Gold!!! A Store of Value in the Peak Oil Era?
There are a couple distinct economic possibilities regarding peak oil that people can plan for: inflation and deflation.
Inflation is a general increase in prices. Another way of looking at it is that the value of the currency is going down. Some examples include that food may cost more, gasoline may cost more, buying foreign currency may cost more, and precious metals may cost more. This fairly accurately describes what has been happening in the USA during recent years.
The situation is grim. As we pass the peak oil point, energy becomes less available. Money is simply the ability to cause energy to be used. If there is less energy, but the same amount (or a growing amount) of money, then each dollar is worth less than before. Add to that a nation where money, including credit money, has grown to amazing size, and what we get is a formula for failure in the entire system.
What would happen if the dollar was to keep losing value? What if prices on gasoline and food kept going up? Would there be any way to save money? Is this paper that we call cash actually worth anything?
One possible solution is gold. Gold is one of the precious metals. It has been used for thousands of years as a form of currency.
Buying gold in the USA can be a challenge. The best value for gold is generally found in purchasing gold coins. The USA mints 22 karet gold coins that contain one ounce of gold, plus a small amount of copper and silver for hardness. These coins are called American Gold Eagles, and can be bought at coin and gold shops in larger cities. A good source of information on American Eagles is the U.S. Mint.
Over the past two years, the value of gold has increased from around $500 per ounce to $800 per ounce. This is an average increase of about 30% per year, much better than any savings account can offer. One possible reason why gold has increased so rapidly in value is simply that the U.S. dollar is declining in value. In other words, the gold is still worth about the same, whereas the dollar is rapidly losing its worth.
To find sellers and buyers of American Gold Eagle coins, both the U.S. Mint and the Yellow Pages are good sources. Gold coins are sold for their "spot price", which is the actual value of the gold content at that moment, plus a minting and distribution fee, plus a small markup for the seller. Sellers prefer to deal in cash because the credit card transaction fee is more than the profit they would make on selling.
U.S. American Gold Eagle coins come in several denominations, namely 1 ounce, 1/2 ounce, 1/4 ounce and 1/10 ounce. If a person is buying many ounces, the best deal would be on the 1 ounce coins, since there will be less minting, distribution and profit markups. For those purchasing less, the smaller denominations may be the only ones affordable. Recent rates include...
Gold, being very valuable, and very easily transported, is best kept in a very safe place. Most banks, savings & loans, and credit unions have small boxes in their safe called "safe deposit boxes". These boxes can be rented on an annual basis for as little as $15. For a person who does not have an account at the bank, the annual fee may be around $35. In any event, this is a good place to store gold, as well as other important or small valuable items that might be destroyed in a fire, flood, or stolen in a robbery.
There are disadvantages to safe deposit boxes. First of all, it is not as easy to get to the gold as it would be at home. The bank may be many miles away, and the hours of operation are typically only regular business hours. Second, all those in the bank at the time can see that a person is accessing their box, although there are usually small private rooms for box renters to view and change the box contents. Third, if the banks should close, as they did during the Great Depression, it may be difficult to impossible to have access to the box.
Holding a limited amount of gold at home, perhaps less than an ounce or two, might be reasonable, depending on the risk of theft. For any valuables held at home, it makes good sense to keep them hidden in places that are very difficult to access. Many web sites give tips on places not to hide things. By reading these sites, it becomes clear that there are not many good hiding places at home. A reasonable belief is that valuables in the house WILL be taken if there is a theft. For those keeping more than a couple ounces, the safe deposit box may be the best plce.
Some companies claim to sell "shares" in gold or gold coins. By purchasing shares, individuals can feel that they own the gold. Indeed, as the value of gold increases, so do there shares. Said shares can be sold for cash. Of course, this system is dependent upon the will of the company, and the ability of the computer, phone, and electrical networks to stay functional. What would happen to these "savings" during a long-term power outage?
One interesting note is that Individual Retirement Accounts (IRAs) may consist of gold. A person with such an account would have done very well in holding value over the past few years.
One final note about gold: in 1933, the federal government of the USA made it illegal to own gold. The only way to get access to one's safe deposit box was with an IRS agent, who would then "purchase" the gold for the set rate. The market for gold virtually vanished overnight, and it was no longer possible to sell gold. Soon after, the government devalued the dollar in relation to gold, i.e. set the price of gold at a much higher price than it was sold/confiscated for. It wasn't until over 40 years later that gold was allowed to be bought and sold by individuals.
Perhaps the moral of the story is that while gold is a good investment vehicle and store of value during the current era of declining dollars, it is not guaranteed to be useful indefinitely, and should not be the sole, or even the primary, investment vehicle.
Related Articles
http://en.wikipedia.org/wiki/Gold_bullion_coin
http://en.wikipedia.org/wiki/Gold_as_an_investment
http://upload.wikimedia.org/wikipedia/en/8/84/Longtermdowgoldlogtr1800.png
http://www.certifiedmint.com/ira_investments.htm
http://goldprice.org/buying-gold/2007/04/gold-ira.html
http://www.blanchardonline.com/beru/confiscation_again.php
http://www.usagold.com/publications/confiscation2006.pdf
Inflation is a general increase in prices. Another way of looking at it is that the value of the currency is going down. Some examples include that food may cost more, gasoline may cost more, buying foreign currency may cost more, and precious metals may cost more. This fairly accurately describes what has been happening in the USA during recent years.
