-ball.livejournal.com]

You know what the most valuable things will be during a zombie apocalypse: food, drinking water, gasoline, guns and ammo.

You can't eat gold, silver or cash. OK...in small amounts, but it won't sustain you.