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.
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 🙂
Random Useless Fact: Camels have three eyelids to protect themselves from blowing sand.
When all else fails, shine metals are pretty to look at too… Cheers to tangible assets!
Yeah, gold has been going up every year for the past decade except for this year, which means it’s probably a good time to start buying some. Last time I bought gold was at $1700/oz so I”m averaging down 🙂 Unlike a stock, buying more of it at a lower price doesn’t put one at risk of falling into a value trap.
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.
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.
Good job on that. My last ‘ouce’ coin was 2K few years ago. Anyway, good to ‘stash’ and use in the far future 😉
Hold on to yours as well and I’m sure it will go be worth more than 2K in the future. I’m expecting the price to increase to at least $1500 by this time next year.
Where do you buy gold from?
I bought mine from a local bullion dealer. There’s usually at least one in each large city. I’ve heard you can also buy them at some chartered banks but I’ve never tried. More info about the dealer I went to: https://www.freedomthirtyfiveblog.com/?s=vbce&searchsubmit=
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.
check out the Kitco forum board for siver, lots of suggestions on stores in canada and US.
I’ve browsed Kitco before, but didn’t realize they had a forum. Great resource. Thanks!
Gold and silver are always a good hedge against inflation. Just try to buy in at a good price .
Sure is 🙂 It’s always good to just have some for diversification purpose too.
Gold and silver can be a good investment if it is managed wisely.
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).
Thanks for dropping by Ian. 🙂 I think a small amount of gold can help reduce risk in a diversified portfolio. For example if someone has a 5% weighting in gold then even if the price of gold drops by 20% that’s only a 1% fall on the entire portfolio because 20% of 5% is 1%. And that’s in a worst case scenario because a 20% drop would put gold at roughly 900 USD per ounce and I don’t think it’s realistic to expect gold to consistently stay below $900/oz. But if we face another financial crisis where stocks and currencies lose value then gold could jump up by 30% or even 40%. So I think gold has more upside than downside at this point. Personally I like to maintain 1% to 3% of my portfolio in precious metals. Since gold and silver has gotten even cheaper this year I am looking at buy more to maintain my asset allocation. 🙂 Once I save up enough money I plan to buy some more physical gold. I like the new 2014 Canadian Howling Wolf Coin of 1 oz 99.999% pure gold. It has a slight premium over regular gold bullion but… Read more »
Gold and silver is the best investment ever if it is used very wisely.
Yes, totally agree. 🙂
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Hey Liquid, any reason why you didn’t consider buying a Gold ETF instead? Perhaps something like Sprott Physical Gold Trust (PHYS.TO) that allows you to redeems it in the form of gold bullion? I imagine there are pros(like no need to keep physical gold in a safe ort at home lol) and cons (like the management fee paid for the ETF). I am curious to know your thought process.
That’s an excellent question Moe. I do like the physical trust from Sprott as a financial product. If I had to buy a gold ETF I would probably pick either that or iShares (IAU). Personally the reasons I buy precious metals are for systemic emergencies and gifting.
An example of a systemic emergency is like the solar storm in 1989 that caused global communications blackouts and knocked out electricity from Hydro-Quebec’s power grid for half a day. If something like that happens again but even worse, it would be difficult to receive delivery of the physical gold from Sprott because there may not be a practical way to contact them. Also in times of extreme fear, the price of the commodity can be very different than the spot price on the market. The other thing is I already have a safety deposit box, so it doesn’t cost me extra to store additional bullion for now.
As for gifting, it’s easier and feels more personal to give someone a physical gift. Although stock certificates are rare these days and would make a great present to expose someone young to investing, lol.