Why "Physical Gold or Silver only" and not GLD or SLV?

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Topic Author
cobra911
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Why "Physical Gold or Silver only" and not GLD or SLV?

Post by cobra911 »

This is not necessarily a true BH discussion, but considering the USD has the debatable potential to lose its status as the Global Reserve Currency in the future, I think it is worthy of discussion. First: All the "Physical Gold/Silver" bullion sellers out there tout owning ONLY the metals... NOT the paper like GLD, SLV, etc. Their argument is, only the metal will retain "true tradable value" when the various "Fiat" currencies out there eventually become worthless. Physical Gold/Silver will be the only form of "real money" tradeable in quantities that are realistic to buy the services or products needed to survive. Ok... This is a stretch in my opinion and is NOT the question I pose here. The question is: Why wouldn't both GLD and SLV (or similar paper) also retain it's tradable value,(in fiat currency) similar to bullion, since their NAV is pegged to the spot price of Physical Gold and Silver (less cost & expenses of course)? What am I missing here? :confused
7eight9
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by 7eight9 »

3 Reasons Why Investors Should Avoid Gold ETFs
  • Counterparty Risk on All Levels
  • Trustee Trouble
  • No Exposure to Gold
https://www.forbes.com/sites/oliviergar ... c888ab4dd8
I guess it all could be much worse. | They could be warming up my hearse.
humblecoder
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by humblecoder »

The simple answer is that dealers of physical metals are going to tout physical metals because that's what they sell. I wouldn't expect a Ford dealer to tout a Dodge.

My opinion:

If you want to hold precious metals as diversification, inflation hedge, any investment reason where you are not worried about global financial market disruption, then holding the ETF is probably fine. In some ways it is better since you don't have to worry about the physical storage and I would imagine that liquidity is better.

If you want to hold precious metals because you are worried about the end of the world, you are an idiot. You can't eat gold. You can't wipe your butt with gold. You can't use gold to keep warm. At best, you might be able to use a gold bar as a weapon, but I would argue that you might be better off investing in bullets. I suppose you could melt silver into bullets to be used in case of a werewolf apocalypse, but that's a corner case that might not be worth hedging for.

If you want to hold precious metals because you are worried about some temporary disruption in financial markets, then holding the physical metals makes sense because people might still accept it as a form of barter while the country/world is getting back on its feet.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Anon9001 »

Honestly only extreme black swan events should make physical Gold or silver Relevant. If you aren't a person who wants to prepare for those rare events than you should not own Physical Gold or Silver.
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Lynx310650
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Lynx310650 »

I'm not sure why the USD losing its global reserve status (I think this is something that's still far far away and we'd probably see it coming) would necessarily mean a collapse of fiat currency or the global financial system.

There are countries that hold/held a similar amount of debt as the USA with their currency holding nowhere near its status as reserve currency that are doing fine like Japan or Italy.

I think as long as the erosion of the USD as a reserve currency is gradual, disaster will be averted. And the very fact that it is such an overwhelming reserve currency basically ensures that any erosion would be gradual because so many countries hold dollars as reserves. A sudden destruction of the USD would basically cripple global trade and destroy a lot of other countries as well. They'd do everything possible to prop up the dollar (along with the USA of course) in the short-term to make a transition to another currency as orderly as possible.

So envisioning such a scenario, where the USD does lose its global reserve status but it is gradual, I don't see the harm in holding something like GLD (along with international stocks) in a diversified portfolio.

That being said, I'd also disagree with the above poster that physical gold would be useless in an end of the world type scenario. I mean sure if the World suddenly goes Mad Max or Walking Dead then it'll probably be useless, but most of us wouldn't survive that anyway. But there are a lot of possibilities between our lives now and Mad Max.

If we face some kind of massive political and economic catastrophe like Venezuela, then I think having some physical gold would be useful. And I personally know that a lot of Vietnamese refugees were able to bribe/buy their way out after the war with gold, and a lot of them sewed gold into their clothes and used that to start their new lives in other countries. So these might be the type of scenarios where at least having some physical gold around could be useful.
mrtwstr
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by mrtwstr »

The mantra is "If you don't hold it you don't own it." As someone who does a ton of buying and selling of physical silver I will say you can hold it, you can own it, but sometimes that makes selling it harder ;)
humblecoder
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by humblecoder »

Lynx310650 wrote: Tue Nov 10, 2020 1:31 pm
That being said, I'd also disagree with the above poster that physical gold would be useless in an end of the world type scenario. I mean sure if the World suddenly goes Mad Max or Walking Dead then it'll probably be useless, but most of us wouldn't survive that anyway. But there are a lot of possibilities between our lives now and Mad Max.

If we face some kind of massive political and economic catastrophe like Venezuela, then I think having some physical gold would be useful. And I personally know that a lot of Vietnamese refugees were able to bribe/buy their way out after the war with gold, and a lot of them sewed gold into their clothes and used that to start their new lives in other countries. So these might be the type of scenarios where at least having some physical gold around could be useful.
I was that poster that you are disagreeing with. :happy

I actually agree with you 100%. Maybe I didn't express myself as well as you did, but my intent was to say "Mad Max scenario = gold worthless", "temporary political or economic disruption = gold good", which I think is what you are saying, too!
UpperNwGuy
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by UpperNwGuy »

If I were going to own gold, it would be via an ETF. The thought of owning the physical metal sounds both cumbersome and dangerous.
Pu239
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Pu239 »

For the real gold bugs it probably boils down to a trust issue with paper gold. Physical gold and silver is a necessity if you're a coin collector. Coins are much prettier to look at and more interesting than a brokerage statement.
Between the idea And the reality...Between the motion And the act...Falls the Shadow - T. S. Eliot
Blue456
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Blue456 »

humblecoder wrote: Tue Nov 10, 2020 1:07 pm The simple answer is that dealers of physical metals are going to tout physical metals because that's what they sell. I wouldn't expect a Ford dealer to tout a Dodge.

