PrepperNomics 107: Precious Metals
The subject of precious metals comes up often in prepper circles, either because of lack of confidence in the current monetary system, or because of a belief that precious metals will reassert themselves as mediums of exchange in a post-apocalyptic world as “real” money. In this post we will discuss both of these ideas so you can decide for yourself if you wish to purchase precious metals as an investment, or as a prep. Precious metals also have industrial uses, but we will not touch on these.
Precious metals as an Inflation Hedge
As long as SHTF does not occur, and the economy remains functional, precious metals will not have a monetary role. In fact, in most states precious metals are subject to sales tax, which renders them useless as a medium of exchange and expensive to own in physical form.
In a non-SHTF environment, like today, precious metals are simply commodities. However, commodities and other “hard assets” like real estate, artwork, collector cars, etc. are excellent inflation hedges. If Inflation becomes a faster moving problem, any of these choices will work to varying degrees. As inflation eats away the value of currency, hard assets will rise in price. However, if inflation remains low, as it has been in recent years, one is better off owning financial assets that return interest and dividends. Unfortunately, predicting inflation is difficult because of the multiple factors that drive inflation. The result is that precious metals tend to trade at relatively flat levels for long periods of time, and then abruptly change in price when they become trendy, only to flatten again when the trend runs dry. Nonetheless, there are precious metal brokers constantly pitching precious metals as an investment through all sorts of economic environments.
Note that while Precious Metals are usually good Inflation hedges, there are exceptions. In the 1500s when Spain brought huge quantities of gold and other valuables from the New World to Europe, the result was massive inflation because metals were then used as currency. Could such an event occur today? What if new mining technology made metals production much less expensive? Prices of those metals would drop.
Most financial experts will not recommend precious metals for smaller investors, but will recommend precious metals as a very small percentage of a larger investor’s portfolio. The idea is to use precious metals as both an inflation hedge, and a diversification from other assets, but not to acquire so much precious metals as to significantly dampen returns on a portfolio of stocks and bonds during a typical economic environment. 3% of a portfolio would be a typical recommendation.
Precious metals as a medium of exchange after SHTF
The other theme you’ll run across in prepper circles, and prepper fiction, is that gold and silver would resume a monetary role in a post-apocalyptic world. The conditions required for this to happen include: 1) you must first survive whatever disaster destroyed the US government and its monetary system, 2) enough time has passed that a resumption of economic activity is occurring, 3) the US government does not recover, but economic activity requiring some sort of currency does, 4) nothing better than precious metals fulfills the role of money.
Precious metals do have advantages for a prepper. They take up very little space, and you don’t need to worry about temperature control, or having to rotate your precious metals to keep them from going bad. I haven’t heard a better suggestion for a money replacement in a dystopian future, so that is a possibility, albeit a long shot. Of course, in a simple hurricane, or other short-term event, no such need exists. For instance, in Puerto Rico, where the loss of electricity has knocked out the ATMs, the Federal Reserve has simply flown in a bunch of cash. It takes a real TEOTWAWKI event to make the possibility of precious metals becoming a money replacement realistic.
Even in TEOTWAWKI, there is no way to tell what prices might be like post-apocalypse. If there is a large die off, there may be a lot more precious metals than there are people to make use of them. If it cost an ounce of gold to buy a can of peaches, post-TEOTWAWKI, storing peaches, not gold, in advance would make more sense.
Personally, I think this scenario would require an event of at least a year, perhaps longer, and I would rather have goods that people were willing to pay for, especially during that first year, than precious metals. In a world where everyone needs food and medicine, I’d rather have food and medicine than precious metals to buy them with. After all who is going to supply the goods you want to buy with your precious metals? This raises the question of who would want to include precious metals in their preps? You can’t eat gold. 😊
The simple answer is someone who has all other prepping needs covered. I am not there, nor do I expect to ever get to that level of preparedness, so I admit I am not the prepper who would set aside precious metals. I’ll set aside canned peaches. 😊
Perhaps some of you are further along in your preps than I am.
Precious metals have uses, but the uses are narrower than many preppers realize. Precious metals make good inflation hedges in normal times. If you are wealthy enough, you should consider placing a very small amount of precious metals in your portfolio for diversification.
As a prep item, precious metals are not a panacea for goods you can actually use. Having a vault full of precious metals will be cold comfort right after an EMP. However, if you are prepped for a TEOTWAWKI event and looking for more to do, you might consider precious metals as a long-term medium of exchange. Personally, I’d rather store another case of canned peaches. 😊