Miscellaneous > The Sallyport

Real coins, who invests?

(1/1)

SerTimtheJailer:
So we all know in the medieval times they used coins for currency. In another forum they were discussing buying coins for investment. Its not a bad idea, plus the fact that I can have real gold or silver coins like they did in the medieval times is kind of cool. Plus its a good financial decision so I'm really thinking about buying some silver coins or bars and maybe go to gold if its working out. Anybody else here invest in gold or silver? Oh and if I invest I'm going to put them locked away in a treasure chest lol :p

Sir Edward:
I have a few. I really should buy more though. ;)

The nice thing about doing this, is that they're relatively "inflation-proof". Since the value comes from scarcity, they hold value over time, and they can be treated as real money.

(As an aside, this can be a whole separate discussion-- The difference between money and currency. For instance, dollars are "fiat currency", meaning they have value only because we say they do).

Gold is a very popular choice, so in recent years it's been a little over-valued. But silver is often overlooked and tends to be under-valued, and can be a good choice for starting out with precious metals investments.

If the economy ever tanks hard, such as with hyper-inflation, dollars will lose value fast, so gold/silver coins become very attractive for protecting your savings.

Mike W.:
Just a word of advice - before investing in anything, be it precious metals, property, stocks, mutual funds, prize race horses, antique cars, etc. do your research. Read books on investing, figure out the best strategies (i.e. DCA vs Lump Sum). And most importantly, do not invest that which you are not willing to lose. here seems to be this.

Do you want it as an investment (that is the word you use after all)? or do you want it as a store of value? If you want my two cents: stay away from gold. It's not a person. It's not a company. You can't do anything with it (really, its uses don't make it worth it; the value comes from rarity. Hell, oil's a better investment and that's on the way out in the long-term). It won't pay you dividends or interest. You can't rent it out. You'll have to buy it above market rate, and sell it below market rate. You have to pay to store it securely.  To have it maintain its value it needs to be certified. Once you take possession of it, that is burying it in your backyard, you'll have to pay out the ass to get it re-certified when you want to trade it. It's speculative at best. It won't make you money. Gold becomes a "valuable" asset if you're an experienced investor and you're purchasing in large quantities (i.e. >10oz at a time). Most big-time investors only use gold as a hedge against inflation and even then it only comprises about 5-10% of their portfolios. And if you're thinking about total economic collapse, you're better off investing in guns, ammo, and survival skills.

Simply put, if you have enough money to make gold a worthwhile investment, then you have enough money and investing skills to have a personal financial adviser tell you not to invest in it.

Read this excerpt from Warren Buffet's 2011 Shareholder letter:

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.
This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce – it will remain lifeless forever – but rather by the belief that others will desire it even more avidly in the future. The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while. Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices. A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Sir William:
I'd be interested in a few, but not as a means of collecting a hoard.

Sir Edward:

--- Quote from: Baron de Magnan on 2015-03-30, 16:10:29 ---Simply put, if you have enough money to make gold a worthwhile investment, then you have enough money and investing skills to have a personal financial adviser tell you not to invest in it.
<etc>

--- End quote ---

Oh, I absolutely agree. It's not a growth investment, or a useful product in its own right. It's simply a means to inflation-proof some savings.

But you're right, do your homework. :)

Navigation

[0] Message Index