My opinion:

If you want to hold precious metals as diversification, inflation hedge, any investment reason where you are not worried about global financial market disruption, then holding the ETF is probably fine. In some ways it is better since you don't have to worry about the physical storage and I would imagine that liquidity is better.

If you want to hold precious metals because you are worried about the end of the world, you are an idiot. You can't eat gold. You can't wipe your butt with gold. You can't use gold to keep warm. At best, you might be able to use a gold bar as a weapon, but I would argue that you might be better off investing in bullets. I suppose you could melt silver into bullets to be used in case of a werewolf apocalypse, but that's a corner case that might not be worth hedging for.

If you want to hold precious metals because you are worried about some temporary disruption in financial markets, then holding the physical metals makes sense because people might still accept it as a form of barter while the country/world is getting back on its feet.
Just FYI, from someone whose family was affected by WW2. For Jews, year 1939 was the end of the word scenario. Gold was a way to get out of hostile countries. Holding equities at that time was pointless.
Lynx310650
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Lynx310650 »

humblecoder wrote: Tue Nov 10, 2020 1:44 pm
Lynx310650 wrote: Tue Nov 10, 2020 1:31 pm
That being said, I'd also disagree with the above poster that physical gold would be useless in an end of the world type scenario. I mean sure if the World suddenly goes Mad Max or Walking Dead then it'll probably be useless, but most of us wouldn't survive that anyway. But there are a lot of possibilities between our lives now and Mad Max.

If we face some kind of massive political and economic catastrophe like Venezuela, then I think having some physical gold would be useful. And I personally know that a lot of Vietnamese refugees were able to bribe/buy their way out after the war with gold, and a lot of them sewed gold into their clothes and used that to start their new lives in other countries. So these might be the type of scenarios where at least having some physical gold around could be useful.
I was that poster that you are disagreeing with. :happy

I actually agree with you 100%. Maybe I didn't express myself as well as you did, but my intent was to say "Mad Max scenario = gold worthless", "temporary political or economic disruption = gold good", which I think is what you are saying, too!
Yep!

FWIW I decided to keep a small amount of physical gold but mostly in collectible/fun type of coins (I don't mind the markup) as I like to collect coins anyway. Worst case scenario maybe it saves my life one day, otherwise it's something fun to pass on to relatives when I"m old and gray.
humblecoder
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by humblecoder »

Blue456 wrote: Tue Nov 10, 2020 2:32 pm
humblecoder wrote: Tue Nov 10, 2020 1:07 pm The simple answer is that dealers of physical metals are going to tout physical metals because that's what they sell. I wouldn't expect a Ford dealer to tout a Dodge.

My opinion:

If you want to hold precious metals as diversification, inflation hedge, any investment reason where you are not worried about global financial market disruption, then holding the ETF is probably fine. In some ways it is better since you don't have to worry about the physical storage and I would imagine that liquidity is better.

If you want to hold precious metals because you are worried about the end of the world, you are an idiot. You can't eat gold. You can't wipe your butt with gold. You can't use gold to keep warm. At best, you might be able to use a gold bar as a weapon, but I would argue that you might be better off investing in bullets. I suppose you could melt silver into bullets to be used in case of a werewolf apocalypse, but that's a corner case that might not be worth hedging for.

If you want to hold precious metals because you are worried about some temporary disruption in financial markets, then holding the physical metals makes sense because people might still accept it as a form of barter while the country/world is getting back on its feet.
Just FYI, from someone whose family was affected by WW2. For Jews, year 1939 was the end of the word scenario. Gold was a way to get out of hostile countries. Holding equities at that time was pointless.
That wasn't the end of the world scenario that I was thinking of, but you make a very fair point. My family was impacted by the Holocaust as well. My grandmother told me about several cousins that she had in Italy whom she never heard from after the war. Her assumption was that they died in a death camp.
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firebirdparts
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by firebirdparts »

Blue456 wrote: Tue Nov 10, 2020 2:32 pm Just FYI, from someone whose family was affected by WW2. For Jews, year 1939 was the end of the word scenario. Gold was a way to get out of hostile countries. Holding equities at that time was pointless.
To me it should be apparent that the 20th century was full of "extreme black swan events." Maybe we won't have any more.

I was just talking to an old friend this morning whose uncle fled East with some rich gal with (as in a novel) her jewels sewed into her clothes. They made it all the way to Vladivostock, where they made a deal to go to Japan to exit Russia. Part of the deal was he had to promise to spy on the USA.
For that reason, he was not able to enter the United States, and lived out the rest of his days in Mexico. I hate to even think about it, but in their case it was a little more comical and they lived happily ever after.
A fool and your money are soon partners
Topic Author
cobra911
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by cobra911 »

OP here. Firstly... Thanks for the fast replies. Greatly appreciated! That said:
Maybe I should have left off the USD losing Global Reserve Currency scenario. It seems that is how many interpreted my reason for posting the question. As mentioned, I too think that scenario is a "far fetched" outcome in the near/moderate future... and if it does happen, I agree it will be a long drawn out process. Now... Back to the original question "Why Physical Gold or Silver only and not GLD or SLV". The good article you attached (Thanks!) included:
3 Reasons Why Investors Should Avoid Gold ETFs
- Counterparty Risk on All Levels
- Trustee Trouble
- No Exposure to Gold

