Note: This is not an investment advice, I am not an economist and my living is IT. These are my thoughts and description of my decision process, I don’t think you should do the same.
I decided to buy gold. Not as an investment, just to preserve my “purchasing power” in case our dear owners of the money printing press did not get a brain for christmas (seems they did not). The idea is to have 3-6 months worth of income stored in precious metals (my choice is gold, because of lower storage costs, silver may be better choice for liquidity, as it is cheaper, but storage is more expensive and it is more volatile).
I don’t think I have to explain why keeping your “wealth” only in one currency is not a good idea. And while I love Bitcoin as a technology and a way to transfer money, it’s not particularly good at storing value, because of high volatility (although I am going to buy some more Bitcoins as an investment soon). It is good to have some other sources of income such as rent, because bad things can always happen.
I was inspired by a few talks, mainly those by James Turk and Detlev Schlichter. They both state that main problem of current fiat money (current incarnation is an experiment of last 41 years, so it has not been “always around” as many people think) is an ability of cheap expansion (creation of money). While politicians can argue it’s a good idea and Keynesians can argue that it helps fuel the economy, we can all see for ourselves how that fuel exploded in the last few years in a series of crises. I highly recommend Detlev Schlichter’s “Paper money collapse: The Folly of Elastic Money and the Coming Monetary Breakdown” (or Kindle edition here).
We are not going to solve this problem ourselves, but what can we do to be at least a little secure? The answer is obvious and it has been obvious since long time ago. It is gold. Many people who see the Euro or Dollar price of gold think that gold is expensive. I would say that the dollar and euro is getting cheaper, which is something we are trying to protect ourselves against, right? Here’s inflation adjusted gold price in USD:
That means that gold price is slowly growing higher in “real terms” (if we believe this calculation of inflation) than a few years ago, but is still cheaper than it could have been (other prices are rising faster). James Turk calculated “Fair price of gold” for a few years now and his calculations cover last 50 years. Keep in mind though that he also has a company that sells gold. The formula makes sense to me anyway.
But the most important thing when thinking about gold in terms of preserving purchasing power (and not as an investment) is: How well does gold preserve purchasing power? Let’s look at crude oil prices (graph again by James Turk) since 1950 until 2009. “Euro” before euro existed is represented by German Marks. As you can see, until abolition of gold standard in 1971, all currencies preserved purchasing power pretty well. Since pure fiat money were introduced throughout the world (AFAIK first time in the world), inflation is very high. If you saved USD or DM in 1970s and wanted to use it now, you would need much more money to buy the same amount of crude oil. And no, interest in saving accounts would not have preserved your purchasing power either. It seems that gold is the only currency out of these four that preserves purchasing power.
Of course I earn money in Euros (it would be interesting idea to convince our customers to pay us in gold, the nice thing would be we would not need to raise prices). I need euros to pay for daily unimportant things like internet connectivity, food, mortgage, etc. On the other hand, current yearly inflation rate in Slovakia is 4.6%, which is starting to get higher than I am comfortable with. I think it does very lightly reflect the money printing that is taking place now using EFSF and ECB’s buyout of toxic debt with freshly created money (I am an amateur).
I want to have some money stored in my vault as a physical gold. RFB in Austria or Tatrabanka (also part of RFB Austria) sell gold coins. The problem is buying it out at least with Tatrabanka. My friend Tomáš says that RFB would buy out the coins for slightly less than current spot price. If you would like to do it with Tatrabanka, you would instantly lose almost half of the value (as my mom discovered when going through an example trade with her representative).
James Turk’s company is selling gold over the internet. You can have it stored in one of their contracted vaults (London, Zurich and two in Hong Kong) under your name. They specifically say they do not do any kind of fractional reserve banking and store 1:1 gold in the database and in the vault. When you want, you can pick up physical gold and store it yourself (minimal amount for pickup is 100 grams, but there’s no limit for buying or selling over the Internet). They buy out gold from you for the current market price without fees (the fees are when you are buying gold from them and for storage).
I decided to put away some part of my income and convert it to gold. When something bad happens (like hyperinflation of Euro), I want to have some other backup money that is safer… And when hyperinflation occurs (I still hope it does not), I can cash out gold, change to euros and pay my mortgage in one turn :). In theory at least.
How to get goldPhysical gold locally: Call your bank. Ask about all the fees. Ask how much would you get back if you wanted to sell it back to the bank. If they won’t buy it out, don’t buy from them.
Gold in a vault: I use GoldMoney (James Turk’s company). You can also take physical gold out of the vault (they even deliver by post, you can pick it up in a vault that stores it). Minimum physical gold amount is 100 grams. They handle gold worth of over US$2 billion.
What is your experience with gold? How do you preserve wealth and prepare for uncertain days probably yet to come? Do you prefer gold stored in your vault, online or how? How do you intend to cash it out when needed?
P.S.: There’s also a book called Crash Proof 2.0 by Peter Schiff. Peter Schiff was one of the few guys that “saw the crisis coming” as seen in videos like this one. He is one of the guys who predicted the financial crisis and how it’s going to look like almost exactly. Note that I have not yet read the book, so I can not say if it’s good yet (and I am not sure I would be able to tell anyway).