The situation is grim. As we pass the peak oil point, energy becomes less available. Money is simply the ability to cause energy to be used. If there is less energy, but the same amount (or a growing amount) of money, then each dollar is worth less than before. Add to that a nation where money, including credit money, has grown to amazing size, and what we get is a formula for failure in the entire system.
What would happen if the dollar was to keep losing value? What if prices on gasoline and food kept going up? Would there be any way to save money? Is this paper that we call cash actually worth anything?
One possible solution is gold. Gold is one of the precious metals. It has been used for thousands of years as a form of currency.
Buying gold in the USA can be a challenge. The best value for gold is generally found in purchasing gold coins. The USA mints 22 karet gold coins that contain one ounce of gold, plus a small amount of copper and silver for hardness. These coins are called American Gold Eagles, and can be bought at coin and gold shops in larger cities. A good source of information on American Eagles is the U.S. Mint.
Over the past two years, the value of gold has increased from around $500 per ounce to $800 per ounce. This is an average increase of about 30% per year, much better than any savings account can offer. One possible reason why gold has increased so rapidly in value is simply that the U.S. dollar is declining in value. In other words, the gold is still worth about the same, whereas the dollar is rapidly losing its worth.
To find sellers and buyers of American Gold Eagle coins, both the U.S. Mint and the Yellow Pages are good sources. Gold coins are sold for their "spot price", which is the actual value of the gold content at that moment, plus a minting and distribution fee, plus a small markup for the seller. Sellers prefer to deal in cash because the credit card transaction fee is more than the profit they would make on selling.
U.S. American Gold Eagle coins come in several denominations, namely 1 ounce, 1/2 ounce, 1/4 ounce and 1/10 ounce. If a person is buying many ounces, the best deal would be on the 1 ounce coins, since there will be less minting, distribution and profit markups. For those purchasing less, the smaller denominations may be the only ones affordable. Recent rates include...
- $88 per 1/10 ounce American Gold Eagle
- $210 per 1/4 ounce American Gold Eagle
- $420 per 1/2 ounce American Gold Eagle
Gold, being very valuable, and very easily transported, is best kept in a very safe place. Most banks, savings & loans, and credit unions have small boxes in their safe called "safe deposit boxes". These boxes can be rented on an annual basis for as little as $15. For a person who does not have an account at the bank, the annual fee may be around $35. In any event, this is a good place to store gold, as well as other important or small valuable items that might be destroyed in a fire, flood, or stolen in a robbery.
There are disadvantages to safe deposit boxes. First of all, it is not as easy to get to the gold as it would be at home. The bank may be many miles away, and the hours of operation are typically only regular business hours. Second, all those in the bank at the time can see that a person is accessing their box, although there are usually small private rooms for box renters to view and change the box contents. Third, if the banks should close, as they did during the Great Depression, it may be difficult to impossible to have access to the box.
Holding a limited amount of gold at home, perhaps less than an ounce or two, might be reasonable, depending on the risk of theft. For any valuables held at home, it makes good sense to keep them hidden in places that are very difficult to access. Many web sites give tips on places not to hide things. By reading these sites, it becomes clear that there are not many good hiding places at home. A reasonable belief is that valuables in the house WILL be taken if there is a theft. For those keeping more than a couple ounces, the safe deposit box may be the best plce.
Some companies claim to sell "shares" in gold or gold coins. By purchasing shares, individuals can feel that they own the gold. Indeed, as the value of gold increases, so do there shares. Said shares can be sold for cash. Of course, this system is dependent upon the will of the company, and the ability of the computer, phone, and electrical networks to stay functional. What would happen to these "savings" during a long-term power outage?
One interesting note is that Individual Retirement Accounts (IRAs) may consist of gold. A person with such an account would have done very well in holding value over the past few years.
One final note about gold: in 1933, the federal government of the USA made it illegal to own gold. The only way to get access to one's safe deposit box was with an IRS agent, who would then "purchase" the gold for the set rate. The market for gold virtually vanished overnight, and it was no longer possible to sell gold. Soon after, the government devalued the dollar in relation to gold, i.e. set the price of gold at a much higher price than it was sold/confiscated for. It wasn't until over 40 years later that gold was allowed to be bought and sold by individuals.
Perhaps the moral of the story is that while gold is a good investment vehicle and store of value during the current era of declining dollars, it is not guaranteed to be useful indefinitely, and should not be the sole, or even the primary, investment vehicle.
Related Articles
http://en.wikipedia.org/wiki/Gold_bullion_coin
http://en.wikipedia.org/wiki/Gold_as_an_investment
http://upload.wikimedia.org/wikipedia/en/8/84/Longtermdowgoldlogtr1800.png
http://www.certifiedmint.com/ira_investments.htm
http://goldprice.org/buying-gold/2007/04/gold-ira.html
http://www.blanchardonline.com/beru/confiscation_again.php
http://www.usagold.com/publications/confiscation2006.pdf