The Last Resort

Some other things I want to touch on with regard to precious metals and inflation. First of all, precious metals are not the only way to hedge against price inflation. Any useful commodity that isn’t perishable could serve the same purpose. For example, you could buy a barrel of crude oil, or a ton of copper. Both of these would provide the same kind of hedge against inflation that gold or silver would. The problem becomes one of storage and exchangeability. You can usually go down to a local coin shop and sell your bullion bars or coins at any time, for the going rate (remember, you’ll always be stuck buying your coins at retail and selling them at wholesale). But where are you going to keep an economically significant amount of crude oil? And who will you sell it to when you need to raise some cash? And how will you transport it to the buyer? Gold doesn’t have these problems. And although it takes a whole lot more silver to equal the price of an ounce of gold, it is still a relatively compact way to store wealth. A barrel of crude oil for $60 can be equaled by 4 silver 1oz. coins or a 1/20oz. gold piece. A ton of copper will be good for $6000 (at $3/lb), and that can be matched by 400 silver coins (25 pounds) or 7 ounces of gold.

The other point I want to make clear is that gold or silver is useful as an inflation hedge, but only to the extent that we continue to live in a relatively stable environment that allows for the disciplined exchange of goods (at whatever price). If blood starts to run in the streets, if disruption of commerce and civil disorder becomes the environment, then you’re better off with a gun and plenty of ammunition than a bag full of gold coins. Of course, you have to face the question of whether you’d be willing to use that gun to take by force the things you need (which you might be able to otherwise purchase with a gold coin). Many people would be willing to use the gun to defend against aggressors, but are you just as willing to become the aggressor? So even in the worst imaginable circumstances it might be advantageous to have some precious metal coins on hand, along with the gun and ammo.

I need to say one more thing about precious metals. You have to think of them as a long-term core holding. You don’t want to buy a gold coin now, at $950/oz, with the thought in mind that you’d sell it for $2000/oz. That is not the point. Frankly, if the dollar tanks to the point that gold goes for $2000/oz, then the last thing you should want to do is settle for just $2000. So when/if you think about purchasing precious metals you really need to be in the mindset that this is a forever purchase. This is a lasting legacy you intend to pass along to your children.

Think about it.