But still does not explain why GLD and SLV should not track Physical Gold and Silver? Granted, these ETF's could have all kinds of Counterparty/Third party risk. This would quickly become evident if the GLD/SLV share price deviated greatly fror the Bullion actual spot price as the two metals prices continued to climb. This would be a flag that something was awry and it would be time to bail out. Not having actual exposure to Gold, would be a secondary concern since I would only be interested in the USD value of the ETF's when I need my money out to buy goods/services. Does this make sense?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by halfnine »

Blue456 wrote: Tue Nov 10, 2020 2:32 pm
humblecoder wrote: Tue Nov 10, 2020 1:07 pm The simple answer is that dealers of physical metals are going to tout physical metals because that's what they sell. I wouldn't expect a Ford dealer to tout a Dodge.

My opinion:

If you want to hold precious metals as diversification, inflation hedge, any investment reason where you are not worried about global financial market disruption, then holding the ETF is probably fine. In some ways it is better since you don't have to worry about the physical storage and I would imagine that liquidity is better.

If you want to hold precious metals because you are worried about the end of the world, you are an idiot. You can't eat gold. You can't wipe your butt with gold. You can't use gold to keep warm. At best, you might be able to use a gold bar as a weapon, but I would argue that you might be better off investing in bullets. I suppose you could melt silver into bullets to be used in case of a werewolf apocalypse, but that's a corner case that might not be worth hedging for.

If you want to hold precious metals because you are worried about some temporary disruption in financial markets, then holding the physical metals makes sense because people might still accept it as a form of barter while the country/world is getting back on its feet.
Just FYI, from someone whose family was affected by WW2. For Jews, year 1939 was the end of the word scenario. Gold was a way to get out of hostile countries. Holding equities at that time was pointless.
There are many reasons to own gold. However, in the modern era the idea that an American is going to use gold to escape America is a bridge too far even for me. By the time one needs gold to leave the USA it is already going to be too late. Americans without any foreign assets, any foreign citizenships, and sans a private jet are going to be persona non grata.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by klaus14 »

humblecoder wrote: Tue Nov 10, 2020 1:07 pm The simple answer is that dealers of physical metals are going to tout physical metals because that's what they sell. I wouldn't expect a Ford dealer to tout a Dodge.

My opinion:

If you want to hold precious metals as diversification, inflation hedge, any investment reason where you are not worried about global financial market disruption, then holding the ETF is probably fine. In some ways it is better since you don't have to worry about the physical storage and I would imagine that liquidity is better.

If you want to hold precious metals because you are worried about the end of the world, you are an idiot. You can't eat gold. You can't wipe your butt with gold. You can't use gold to keep warm. At best, you might be able to use a gold bar as a weapon, but I would argue that you might be better off investing in bullets. I suppose you could melt silver into bullets to be used in case of a werewolf apocalypse, but that's a corner case that might not be worth hedging for.

If you want to hold precious metals because you are worried about some temporary disruption in financial markets, then holding the physical metals makes sense because people might still accept it as a form of barter while the country/world is getting back on its feet.
Paper currency suffices for the last scenario.
000
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by 000 »

I suggest looking at the better (expense ratio, prospectus language) ETFs before making a comparison: SGOL, BAR, SIVR.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by willthrill81 »

GLD and SLV are easily traded, but as 7eight9 pointed out, there are risks with them. Physical gold and silver avoid those risks but carry risks of their own and have more trading friction.

If you're wanting exposure to gold and silver for the purposes of helping to stabilize your investment portfolio, then the ETFs are probably better.

If you're wanting exposure to gold and silver as 'insurance against the unknown', then physical metals are probably better.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by patrick »

7eight9 wrote: Tue Nov 10, 2020 12:53 pm 3 Reasons Why Investors Should Avoid Gold ETFs
  • Counterparty Risk on All Levels
  • Trustee Trouble
  • No Exposure to Gold
Gold ETFs do not have counterparty risk as normally defined, since they actually hold gold in trust rather than representing a contract to pay based on the price of gold. Bankruptcy of the trustee (or custodian or sponsor) would not break the ETF. However, there are also gold ETNs which do have such risk.

I would consider owning shares in a trust that holds gold to be exposure to gold. If you call that "No Exposure to Gold" you might as well also conclude that the Vanguard 500 Index fund has "No Exposure to S&P 500 Stocks" since you are only buying shares in the fund, not the underlying stocks.

In truly extreme scenarios where the financial system ceases to function, it would indeed be hard to access funds in gold ETFs. But the same could apply to the storage companies touted in that article. Would you still be able to access their web servers after the apocalypse? Would delivery services still be running to get the gold to you? Would the insurance companies still be functioning well enough to protect you in case someone thought it was the perfect time to steal the gold?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by JackoC »

humblecoder wrote: Tue Nov 10, 2020 1:44 pm
Lynx310650 wrote: Tue Nov 10, 2020 1:31 pm
That being said, I'd also disagree with the above poster that physical gold would be useless in an end of the world type scenario. I mean sure if the World suddenly goes Mad Max or Walking Dead then it'll probably be useless, but most of us wouldn't survive that anyway. But there are a lot of possibilities between our lives now and Mad Max.

