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.
Summary
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. 😊
Makes a lot of sense. Precious metals are only valuable so long as people agree they are … unlike many other physical assets that are useful in themselves.
Industrial uses don’t get you to the valuations these metals typically go for.
I think you guys just blew any chance of having a precious metals sponsor!
I think there is some role for gold as a transitional wealth vehicle hedge against inflation. Having an amount of gold (in hand) in a form that is easily traded like Canadian Gold Maple Leafs is a reasonable option to hedge against devaluation of the currency.
I don’t have any, though, my money is limited so I am focusing on my preps right now.
Focusing on your preps is the right thing to do.
Excellent article. I agree with everything you’ve said.
In terms of prepping, there are infinitely more hard assets that will be of better use in a long term disaster. To the readers, think of things you actually use on a daily basis or even regularly. That is what you are going to need and want. Obtain those resources first.
If you ever get to the point that gold is next on your list of things to acquire then you know you are either a) VERY well prepared, b) overlooked a lot of things, or c) assuming you can buy your way through a disaster.
I don’t have much in the way of precious metals except for a few dollars worth of junk silver coins plus a few more that my grandfather gave me, his old coin collection… those are not for trade unless TEOTWAWKI).
I agree with PP entirely.
You wouldn’t believe how many gold ads I get every day.
If gold were such a big profit why are they selling it instead of just investing in it until they are rich?
When somebody tries that hard to sell me something, I’m not buying.
The folks you refer to are dealers so they are always selling and always buying. They make their profit on the spread between buy and sell prices, not from holding precious metals.
I agree with much of what you say. Should the SHTF, gold will have very little value to me. I have skills and abilities that will generate an income stream for my family. My one concern is taxes, specifically property taxes. Unless the collapse takes your local county government with it they will be there with their hand out. And failure to pay will result in loss of your home. The law requires that taxes be paid in currency. Not beans, not bullets, not alcohol but in the coin of the realm. A small investment in gold is protection against inflation and should the beast raise it’s ugly head I’m sure there will be plenty of opportunity to convert that gold into cash at tax time.
I appreciate your concern of being able to pay local taxes. However, there is no guarantee that precious metals will be accepted as currency, as opposed to “new dollars”, or whatever is dreamed up in that context. If the local government decides to impose taxes in the form of something most people don’t have, compliance will be impossible for most. Let’s face it, most people will not have precious metals. In summary, I think you have a legitimate concern, but I doubt that precious metals will solve the problem.
Personally, I’d rather have some gold and silver then not have any.
First comment is Rule of Law. If they feel free to kill you and steal no form of exchange is possible. After that the value of something is determined by both parties involved. Yeah sounds like a Professor eh? Fiat Money currently is accepted for all debts public and private until we lose faith in it. Gold and Silver have value IF both parties agree to it’s value and nobody decides a quiet word and a KNIFE to the chest is trading. Cash is king until it’s not, PMs can be traded if both sides agree.
Skills providing basic human needs cannot be stolen and are renewable as long as your alive. My relatives who actually did very well in the Great Depression could fix shoes, grow food/eggs/milk and keep vehicles running on the cheap. Folks with out money would trade food and work for their skills. AND they were able to earn enough “Coin of the Realm” to pay taxes and do honest loans to others so they and friends did not lose their homes/farms to the bank or tax man.
Skills, tools, storage foods and such before PM’s please. There was a lot of violence in the Great Depression not we all were in this together brotherhood as a lot of history books would tell you. Shelter, water, food, useful skills and security before PM’s.