Generally, investors buy gold or silver for one of three purposes:
as an investment, as an inflation hedge, or for survival purposes. Investors who buy for
investment purposes tend to view gold and silver as commodities, whose prices fluctuate
because of supply/demand fundamentals. For example, in 1998 Warren Buffett completed the
purchase of 129.7 million ounces of silver. Buffett’s purchase, which became
legendary in only a few years, was probably for investment purposes. However, it may have
been an inflation hedge; Buffett’s not saying. In fact, Buffett has said very little
about his silver investment. One thing is certain, however, it was not for survival
purposes.
Investors who fear inflation, either price inflation or monetary inflation (which causes
price inflation), buy gold or silver as inflation hedges. During the 1970s, precious
metals prices skyrocketed in response to price inflation that reached 13%. During the 70s,
popular precious metals investments included everything from 1-oz silver rounds and
pre-1965 U.S. 90% silver coins to 100-oz silver bars and 1-oz Krugerrands. When the
Federal Reserve got inflation under control in the 1980s, much of the gold and silver
bought in the 1970s was sold and the proceeds put back in paper investments.
Investors who buy for survival purposes fear the worst. Those fears include the Federal
Reserve printing so many dollars that the dollar will become worthless, which is the
history of all paper currencies not redeemable in gold or silver. Fear of a financial
meltdown, which would close banks as in Argentina and Paraguay in 2002, is another.
Argentineans and Paraguayans who had to foresight to bailout of the banking systems and
covert their assets to gold or silver were protected. Not only did banks close, but also
when they reopened depositors were limited to the amount of money they could withdraw.
Meanwhile, the Argentinean peso and the Paraguayan guarani sank in value. Shortly after
those crises, Brazil defaulted on its international debt and its real value sank.
Those are the kinds of situations that investors who buy for survival purposes want to
protect against. In doing so, these investors buy gold and silver in forms that can be
used for money or to barter for goods and services.
The best forms of silver for survival purposes are pre-1965 U.S. 90% coins and 1-oz silver
rounds. The most useful forms of gold would be 1/10-oz Gold Eagles and ¼-oz Gold Eagles.
If the time ever comes that gold and silver coins were again used as money, coins would be
worth only their metal content. Numismatic (collector) premiums would disappear. Anyone
using gold or silver coins to buy goods or services would not be asked, "What's the
mint mark on your coin?" Nor will they be asked, "When was it minted?" The
question would be, "What's the gold content?" Hand someone a St. Gaudens and
tell him it contains .9675 ounce of gold, and it will be difficult--if not impossible--to
convince him to accept it at more than .9675 times the price of gold.
If you ever need to use your gold and silver to buy goods and services, you will want
silver coins and small gold coins. Additionally, those coins should have certain
characteristics to ensure they are readily accepted. First, survival coins should be
stamped in English. Most Americans do not read foreign languages.
Second, the coins should have their gold or silver contents stamped on them; except for
the bullion coins, most do not. In an emergency, having the gold content stamped on a coin
could go a long way toward causing someone to accept it.
If your furnace goes out in January, the local heating guy may have never seen a gold coin
before. If you hand him a $20 St. Gaudens, how does he know it contains a little less than
an ounce? If you try to get him to take British Sovereigns, how can you prove they contain
.2354 ounce each? Try convincing the guy at the auto parts store that a French 20 franc
contains .1867 ounce of gold.
Third, the coins you buy for survival purposes should contain amounts with which Americans
are comfortable. We understand one-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce coins.
Americans do not easily grasp the concept of .2354 ounce or .1867 ounce.
For survival purposes, avoid arcane foreign coins. (Although more British Sovereigns have
been minted than any other coin, Sovereigns are not well known in the U.S.) Simply buy the
popular modern bullion coins, the best of which are the American Eagles. They come in four
sizes: one-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce.. And certainly, Gold Eagles are
cheaper than old U.S. gold coins.
Finally, the question arises whether to buy gold or silver. Probably both, but if you are
investing $500 or less, go exclusively with one-ounce silver rounds and a few 1/10 ounce
gold coins If you are investing larger amounts, say $2,000 up, you will probably end up
with larger demoninations of gold and more silver.
If conditions were to deteriorate to the point that gold and silver re-emerged as the
preferred forms of money, you would want lots of small coins. If you were buying canned
food, you would need silver coins because gold coins, even 1/10-ounce ones, would have
great value. If you have only silver coins and need something of high value, then you
simply trade a larger number of silver coins.
At current prices, an investment in silver results in more than fifty times the bulk and
weight than if the same investment were made in gold. Therefore, large investments in
silver create storage and handling challenges for some people. If storage and handling is
a problem for you, then go exclusively with 1/10-oz Gold Eagles for the first $500 or so
and still, try to have some silver coins on hand.
We prefer American Gold Eagles for survival purposes,
The choice of the form of silver for survival purposes is the Silver American Eagle. These
genuine coins also have their silver content and purity stamped on them. You simply cannot
go wrong investing in American with genuine American Gold and Silver Coins!