If we face some kind of massive political and economic catastrophe like Venezuela, then I think having some physical gold would be useful. And I personally know that a lot of Vietnamese refugees were able to bribe/buy their way out after the war with gold, and a lot of them sewed gold into their clothes and used that to start their new lives in other countries. So these might be the type of scenarios where at least having some physical gold around could be useful.
I was that poster that you are disagreeing with. :happy

I actually agree with you 100%. Maybe I didn't express myself as well as you did, but my intent was to say "Mad Max scenario = gold worthless", "temporary political or economic disruption = gold good", which I think is what you are saying, too!
I also agree with that for those two scenario's. But if you look around the world, plenty of countries are neither in a Mad Max scenario (failed states) nor only temporarily disrupted. Many have chronic problems often centering around lack of clear property rights and rule of law. Paper assets are subject to government actions violating one or both those things, precious metals held oneself less so (this can get a little touchy from the implication that one would try to evade the law: in a rule of law society that's unethical, but is it really unethical to evade government affiliated shakedowns as a business person in Russia say?). Relatively few such countries are totalitarian enough to control who owns gold or prevent its use. Although, in the world as it exists now, foreign hard currency stashes may be a more practical alternative in those countries than gold.

Perhaps anti/pro-gold comes down sometimes to people with too little imagination (an outright end to society seems to be the only thing they can think of besides everything more or less OK) v people with too much (to dwell on all the other possibilities). :happy

Also, on the way to a dysfunctional system paper currencies would lose a lot of value in terms of gold before, or without there ever being arbitrary seizure of paper assets. For that kind of eventuality paper gold (even rolling a long position in the futures yourself rather than paying 0.5% to an ETF sponsor) would serve the purpose.

Whether the various possibilities are worth doing anything about is a matter of opinion.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by 000 »

JackoC wrote: Tue Nov 10, 2020 5:14 pm For that kind of eventuality paper gold (even rolling a long position in the futures yourself rather than paying 0.5% to an ETF sponsor) would serve the purpose.
FWIW you can get gold exposure via ETF for much less than 0.50% ER. Current cheapest is 0.17% ER: Gold ETFs.

Not sure if that is still more expensive than futures. I assume futures have a built-in storage cost because someone somewhere is storing the asset underlying the futures?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Blue456 »

halfnine wrote: Tue Nov 10, 2020 4:39 pm Americans without any foreign assets, any foreign citizenships, and sans a private jet are going to be persona non grata.
I disagree if Americans were granted refugee status there is plenty of democratic countries that would accept us.
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cobra911
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by cobra911 »

Pu239 wrote: Tue Nov 10, 2020 2:05 pm For the real gold bugs it probably boils down to a trust issue with paper gold. Physical gold and silver is a necessity if you're a coin collector. Coins are much prettier to look at and more interesting than a brokerage statement.
Trust or no trust of paper... Any SEC monitored/approved ETF with fraud exposed is prosecutable under the law. If "Physical Gold Bugs" reason that the terribly inconvenient metal just looks and feels good in their hands ... that's just plain weird! The ETF's like GLD or SLV (and all the others) are legally bound to deliver the comparable returns of bullion to their Millions of Investors (less fees and expenses)! Yes, the legalese verbiage in their prospectuses provides some loopholes... but cannot provide for out & out fraud. Look at JP Morgan just getting fined a billion $ for their Silver Spoofing scandal. Granted, it is nothing more than a slap on the wrist ... But their Credibility is CRAP in the world now.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by humblecoder »

JackoC wrote: Tue Nov 10, 2020 5:14 pm
humblecoder wrote: Tue Nov 10, 2020 1:44 pm
Lynx310650 wrote: Tue Nov 10, 2020 1:31 pm
That being said, I'd also disagree with the above poster that physical gold would be useless in an end of the world type scenario. I mean sure if the World suddenly goes Mad Max or Walking Dead then it'll probably be useless, but most of us wouldn't survive that anyway. But there are a lot of possibilities between our lives now and Mad Max.

If we face some kind of massive political and economic catastrophe like Venezuela, then I think having some physical gold would be useful. And I personally know that a lot of Vietnamese refugees were able to bribe/buy their way out after the war with gold, and a lot of them sewed gold into their clothes and used that to start their new lives in other countries. So these might be the type of scenarios where at least having some physical gold around could be useful.
I was that poster that you are disagreeing with. :happy

I actually agree with you 100%. Maybe I didn't express myself as well as you did, but my intent was to say "Mad Max scenario = gold worthless", "temporary political or economic disruption = gold good", which I think is what you are saying, too!
I also agree with that for those two scenario's. But if you look around the world, plenty of countries are neither in a Mad Max scenario (failed states) nor only temporarily disrupted. Many have chronic problems often centering around lack of clear property rights and rule of law. Paper assets are subject to government actions violating one or both those things, precious metals held oneself less so (this can get a little touchy from the implication that one would try to evade the law: in a rule of law society that's unethical, but is it really unethical to evade government affiliated shakedowns as a business person in Russia say?). Relatively few such countries are totalitarian enough to control who owns gold or prevent its use. Although, in the world as it exists now, foreign hard currency stashes may be a more practical alternative in those countries than gold.

Perhaps anti/pro-gold comes down sometimes to people with too little imagination (an outright end to society seems to be the only thing they can think of besides everything more or less OK) v people with too much (to dwell on all the other possibilities). :happy

Also, on the way to a dysfunctional system paper currencies would lose a lot of value in terms of gold before, or without there ever being arbitrary seizure of paper assets. For that kind of eventuality paper gold (even rolling a long position in the futures yourself rather than paying 0.5% to an ETF sponsor) would serve the purpose.

Whether the various possibilities are worth doing anything about is a matter of opinion.
Very fair points.

