Gold is a poor asset no matter how you turn it. Most people don’t hold physical gold when they trade in it. If the current financial system were to fail, do you really believe that people will begin taking delivery of their physical gold positions in their garages? They’ll simply get wiped out, and that will be the end of it.
Even barring a catastrophic nosedive in the level of civilized trading, regular people aren’t equipped to store gold in their homes. The problem of securing such holdings isn’t something the average Joe will be able to solve well, and he knows it.
Unless you are storing the majority of your wealth in gold, it is not that hard to take possession of gold and store it in a decent removal resistant and fire resistant safe in your home. Your average smaller stand up gun safe can store more wealth in gold that I personally have. I personally take delivery of any gold I hold, but I really only hold enough as a unlikely but not impossible to happen insurance policy that society completely collapses.
The issue with doing that, is it is an insurance policy and not a immediately liquidate-able asset that can be traded in seconds. I think it is a sound strategy to take possession and store enough gold that in the event of a reset you can reestablish yourself. It is the closest thing to a guarantee that, that portion of your wealth will carry over into what comes next, in the unlikely possibility that it happens in your lifetime.
I don't know if I buy that. Show me how I can guy a commodity on the market and have it delivered to my house. And the guarantee that process will work when the global financial system starts imploding. For the vast majority of people holding gold, their holdings are only on paper, and that's all they'll ever be.
If I'm stocking up on items with physical value to hedge a complete economic collapse, I'd rather have butane lighters, buckets, vacuum sealed sugar/salt/grains, water storage, and ammo.
Yes you should have all those things in a realistic quantity but after a survival ration, hording those items is not realistically your best bet. Ammo would probably be the best out of the lot, but it will only hold temporal value while the unrest is happening, lets say it's a really long unrest say a decade until peace is restored you still only have a 10 year store of wealth if you put it all in more ammo than you need, while gold will almost assuredly retain at least a decent portion of the wealth you stored in it. It might loose some value in initial unrest when and if people are in pure survival mode but will almost certainly take a primary status in the period between the ending of unrest and the stabilization of a fiat.
Also for myself personally, I purchased a simple test kit that most jewelers use. It is an electronic test kit that is very accurate for gold and platinum and when I look to reallocate some of my wealth to gold I buy scrap gold and test it. The kit was about a $200 investment but It allows me to buy the gold at a deep discount (deeper if it is not 24K) under the spot price for the day, you can melt it with a propane torch, that can be purchased from Home Depot and they make plenty of bar molds. It takes me about 5-10 minutes effort (short of procuring the gold) to turn scrap into bars. But if one does not want to go thru the effort, it's pretty easy to buy gold bullion at the spot price for the day + shipping, even on ebay there are plenty of reputable sellers. I don't trade in millions of dollars in gold and I have yet to liquidate any that I hold as I only hold about 3% of my total wealth in gold and I try to keep that pretty stable. Again I view it as insurance, not an investment, that being said if I liquidated it all today, it would have turned out to have been a pretty good investment.
I think the point OP is making is: Say you have $1000 in a gold ETF with some brokerage somewhere. The Zombie Apocalypse comes. Banks are all failing, cities are burning, roads are torn up, and electricity is shut down.
Do you write a letter to your broker asking, "Dear, Schwab, I have $1000 in a gold ETF and shit is crazy now! Can you please have one of your customer care folks briefly stop stocking up on water and food, use a generator to turn your servers back on and verify I have that security? Then please deliver the equivalent amount of physical gold to my address via the postal system which is partially working? Thank you and look forward to continuing business with you!"
Point is, if you ever really need the physical gold behind the security it will not be available. To me, that makes the security worthless.
Society has collapsed several times throughout the millenniums of human existence and gold has been one of the few constant sources of wealth store and retention that has resurfaced with each new incarnation of society. Given this truth, it is a pretty good indicator that it will resurface after/when the next collapse comes. We know gold was used a exchange and storage of value since the dawn of recorded human history and probably was for sometime before humans started recording history and it is still used now, which could be argued that it is of least use to modern society yet it has endured. Simply put gold while maybe not the greatest investment, is one of the most stable sources of wealth. If I have a million dollars today and I want the equivalent of a million dollars in 100 years, gold is one of the best stores of that value. That does not mean I will get a return on my money (i.e my money working for me) but it means I have reasonable faith that I will at least get out close to what I put in and that is what gold has been traditionally good for. I heard it said one that in the 1800's an ounce of gold would buy a man a finely tailored suit. Today and ounce of gold will buy a man a finely tailored suit and that is really the point of gold, it is not an investment, it is a fairly secure long term storage of wealth.
