While there's no shortage of opinions out there about the idea of owning gold and silver for a potential financial collapse, I have to admit that I have no idea what will happen in the future. I sure hope everything will be fine, but in case it isn't, I suppose it makes sense to be prepared. For many, that means owning gold. For thousands of years, gold has been considered a store of value. Despite what Ben Bernanke told Ron Paul, many around the world consider gold to be real money as opposed to fiat currency. I don't consider myself a "gold bug" or a serious "prepper", but having some precious metals around as a diversifying investment makes sense to me.
One way many investors are getting exposure to gold is through the SPDR Gold Shares (GLD). There are some benefits of investing in gold through this wildly popular exchange traded fund, such as ease of trading, low acquisition and disposal costs, and liquidity. One of the biggest attractions to the fund is that it is backed by physical gold instead of tracking the price of gold through derivatives. The website for GLD is interesting and should be reviewed by anyone interested in the product. This ETF is great for those who wish to have a diversifying alternative item on their portfolio statement. However, for those who want to own gold as a hedge against a future financial collapse, this makes no sense. GLD may be backed by gold, but all you really have when it comes down to it is an entry in a computer somewhere. If there were big enough problems to where we all need gold to survive, a brokerage statement will be good for starting a fire and little else.
Along the same lines are the gold mining stocks and exchanged traded funds such as the popular Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold Miners (GDXJ). These can be great trading vehicles in a brokerage account, but offer little protection against a dollar decline, inflation, or worse.
I have always felt that the best way to own gold is to really own gold. The most popular way is through gold coins such as the American Eagle, but gold bars, collectible gold coins, or jewelry can work just fine. There are three primary problems with owning physical gold. First, where do you store it? A safe deposit box at the bank may not seem so safe if the bank is closed. Storing it at home is probably better, but should be secured from events such as theft or a severe weather event. The second problem is liquidity. Buying and selling physical gold generally involves dealer markups that can be relatively substantial. There are numerous sources on the internet available, but I tend to use the local dealer here in town. Yes, I know there are better ways to do it, but I still like to see what I'm buying and have a local relationship for such things. The third problem is that an ounce gold coin is worth $1,675 as of this writing. How do you divide that up to barter for a loaf of bread? Perhaps adding a little silver to the collection for smaller items is a good idea.
There are a couple more benefits of owning the physical gold. Most importantly, daily fluctuations in the price are not as subject to rash psychological decisions that are often made when an investment can be bought or sold with a mouse click. Every time precious metals take a nasty spill in the market, I have opened up my stash and, miraculously, it is still there in the exact same size and weight. The markets had zero effect on the physical attributes at all, amazingly. The other benefit is that there is nothing like holding real gold in your hand. The look and feel is like nothing else and with many people, all it takes is to actually see and feel it to make them appreciate it. It tends to make a person want to keep it.
For those that are worried about price fluctuations, why not just divide your desired purchase into a few months and buy it over time? For example, buy an ounce a month for six months and there you go - $10,000 invested at some average price.
Gold can and has gone many years at a time without a significant appreciation in value, (but then again, so has the S&P 500), so it's important to remember why gold was purchased in the first place. GLD and the like are just fine for trading gold in a portfolio, but for long-term, multi-generational gold investing, nothing beats the real thing. And just imagine the look on your friend's faces when you pull out your 1908 Walking Liberty $20 gold coin to use as a ball mark on the golf course!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.