Gold Fever! (part 3)
Posted on March 21, 2011 by John Fritze Jr
So is it better to sell now or should I be hanging on hoping gold prices go higher? Should I be buying gold as an investment? What about silver or platinum as an investment? All good questions. But what you really want to know is what I think metals prices are going to be in the future? Let me just clean the dust off my crystal ball and have a look. HMMMM….I’m not really getting a clear answer.
Remember, I am not an investment counselor. All I can say with confidence is that gold will always be worth the same as it was yesterday and last week and a hundred years ago. Huh? Absolutely! The value of gold really has never changed. For example, when I first started in the jewelry business in the early 70’s a man’s suit was about $70-90. My first car, a Chevy was about $2000. My first house, a three bedroom brick ranch in a modest neighborhood was $25,000. I supported a wife, a baby, and all the costs of living on $85 a week. Gold was $70 an ounce. The last man’s suit I bought at a Men’s Warehouse was about $1200 by the time I got two shirts, two pants and one necktie. The last car I bought, a Subaru was about $38,000. And the house I live in? A 1927 three bedroom bungalow in a modest neighborhood was recently re-accessed at just under $390,000. Now both my wife and I need to work to make ends meet and enjoy a few luxuries. As you can see, the cost of all these things has roughly increased about twenty times in the past forty years. Gold is now $1,400 per ounce. Twenty times higher than it was in the 70’s. So what changed? A suit is a suit. A car is a car. A house is a house. Yes, I may have gotten an extra shirt, there might be a better radio in the car or better windows in the house. But shouldn’t manufacturing have gotten more efficient too in forty years? What changed is the dollar. The buying power of the US dollar has dropped to about one twentieth from what it was forty years ago. Why is this? The main reason is our legislators and our government from the federal level all the way down to our local town officials have spent too much of our money. The federal government continues to print more and more money. We have huge deficits, bankrupt states, a slumped economy and high unemployment.
Consider that the American economy is nothing more than my household income, your household income, your neighbor’s and so forth, all grouped together. If I overspent on my credit card, would spending more get me out of debt? Does raising my credit limit without paying down on my debt, making my debt to available credit ratio appear to make me a better risk? Of course not. But in effect this what our government is doing. Our politicians take more and more money out of circulation in the form of various taxes. Our legislators think that they can spend our way out of a recession. When actually they are guaranteeing that the US dollar will continue to weaken. Additionally our politicians think that they can tweak our economy by adjusting this or that. But that means they would need to know how the public thinks and what determines how we decide to spend our income. When in fact it is impossible to know how approximately 115 million households will react in a given circumstance.
The argument in favor of selling your old and unwanted gold and other precious metal jewelry is that by doing so you will have in hand a liquid amount of cash that can be used to pay down some high interest debt, purchase or repair something unexpected around the home, or pay against a tax bill. Even if your decide you’d rather use the money to purchase a luxury item that you might have otherwise charged, you’re better off because you’ll have the item now and not incurred any debt. There is also a risk of saving your gold hoping for a slight increase that may not offset the interest you will have to pay on an existing loan. For example if gold increases one hundred dollars, one ounce of 14K gold will only be worth about $53 more at the scrapper, a 7% increase. Compare that against a twenty plus percent credit card debt.
So why might you want to purchase gold, especially now that the price is so high? What should you buy and how much? While it might have been better to have purchased between May and June of 2001 when gold was less than $275 an ounce, I do not believe it’s a bad idea even at this time. But you have to buy smart. One ounce gold coins, or bullion is the only way to go. It is an exact amount, an exact fineness and the gold price is easily posted and available, no questions. Many countries mint one ounce bullion coins. American Eagles, Canadian Maple Leafs, Chinese Pandas and Swiss Credits just to name a few. As it really makes no difference which you prefer, I suggest which ever has the lowest premium. You should be able to find bullion coins at only a few dollars over the current gold price, typically $50-100. When you decide to liquidate, the sell price should be about $5-10 under gold. Buy from a reputable dealer as there are lots of counterfeits around! As a plus, New York State allows sale of bullion coins for no sales tax as long as you spend more than one thousand dollars. The sales receipt has to have the total paid, the gold price of the day and the percent commission written on it. It should read: bullion for investment purposes only.
US silver coins (1964 and earlier) are also wise to invest in. With recent increases in silver pricing, millions of silver coins are going to melt. That means that collectible silver coins may become more rare. The down side of silver bullion is the weight. Currently $10,000 dollars in gold weighs just over 7 ounces, while the same in silver is over twenty three pounds!
Platinum bullion, while I do see it occasionally, it is available and the price is just as easily found, it is just not that common. When I sell platinum it seems there is a pretty hefty “hit” against what I expect to receive. I would tend to shy away from it.
As a hedge against the volatility of the US dollar I personally believe it is wise for every family that can afford it, have a little gold and silver bullion. If the price of gold goes up or down, it’s pretty much irrelevant. It’s the relation of gold to another tangible item you might need in an emergency that really makes a difference. In times of uncertainty you could travel across borders, or from disaster ravaged areas into safer places with enough gold coins in your front pants pocket to start a new life. This has happened repeatedly in the past and may be happening even now in some places in the world.
So do you want paper or tangible? I like tangible. I can sell it NOW and not need to wait a week or so to receive a check from some investment company while the market price fluctuates. If you are investing in gold with emergency preparedness in mind, purchasing precious metals in the form of a mutual fund might not be a good idea. While there are many very reputable companies the news of investment fraud and white collar crime makes me a bit wary. However diversifying some of your investment portfolio with a percentage of precious metals is a very good idea particularly over the long term.
Ultimately you need to decide what is right for you. What you are comfortable with without causing an undo hardship on your family and lifestyle. I’ve given you some good information and advice. So now, go forth grasshopper and prosper.