I think the bottom line is that any physical object (paper currency, ETF statements, gold bar, etc) has value because we, as humans, collectively agree to assign it value. That collective agreement varies depending upon all sorts of geopolitical circumstances. There are times when we are perfectly happy using green pieces of paper with pictures of dead people as currency. There are times when we will only accept bars made out of yellow metal in trade. There might even be times when we might only accept cans of beans or bullets. Hopefully none of us have to live through a time when the latter two situations exist.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Pu239 »

cobra911 wrote: Tue Nov 10, 2020 7:01 pm
Pu239 wrote: Tue Nov 10, 2020 2:05 pm For the real gold bugs it probably boils down to a trust issue with paper gold. Physical gold and silver is a necessity if you're a coin collector. Coins are much prettier to look at and more interesting than a brokerage statement.
Trust or no trust of paper... Any SEC monitored/approved ETF with fraud exposed is prosecutable under the law. If "Physical Gold Bugs" reason that the terribly inconvenient metal just looks and feels good in their hands ... that's just plain weird! The ETF's like GLD or SLV (and all the others) are legally bound to deliver the comparable returns of bullion to their Millions of Investors (less fees and expenses)! Yes, the legalese verbiage in their prospectuses provides some loopholes... but cannot provide for out & out fraud. Look at JP Morgan just getting fined a billion $ for their Silver Spoofing scandal. Granted, it is nothing more than a slap on the wrist ... But their Credibility is CRAP in the world now.
When someone doesn't trust Wall Street or the government, physical precious metals and other tangible assets make sense. An old saying from the gold standard years goes, "We have gold because we cannot trust governments". Physical gold gives a warm and fuzzy feeling to some that is unmatched by paper gold despite its drawbacks. Weird, maybe, but not everyone wants to deal with the hassle of regulators, lawyers, and the likes of JP Morgan.
Between the idea And the reality...Between the motion And the act...Falls the Shadow - T. S. Eliot
tmcc
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by tmcc »

cobra911 wrote: Tue Nov 10, 2020 12:47 pm This is not necessarily a true BH discussion, but considering the USD has the debatable potential to lose its status as the Global Reserve Currency in the future, I think it is worthy of discussion. First: All the "Physical Gold/Silver" bullion sellers out there tout owning ONLY the metals... NOT the paper like GLD, SLV, etc. Their argument is, only the metal will retain "true tradable value" when the various "Fiat" currencies out there eventually become worthless. Physical Gold/Silver will be the only form of "real money" tradeable in quantities that are realistic to buy the services or products needed to survive. Ok... This is a stretch in my opinion and is NOT the question I pose here. The question is: Why wouldn't both GLD and SLV (or similar paper) also retain it's tradable value,(in fiat currency) similar to bullion, since their NAV is pegged to the spot price of Physical Gold and Silver (less cost & expenses of course)? What am I missing here? :confused
OP, read about the MF Global failure in 2011.

if you get bored, skip to the part about rehypothecation, counterparty risk and how customer accounts were frozen through no fault of their own.

MF global was a widely used broker . MANY people held golf ETFs and gold futures as a risk hedge. this proved to be useless because the broker failed suddenly and violently. client settlements didnt fully complete until 2014..... they were frozen in 2011.

edit: client losses were returned at 100% after almost 3 years. (https://fortune.com/2013/11/15/how-mf-g ... and-found/)

these things can't happen if you physically have possession. people here say "oh that can't happen." it most definitely can and does happen.


https://en.wikipedia.org/wiki/MF_Global
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Forester »

My iShares gold ETF has gold stored & certified in London... I wouldn't want a gold fund with US vaults due to confiscation risk.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Scooter57 »

Blue456 wrote: Tue Nov 10, 2020 2:32 pm
Just FYI, from someone whose family was affected by WW2. For Jews, year 1939 was the end of the word scenario. Gold was a way to get out of hostile countries. Holding equities at that time was pointless.

[OT comments removed by admin LadyGeek]

But that use of gold is not what I would call an investment. It's an ultra-emergency fund for people with reasonable reasons to plan for extreme scenarios. I would not consider it as part of a portfolio meant to provide for retirement. You pay much too much of a premium to buy physical gold and lose too much on the other end selling it.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Pu239 »

Forester wrote: Thu Nov 12, 2020 12:16 am My iShares gold ETF has gold stored & certified in London... I wouldn't want a gold fund with US vaults due to confiscation risk.
Makes sense considering you're based in the UK. Confiscation risk is no longer a problem since gold doesn't back the currency and is not money.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by JackoC »

Lynx310650 wrote: Tue Nov 10, 2020 1:31 pm I'm not sure why the USD losing its global reserve status (I think this is something that's still far far away and we'd probably see it coming) would necessarily mean a collapse of fiat currency or the global financial system.
Once the market begins to sense any possibility of that, gold is going to go up. Not to the stratosphere, but people now reluctant to believe that could happen will then have gold's higher price as even more reason not to buy any. And so one as/if the possibility grows and gold's price rises, they will also at some point 'see it coming' but it will then be much more expensive to hedge. It's not the accomplished fact of a definitive change in USD 'global reserve' status, it's greater market suspicion that it *could* happen which would drive up the price of gold.

