Lots of gold chatter of late. I suspect I’m probably in the minority here, and trolls like Alphonse will tell me I’m no survivalist for expressing this view, but whatever. I’m not here to write only on the things you’ll all agree with me on, I’m here to voice my views, and to promote discussion and thought. I also stand to learn from reader input. This brings me to the subject of acquiring gold as a SHTF preparedness strategy. Don’t do it!
Let me preface my following statements with this: 1) gold is wicked cool, and if I could afford to have a small stack of 1 ounce coins sitting in a gun safe, I’d buy them; 2) these statements are NOT commentary on a fiat currency vs. a gold standard - that’s a different discussion; and 3) I love “junk silver” - not so much as a way to make a huge return, but because precious metals are just plain neat (plus silver is more affordable). Because some of my comments will be a response to “The Legend” that is Rawles, I should also state that I check his blog daily for good “how-to” technical chatter, but when he’s giving financial advice I shudder at the thought of people cashing out their retirement accounts in favor of gold-based “investment” accounts. Don’t do it.
First off, let me ask “Why?” Why would you want to stock up on gold for SHTF? To make a return off an economic collapse? For bartering purposes after TEOTWAWKI? To hedge against inflation? The only reasonable response to these questions is the latter - to hedge against inflation, but even then it should compromise only a small portion of your total investment portfolio. If your intent is to make money off an economic collapse you’re trying to time the market, which can rarely be done, even by the best. If you’re interested in bartering opportunites, skip gold altogether and buy REAL barter items - livestock, guns and ammunition, generators, canning supplies and such. Think in terms of what you’d rather have after TEOTWAWKI - gold or livestock? Gold or ammo? Gold or canning supplies? You can’t eat gold.
I’m sure the instant gold bumps up in value again I’ll be subject to a bunch of “ha! you’re WRONG!” comments, but I’m talking long-term investments here, not short-term, and gold has a lousy long-term investment return. Depending on when you buy, it could also have a horrific short-term return. My particular favorite is when gold goes down and people call it a “buying opportunity” but when stocks go down it’s an “I told you so.” I also enjoy it when they’re quoting sources and reports from “advisors” that are in the market of selling gold and gold stocks. Ya, they’re reliable sources *sarcasm*.
This being said, do I think we’re heading toward (or already in) a recession? Yes, I do. Do I think it’s possible we’ll see The Great Depression II at some point in the future? Yes, anything is possible - BUT, while you’re stocking up on gold waiting for it to happen, you’re missing out on serious returns on your money through other avenues. Further, if you think we’re heading toward economic collapse it’s a FAR smarter maneuver to instead pay down debt before buying gold. Have credit card debt? Paying that off is a GUARANTEED return of 12-15% (or more depending on your credit card) on your money. Have a mortgage? Paying that off should be the survivalist’s ultimate financial goal. Financial advisors often advise against paying your home off, because 1) it’s generally low interest debt, 2) it’s tax deductible interest, and 3) you’d get more return on your money by investing it in equities. My survivalist tendencies force me to disagree with financial advisors on this. Paying off your home means you have a GUARANTEED roof over your head regardless of what happens (except property taxes), and it provides a huge sense of security and peace-of-mind, the value of which is impossible to measure in dollars.
I could go into extensive investment analysis to prove my point, but who has the time for that? Particularly when this dude sums up my points for me:
The chart above shows the “real” return of gold over the past 200 years. (”Real return” simply means its return after taking inflation into account.) It’s a telling picture. Far from being one of the “most protective and profitable investments” available, adjusting for inflation reveals gold’s true virtue: as a store of value, rather than an investment. Adjusted for inflation, a dollar invested in gold at the beginning of the 19th century has been worth roughly a dollar ever since. There have been highs and lows ($4.26 in 1980, $0.58 in 1969, both reflecting government interference with the gold market as much as anything), but what’s rather remarkable is the consistency with which gold has stayed at roughly the same inflation-adjusted value. This has been true for centuries—it’s said that an ounce of gold has been able to purchase a man’s suit of clothing since Shakespeare’s time, and that’s still the case today.
