Oct 102013
 

The U.S. government is nearing its maximum borrowing capacity. If Congress can’t agree on a budget soon they won’t be able to raise the debt ceiling which could mean disaster for the economy. I don’t think anyone is expecting the US to default, but there will probably be a lot of uncertainty in the next week.

But one thing we can do in the meantime to protect ourselves against the risk of hitting the debt ceiling is to buy some insurance. So earlier today I went out and bought an ounce of gold for $1,400, and a 10 ounce bar of silver for $250. My purchase was from the VBCE in downtown Vancouver. They are a walk-in bullion and currency exchange business. They accept cash or debt card. You don’t need to show I.D. unless you’re buying a lot of gold/silver.

13-10-bullionbuy

I chose to buy gold because in uncertain times, gold usually does well. It’s currently trading at around $1,300/oz USD. I don’t think there’s much room for it to drop from here. This is my reasoning. First, we know that gold has been a store of value for thousands of years and that’s probably not going to change in our lifetime. So if gold can never drop to $0 then what is the lowest it can go? To tackle this question, have a look at this excerpt from a Globe and Mail article published a couple of months ago.

“Many major gold miners have since started reporting what they call their ‘all-in’ cost of production.
Last quarter, Barrick’s amounted to $919 an ounce, while Kinross’s totalled $1,072 an ounce
and Goldcorp Inc.’s hit $1,279 an ounce. …Big names like Barrick and Australia’s Newcrest Mining Ltd.
have embarked on campaigns to either sell
or scale back their highest cost development and exploration projects.”

So it appears the process of mining and getting 1 ounce of gold to market costs producers about $900 to almost $1,300. It wouldn’t make financial sense then for companies to spend more on production than what they’ll eventually get out of it. So if the price of gold falls below a certain point gold producers will start to mothball their mines and there will simply be less gold being produced.  But such a scenario would then put upward pressure on the price of gold since a reduction in the supply of newly mined gold in the market will certainly make gold more valuable. Earlier this year the price of gold dropped momentarily to ~$1200/oz but then bounced back up. I think the floor is around $1,100 to $1,200 per ounce, which is when gold companies will start to shut down their mines because it just won’t be profitable anymore to keep them running, and the supply vs demand will reach a price equilibrium that just can’t go any lower. So today’s gold price of $1,300 isn’t that much higher than where I think a sustainable floor is, but I personally believe there is much more room on the upside, especially if Ms. Yellen stays the dovish course with monetary policy 🙂

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Random Useless Fact: Camels have three eyelids to protect themselves from blowing sand.

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Phil
10/10/2013 12:35 pm

When all else fails, shine metals are pretty to look at too… Cheers to tangible assets!

Phil
10/11/2013 7:10 am

Last time I bought gold was back in 2001 or 2002 for $600 Cdn/oz. I’m going to wait a few more months before I decide if I want more. For now Cdn growth/momentum stocks have been returning me a tidy profit so until that changes and I take some profit to have some cash, I’ll wait. I do like the shiny stuff though – Cheers.

Pullingmyselfup
10/14/2013 3:57 am

Also unlike a stock, there is no growth, earnings, or expansion to gold itself. I’d offer that it hasn’t gone up for two years now. Not saying your purchase was wrong.

dojo
10/11/2013 5:49 am

Good job on that. My last ‘ouce’ coin was 2K few years ago. Anyway, good to ‘stash’ and use in the far future 😉

Blogging Banks
10/11/2013 5:58 am

Where do you buy gold from?

Franko
10/12/2013 4:08 pm

I’ve found GateWest Coin ltd. to have good bullion prices. I’ve only ordered from them by phone. Reliable but limited selection. Recently tried SilverGoldBull. Nice web store, bigger selection of shiny stuff, but prices are a few dollars higher. Anyone know where to pick up Britannias at a good price? Those are beauties.

Renée (@nickelbynickel)
10/12/2013 5:18 pm
Reply to  Franko

check out the Kitco forum board for siver, lots of suggestions on stores in canada and US.

Franko
10/13/2013 9:19 am

I’ve browsed Kitco before, but didn’t realize they had a forum. Great resource. Thanks!

Investing Pursuits
10/13/2013 7:11 pm

Gold and silver are always a good hedge against inflation. Just try to buy in at a good price .

Caleb
Caleb
11/27/2013 8:11 am

Gold and silver can be a good investment if it is managed wisely.

Ian H
11/05/2014 8:39 am

Curious about your thoughts on gold right now. It just dropped to almost $1300 CAD/ounce today and I’m wondering if you’re planning on jumping in for more, or if you’d recommend it to others? I read on FP that the Chinese are waiting for a 15% drop, which would put the price another $50-60 lower, before they jump back in for their annual buying trend (Lunar New Year).

Richard
12/02/2014 7:47 pm

Gold and silver is the best investment ever if it is used very wisely.

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