I think it's fair enough to say 'I'm willing to ignore that possibility so I'm not doing anything to hedge it'. In contrast a strategy of 'I'm not doing anything to hedge it now but if I see it coming I will' is a lot less credible. Unless it was accompanied by say a strict determination to buy gold if it breaks out above $X level, since there will never be a guarantee that the beginning of the big price rise (which will *likely* never happen IMO) is really due to unease over the USD. There will always be experts saying the gold price rise is a blip and just wait for it to come back down, and they could be right.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by firebirdparts »

Gold Already went up. Maybe we’re already there.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Kaktus »

It seems to me that holding gold ETF shares is a reasonable idea for diversification, but it is only fine as long as you keep it. If you want or need to really exit, for example during a time of extreme inflation in your country, then you get out your shares ( assuming the fund is solvent) in that country's weak currency. This is a dilemma it seems. I am struggling with this.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by dcabler »

Kaktus wrote: Fri Nov 13, 2020 6:08 am It seems to me that holding gold ETF shares is a reasonable idea for diversification, but it is only fine as long as you keep it. If you want or need to really exit, for example during a time of extreme inflation in your country, then you get out your shares ( assuming the fund is solvent) in that country's weak currency. This is a dilemma it seems. I am struggling with this.
Yep. Unless you're in a zombie apocalypse situation it isn't clear that your local grocery or airline is suddenly going to start accepting gold bars for payment. Absent that, there will always be an assigned value for gold in local currency, with the "exchange rate" subject to market conditions. But that's true for any physical thing be it gold, your house or cat food.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by halfnine »

Blue456 wrote: Tue Nov 10, 2020 5:59 pm
halfnine wrote: Tue Nov 10, 2020 4:39 pm Americans without any foreign assets, any foreign citizenships, and sans a private jet are going to be persona non grata.
I disagree if Americans were granted refugee status there is plenty of democratic countries that would accept us.
How many refugees did these democratic countries take in last year? What makes you think they are going to all of a sudden open the floodgates? As some who is a US expat and has citizenship in a few of these democratic countries I can tell you right now it isn't going to happen. Maybe a token few for diplomatic purposes. You feel lucky?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Thesaints »

halfnine wrote: Fri Nov 13, 2020 4:51 pm How many refugees did these democratic countries take in last year?
I do not have last year's data. In 2016 the EU took in more than two and a half million refugees.

Speaking of counterparty risk, how about the counterparty risk in stocks and bonds ?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by BJJ_GUY »

tmcc wrote: Wed Nov 11, 2020 4:42 pm
cobra911 wrote: Tue Nov 10, 2020 12:47 pm This is not necessarily a true BH discussion, but considering the USD has the debatable potential to lose its status as the Global Reserve Currency in the future, I think it is worthy of discussion. First: All the "Physical Gold/Silver" bullion sellers out there tout owning ONLY the metals... NOT the paper like GLD, SLV, etc. Their argument is, only the metal will retain "true tradable value" when the various "Fiat" currencies out there eventually become worthless. Physical Gold/Silver will be the only form of "real money" tradeable in quantities that are realistic to buy the services or products needed to survive. Ok... This is a stretch in my opinion and is NOT the question I pose here. The question is: Why wouldn't both GLD and SLV (or similar paper) also retain it's tradable value,(in fiat currency) similar to bullion, since their NAV is pegged to the spot price of Physical Gold and Silver (less cost & expenses of course)? What am I missing here? :confused
OP, read about the MF Global failure in 2011.

if you get bored, skip to the part about rehypothecation, counterparty risk and how customer accounts were frozen through no fault of their own.

MF global was a widely used broker . MANY people held golf ETFs and gold futures as a risk hedge. this proved to be useless because the broker failed suddenly and violently. client settlements didnt fully complete until 2014..... they were frozen in 2011.

edit: client losses were returned at 100% after almost 3 years. (https://fortune.com/2013/11/15/how-mf-g ... and-found/)

these things can't happen if you physically have possession. people here say "oh that can't happen." it most definitely can and does happen.


https://en.wikipedia.org/wiki/MF_Global
I don't see how owning a gold ETF through a retirement account has anything to do with MF Global. Prime brokerage accounts are different
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by halfnine »

Thesaints wrote: Fri Nov 13, 2020 5:11 pm
halfnine wrote: Fri Nov 13, 2020 4:51 pm How many refugees did these democratic countries take in last year?
I do not have last year's data. In 2016 the EU took in more than two and a half million refugees.
And how many of those have gotten asylum? And of those how many have those been welcomed with open arms? Like I said, do you feel lucky?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by gougou »

I think an important reason is that most physical trade of gold and silver coins/bars are not reportable to the IRS. For example, selling any amount of American Gold Eagles/Buffalos are not reportable by the dealer, so no 1099 will be issued for such sales. I imagine it must be pretty hard to keep track of the basis of every coin/bar that you purchased so I guess some people just didn't bother to do it.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Kaktus »

dcabler wrote: Fri Nov 13, 2020 6:57 am
Kaktus wrote: Fri Nov 13, 2020 6:08 am It seems to me that holding gold ETF shares is a reasonable idea for diversification, but it is only fine as long as you keep it. If you want or need to really exit, for example during a time of extreme inflation in your country, then you get out your shares ( assuming the fund is solvent) in that country's weak currency. This is a dilemma it seems. I am struggling with this.
Yep. Unless you're in a zombie apocalypse situation it isn't clear that your local grocery or airline is suddenly going to start accepting gold bars for payment. Absent that, there will always be an assigned value for gold in local currency, with the "exchange rate" subject to market conditions. But that's true for any physical thing be it gold, your house or cat food.
I think my point is that just when you need the most to capitalize your gold ETF, it may very well be the time when it is very bad timing to do so. With physical gold you are in a better position to choose where to sell it and what currency to trade it for.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by alpine_boglehead »

gougou wrote: Fri Nov 13, 2020 6:04 pm I think an important reason is that most physical trade of gold and silver coins/bars are not reportable to the IRS. For example, selling any amount of American Gold Eagles/Buffalos are not reportable by the dealer, so no 1099 will be issued for such sales. I imagine it must be pretty hard to keep track of the basis of every coin/bar that you purchased so I guess some people just didn't bother to do it.
In some other countries (e.g. Germany) selling physical gold is tax-free after a holding period of one year.