> do you really believe that people will begin taking delivery of their physical gold positions in their garages
They could set up a trusted storage facility to hold the gold in a vault for them. It isn't that hard to imagine. They could call it a "bank" if they really wanted to be traditional.
Just because you don't feel like being imaginative doesn't mean that people won't be when large amounts of money are on the line. People are downright ingenious when it comes to securing their wealth.
The problem of storing gold is the same as the problem of storing paper money, there is no difference. Have you tried storing a million dollars in your own home? It is not for the faint of heart.
There is no difference except that in a crisis gold will retain its value, and the stacks of paper money will only remind you of the better days.
Now, of course neither of them is optimal. The best way of maintaining your purchasing power is with a competent government. But that is even more rare.
Gold is very dense. $1M in gold is 25x 20-coin tubes of 1oz coins @$2000 per coin, which is probably around an 8" square surface area 6" tall. Bottom of pretty much any standing safe you can buy (typical gun safe, e.g.).
Most consumer gold trading is done in grams, tenths quarters and half an ounce, outside of numismatic (old real gold coins, not bullion) due to its insane cost, it's easier to move assayed grams@$50 than $2000 single ounce coins for "regular" people. Also because it's easier to fake in larger ingots and XRF devices are very expensive, smaller assayed quantities move fast and are traded heavily.
> Gold is very dense. $1M in gold is 25x 20-coin tubes of 1oz coins @$2000 per coin, which is probably around an 8" square surface area 6" tall.
Most/all Federal Reserve Banks have a "Money Museum" attached to them. They will have $1 million in one dollar bills, which is a cube approximately 3 or 4 feet on each side. They will also have $1 million in twenty dollar bills, which fits on a 2-3 foot in diameter table, stacked perhaps 12 inches high.
Lastly, they will have $1 million in one hundred dollar bills, which fits in smallish suitcase that's probably less than twice the size of your stack of gold and weigh hardly anything at all.
They are really interesting - you should definitely go to your nearest one when you can, not least for the free shredded cash they give out; you can have the most baller confetti at your next party.
Sure, neither can paper money be eaten. Well, it can, but it is not nutritious. All the problems of gold are the same with paper money, there's no need to type the wheelbarrow story again. And gold might've not been useful in germany, but other places did take your gold. No one took Reichsmarks.
If you are storing a million 'dollars' in assets then you are not storing a million 'dollars', you are storing assets currently valued at one million dollars OR also 500oz of gold.
The last one -- Bretton Woods -- happened at the tail end of WW2. I'd imagine WW3 or something equally destructive would be required to totally upend the system.
The dollar is the worlds reserve currency. It would start with the dollar being severely devalued. What happens after that is unpredictable. One thing holds true however, gold will still be valuable after that.
People have been using money since before recorded history, and bronze age technology is sufficient for gold to be used as reliable money. If any kind of financial system is to arise from the ashes of civilizational collapse, it will almost certainly use gold. So I wouldn't say "meaningless"... just not immediately useful, perhaps.
> Historically, gold isn't that great, but that's past performance.
Crikey. What performance counts as good in your eyes? Gold has been a pretty rewarding investment for the last 20 years. I think the median annual performance for the last 20 years has been something like 10% in USD (worthless metric for an investor I know, but the point is that most years are very solid up years). That is a pretty reasonable performer in my low-risk book. 2010-2014 represented an unusual bad time to buy gold in a decade long trend of great years to buy gold.
In terms of actual return it depends when you pick your start and end date; but the fact that we sometimes have major crisis was always totally predictable and the major governments responses have been reasonably predicable. The only surprise at the moment is the specific fact that it is a pandemic and in 2020. The price pattern on the charts is not surprising.
It’s only over short time periods that gold might look like a good investment. Inflation adjusted gold is flat over the last 40 years. That’s a real ROI of 0 from 1980 to 2020. Which means for every good investment someone else lost money.
Now it’s currently above the historic average so you do get 1% real returns from 1900 to 2020. But, stop in say 2010 and things look even worse.
There are extended periods when gold absolutely crushes everything, and periods when it is totally flat (or worse). In the long run, yes, it is a poor investment because it is an inert metal. But for certain periods of time it is absolutely a great alternative to bonds and equities.
> In terms of actual return it depends when you pick your start and end date
Exactly. The 20 years range is cherrypicked for to make gold look good, it doesn't generalize.