This is an important reason if you intend to hold gold long term, especially for a scenario of higher inflation. If the gold price nominally increases a lot (even if it stays the same in real terms), taxes will take a big bite out of your paper gold holdings.

Tax laws can change of course.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Maverick3320 »

humblecoder wrote: Tue Nov 10, 2020 1:07 pm The simple answer is that dealers of physical metals are going to tout physical metals because that's what they sell. I wouldn't expect a Ford dealer to tout a Dodge.

My opinion:

If you want to hold precious metals as diversification, inflation hedge, any investment reason where you are not worried about global financial market disruption, then holding the ETF is probably fine. In some ways it is better since you don't have to worry about the physical storage and I would imagine that liquidity is better.

If you want to hold precious metals because you are worried about the end of the world, you are an idiot. You can't eat gold. You can't wipe your butt with gold. You can't use gold to keep warm. At best, you might be able to use a gold bar as a weapon, but I would argue that you might be better off investing in bullets. I suppose you could melt silver into bullets to be used in case of a werewolf apocalypse, but that's a corner case that might not be worth hedging for.

If you want to hold precious metals because you are worried about some temporary disruption in financial markets, then holding the physical metals makes sense because people might still accept it as a form of barter while the country/world is getting back on its feet.
+1. I'll never understand buying physical gold because of the "coming apocalypse". If society breaks down, what good will that gold bar do? Will they shave off fractions to purchase food? And if gold keeps it's value, how long before someone bigger and badder simply takes it by force?
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by LadyGeek »

I removed some comments and a reply which resulted in a contentious political interchange. As a reminder, see: Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by KlangFool »

Maverick3320 wrote: Sat Nov 14, 2020 8:00 am

+1. I'll never understand buying physical gold because of the "coming apocalypse". If society breaks down, what good will that gold bar do? Will they shave off fractions to purchase food? And if gold keeps it's value, how long before someone bigger and badder simply takes it by force?
Maverick3320,


1) It is easy to understand. You can use your gold to go to some other functional society. See Vietnamese refugees. Or, folks getting out of Venezuela.


2) Folks that buy physical gold/silver are smart enough to get out before a total society breaks down.

3) There is a wide range of possibilities between no problem and total breakdown. For example, hyperinflation, Gold/Silver goes up by 10X to 30X.


4) Folks that have physical gold/silver typically store foods and other stuff too.


To each its own.

KlangFool
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Kaktus »

KlangFool wrote: Sat Nov 14, 2020 9:28 am
Maverick3320 wrote: Sat Nov 14, 2020 8:00 am

+1. I'll never understand buying physical gold because of the "coming apocalypse". If society breaks down, what good will that gold bar do? Will they shave off fractions to purchase food? And if gold keeps it's value, how long before someone bigger and badder simply takes it by force?
Maverick3320,


1) It is easy to understand. You can use your gold to go to some other functional society. See Vietnamese refugees. Or, folks getting out of Venezuela.


2) Folks that buy physical gold/silver are smart enough to get out before a total society breaks down.

3) There is a wide range of possibilities between no problem and total breakdown. For example, hyperinflation, Gold/Silver goes up by 10X to 30X.


4) Folks that have physical gold/silver typically store foods and other stuff too.


To each its own.

KlangFool
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by KlangFool »

Folks,

Physical Gold/Silver is a form of insurance. As per insurance, some folks do not believe they need it because the RISK does not exist for them or it is too low to matter. It is a great thing that many folks do not believe they need it. If and when the mass believes they need something, it will be unaffordable and unavailable.

I had bought a sufficient amount of Gold/Silver for my insurance need. It won't matter what happened to Gold/SIlver next.


KlangFool
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by halfnine »

KlangFool wrote: Sat Nov 14, 2020 9:28 am
Maverick3320 wrote: Sat Nov 14, 2020 8:00 am

+1. I'll never understand buying physical gold because of the "coming apocalypse". If society breaks down, what good will that gold bar do? Will they shave off fractions to purchase food? And if gold keeps it's value, how long before someone bigger and badder simply takes it by force?
Maverick3320,


1) It is easy to understand. You can use your gold to go to some other functional society. See Vietnamese refugees. Or, folks getting out of Venezuela.

This is likely to be valid for many countries, however, for logistical and practical reasons this is unlikely to be true for modern America. Furthermore, if companies aren't willing to employ otherwise qualified 50 year olds what makes you think a foreign country is going to want a penniless one that shows up at their doorstep.

2) Folks that buy physical gold/silver are smart enough to get out before a total society breaks down.

If it was true that people were smart enough to get out before a society breaks down then there wouldn't be any stories of those who used gold to escape. And, for those who escape before society breaks down, they won't need gold.

3) There is a wide range of possibilities between no problem and total breakdown. For example, hyperinflation, Gold/Silver goes up by 10X to 30X.

Yes. And this is the fundamental value in owning gold. The country bias that consistently shows up on this forum underestimates the possibility of alternative histories which have happened in other countries.

4) Folks that have physical gold/silver typically store foods and other stuff too.

True. But this doesn't do them any good if they try to leave the country.