If you had bought stock (and reinvested dividends) at the top of the market in 2008, you would've been better off with stock today. If you had bought gold at the top in 2011, you would've been better off with stock today. If you had bought gold at the bottom in 2008, you would've been better off with stock today.
Really, the only times where gold would've outperformed (to date) in the last 50+ years is around the time of the dotcom bubble and the last ~2 years.
Realistically though, you're going to buy the market at its highs and lows, you're going to exit at some point when you need to, so it's highly subjective.
Peering 40 years into the past to inform investment decisions is fine as far as it goes, but I feel that the investment environment today is different from what it was in 1980.
Gold doesn't do much over a century, it's main property of interest is that it sits in an inert fashion wherever it is left. I'm not too surprised on worried if it has a near-0 return over 50 years.
I don't actually believe it has a positive return over the last 20 years either; but most people don't accept my "the inflation rate is meaningless, stop referring to it to value real returns" argument so I usually don't bother mentioning it.
One interesting advantage for UK buyers of gold coins specifically, is that if they're legal tender they're exempt from (Capital Gains) taxation[0]. Even if the gold content is worth significantly more than their face value, which is almost universally true.
This reminds me of the guy who paid his employees in silver dollars and paid taxes on the nominal value paid instead of the market price. He also ran a separate business that bought all the silver dollars back for the market price right next door.
It all went well for him until he started a payroll company to do the same thing in multiple states.
Although generally I agree with the thrust of this question, supposing someone is adequately prepared to weather the failure of the financial system to some anticipated recovery (and they are correct at predicting the recovery), then a failure is an opportunity to amass wealth by trading actual useful commodities for these bits of paper at extortionate rates, expecting to be able to collect a greater return once the recovery arrives.
That said, I'm mainly playing with a hypothetical here. I'm highly skeptical the system will outright fail simply because the majority of the wealth (and thus power) belongs to those with a deeply vested interest in not letting it fail and there's generally not much power owned by those who actively want it to fail. Fiat has worked this long, so why not longer?
When the chairman of the Federal Reserve becomes a prepper, then you know it's time to find a shelter.
And a lot of those papers saying that you "own" gold have similar issues compared to those that say you "own" stock/bonds… rehypothecation, leverage, liquidity, etc.
I guess it depends on whether the company with your precious metal in a vault chooses to honour your piece of paper or not. I guess the trick is to tap the "ship me my gold now" button before Mr Robot wipes their database.
More like whether the employees of the company who runs the vault realise that they aren't going to paid at the end of the month and simply run off with "your" gold. In a serious collapse it would seem the logical thing for them to do.
You could, but unless you have tiny 1gm slivers you'll find it hard to buy food with it.
For total meltdown SHTF scenarios soap, alcohol, cigarettes, chocolate, and maybe seeds are much more practical as barter currencies.
Even without SHTF scenarios, physical gold is a poor store of value because selling physical gold to a broker is an expensive business.
A lot of prestige gold coins are sold at a price premium which brokers will just ignore when buying from you. Even on weight alone, you're very unlikely to get anything close to your purchase price unless the price has gone up by at least a double figure percentage.
The real question is how bad the Covid recession/depression is likely to get. If you're assuming there's a depression-scale downturn then "paper" gold makes more sense than a lot of other investment classes.
There are many, many scenarios other than Business-as-usual and Mad Max. Look at how hyperinflation has played out historically. In Argentina in 2001, imported things like medicine became very expensive. People sold small amounts of gold for fiat when these kinds of expenses came up.
To be fair my comment up thread was wondering about a failure of the financial system - which I interpreted to be more like Threads than The Big Short.
Food spoils too fast. Guns and ammo are not legal to purchase for most. Fuel is a better asset, but takes a lot of space. One good thing about gold is that it's compact.
What kind of fuel? Everyone I know tells me gasoline/petrol will start to go bad in six months and will start damaging my car in two years. Crude oil will last millions? of years but we would need access to a refinery and like you said takes a lot of space anyways.
Depends on what you mean by food. If you have enough time, food can be multiplied. One potato, properly handled, can turn into a field of potatoes. One walnut, properly handled, can turn into a forest.
Speaking of apocalypse bunker, I think the movie 10 clover field lane is genius because I used to think how do people fall for seemingly obvious cult propaganda but if I woke up in a bunker and was told to comply I probably would as well.
I think the idea behind an apocalypse bunker is it will remain unsafe to go outside / farm using solar power for a few months to a couple of years but not forever.