Disclaimer: We are probably one of the most diversified on this forum. We don't even have more than 40% of our assets on one continent, currency, etc. and have plenty of "other stuff". But, if I lived in the USA (don't anymore) gold as a mechanism for escape would be a very low probability and high risk pursuit that would more likely end in disaster than just staying put.


To each its own.

KlangFool
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Kagord »

cobra911 wrote: Tue Nov 10, 2020 12:47 pm This is not necessarily a true BH discussion, but considering the USD has the debatable potential to lose its status as the Global Reserve Currency in the future, I think it is worthy of discussion. First: All the "Physical Gold/Silver" bullion sellers out there tout owning ONLY the metals... NOT the paper like GLD, SLV, etc. Their argument is, only the metal will retain "true tradable value" when the various "Fiat" currencies out there eventually become worthless. Physical Gold/Silver will be the only form of "real money" tradeable in quantities that are realistic to buy the services or products needed to survive. Ok... This is a stretch in my opinion and is NOT the question I pose here. The question is: Why wouldn't both GLD and SLV (or similar paper) also retain it's tradable value,(in fiat currency) similar to bullion, since their NAV is pegged to the spot price of Physical Gold and Silver (less cost & expenses of course)? What am I missing here? :confused
To answer this question, I believe people (gold bugs) are referring to US history.
5/1/1933 - All US citizens required by law to sell certain gold at $20.67 per troy ounce (as noted in the image below, Executive Order 6102, FDR)
1/30/1934 - US sets gold to a fixed price of $35/oz (over a 75% increase)

Let's pretend exchange traded gold bullion trusts existed in 1933, they would not have retained their value 9 months later because your broker would have liquidated those positions at the 5/1/1933 fixed price. Though the USD was brought off the gold standard 50 years ago, many countries still maintain gold bullion. Thus gold is deemed to have value, at least today, as it as been in many civilizations that have churned through thousands of years. If history is any indication of the future, gold's successful trend over previous failed fiat monetary systems, could serve as a discussion point in today's technology driven environment.

If you are trying to navigate the potential/eventual? Bretton Woods version 2 reset being discussed now (with unsustainable classes of debt in many countries) to preserve wealth, I have the same vexation. How (internationally where applicable) the USD, QE, deflation/inflation, stimulus, M1/M2, equities, treasuries, bonds, gold, and bitcoin play into that, well, if you can accurately predict in advance, please let me know.

Image
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by anoop »

I would only trust physical if bought directly from a govt operated mint like the perth mint. As such, I would also trust their ETF, AAAU.

Most mints don't allow direct purchase of bullion (US, Canada, etc.).
Last edited by anoop on Sun Nov 15, 2020 1:12 pm, edited 1 time in total.
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by finite_difference »

One benefit of physical gold and silver is that you can wear it.

If you invest in a gold ETF, the expense fee means you are literally owning less and less gold every day.

A single gold coin is $2k. If the recommendation is to own 5% of your portfolio in gold, that’s $50k on a $1,000,000 portfolio or about 25 coins. A little more than half a roll of quarters.
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Kaktus
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Re: Why "Physical Gold or Silver only" and not GLD or SLV?

Post by Kaktus »

halfnine wrote: Sat Nov 14, 2020 4:37 pm
KlangFool wrote: Sat Nov 14, 2020 9:28 am
Maverick3320 wrote: Sat Nov 14, 2020 8:00 am

+1. I'll never understand buying physical gold because of the "coming apocalypse". If society breaks down, what good will that gold bar do? Will they shave off fractions to purchase food? And if gold keeps it's value, how long before someone bigger and badder simply takes it by force?
Maverick3320,


1) It is easy to understand. You can use your gold to go to some other functional society. See Vietnamese refugees. Or, folks getting out of Venezuela.

This is likely to be valid for many countries, however, for logistical and practical reasons this is unlikely to be true for modern America. Furthermore, if companies aren't willing to employ otherwise qualified 50 year olds what makes you think a foreign country is going to want a penniless one that shows up at their doorstep.

2) Folks that buy physical gold/silver are smart enough to get out before a total society breaks down.

If it was true that people were smart enough to get out before a society breaks down then there wouldn't be any stories of those who used gold to escape. And, for those who escape before society breaks down, they won't need gold.

3) There is a wide range of possibilities between no problem and total breakdown. For example, hyperinflation, Gold/Silver goes up by 10X to 30X.

Yes. And this is the fundamental value in owning gold. The country bias that consistently shows up on this forum underestimates the possibility of alternative histories which have happened in other countries.

4) Folks that have physical gold/silver typically store foods and other stuff too.

True. But this doesn't do them any good if they try to leave the country.

Disclaimer: We are probably one of the most diversified on this forum. We don't even have more than 40% of our assets on one continent, currency, etc. and have plenty of "other stuff". But, if I lived in the USA (don't anymore) gold as a mechanism for escape would be a very low probability and high risk pursuit that would more likely end in disaster than just staying put.


To each its own.

KlangFool
On nr 1 if think the point was that many people feel it is natural to try avoid becoming peenyless (and that it is strange trying to belittle them)
On 2, sure, but it wouldnt hurt anyway
On 3, To me also this is the main reason. I dont have much experience of Walking Dead-scenarios. So I simply see it as the most simple way to have some cash eventually.
On 4, sure, but again, the idea with different assets is that they are useful in different situations. It is not saying that you should bring your guns and canned food to some other country, it is more to temper the mind numbing argument that "guns beats gold" saying that one doesnt automatically exclude the other. As you are very much into diversification you are aware of this.
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