As an investor though, you should have much higher aspirations than merely keeping up with inflation. After all, that’s just treading water—you haven’t gained any purchasing power. You can do better. Much, much better. According to Jeremy Siegel, a dollar investment in gold way back in January of 1802 would have grown to just $1.62 by the end of 2005.* Contrast that with the growth of other investment types: T-bills would have grown to be worth $293, bonds to $1,083, and a dollar investment in stocks would have grown to be worth a staggering $666,180. Not a thousand times better than gold. Not 10,000 times better than gold. But more than 400,000 times better than gold!
So, go ahead and convert your IRA into a “gold IRA” if you want, just know that as you’re putting money into gold’s already high prices, you’ll be missing out on buying stocks with falling prices. Plow all of your money into gold coins if you’d like, but they won’t serve you well when retirement comes. Go ahead and slap your cash into more conservative bonds if you prefer, but that should only be done if you’re near retirement age. Otherwise you’re missing out on the better long-term performance that equities enjoy. Don’t try timing the market, even the pro’s can’t do that.
In summary, skip gold, build a cash emergency fund, pay down debt, and buy SHTF supplies that have real life uses. If you’re debt free, stocked to the gills, own stocks for the long haul, and STILL have money - send some to me! 
- Ranger Man
BTW: long-term joblessness is on the rise amongst middle-class workers (another reason to build an emergency fund) - see here.
BTW II: scope the SHTFblog Amazon “store” for books on personal finances. If a $15.00 book teaches you sound financial skills, it’d be the best $15.00 you could ever invest.
15 responses so far ↓
1 oldman in the boonies // Jan 22, 2008 at 8:20 am
In the late 70’s I made a ton of money playing the cash market on Junk Silver. Not only could you still find it in your change on a regular basis, most people didn’t understand what was going on, so they would sell you thier coins really cheap and you could wait for the next spike and sell it for a nice profit.
If anyone thinks gold and/or silver is good for anything but making Bling and playing a market I think they are badly mistaken. It can make you a stack of fiat money to buy REAL goods. You cannot eat it , shoot or burn it for heat. The coming world Post SHTF will still value Bling but FOOD and the means to get or grow it will be the real wealth.
Just My Humble Opinion
2 DW // Jan 22, 2008 at 12:38 pm
I think you might be missing the point about gold.
Don’t look at it as an “investment” but as a preserver of wealth during times of uncertainty.
We can use the examples of when the communists took control of Russia and China. What did it matter if you had put all your money into cattle? They all got confiscated, right?
Or how about Germany +/- , 1936-1944?
If you were a jew, was it better to have gold or some money in the bank?
Gold does have some major advantages.
It is VERY portable.
It is recognized to have value worldwide. (and has for thousands of years).
There is a reason for the saying:
Good as Gold.
3 ryan // Jan 22, 2008 at 1:44 pm
You are preaching to the choir as far as I am concerned. I think that getting a basic firearms battery (w mags n ammo) and a solid pantry is first. After that setting aside an emergency fund which is at least part cash on hand. Paying down debt and avoiding new debt is next. Gold can have a role in wealth preservation that spans various paper currencies however putting all of your eggs in that basket (or any other basket) is fool hardy.
4 EG 707 // Jan 22, 2008 at 1:46 pm
Rangerman I TOTALLY agree with you! I love Rawles but when he suggests cashing in pensions and putting half in gold and half in “Hi-cap” mags I worry that people are actually doing it!
Lets face it, the odds of a SHTF world are less than 5% (at best) the odds that you are going to retire and drop on your pension are 99%. Don’t gamble your future in gold. The market, real estate and debt obligations (CDs, Bonds, etc) are still valid relatively safe investments.
The only good gold will do you is buy you supplies from someone who has OVER-prepped and looking to make money after the eventual stablization (if applicable). However, if the asteroid hits and there is no hope for stabilization… your gold is worhtless. Buy an extra case of Mountain House. People will be trading anything they own to keep their kids from starving. But only rich fat-cats will be willing to trade food for gold. Food-Ammo-Water. That is your barter ABCs. Gold is just pretty and fun to buy.
Love the BLOG, keep it up!
5 Iso // Jan 22, 2008 at 4:04 pm
The recession is here, and has been since last year. Gold is a great way to secure your future during troubled times, such as these. After this depression, the market will be the place to be. Therefore, you cash in your gold for the “new” dollar, amero, or whatever and start playing the market. When everyone exits gold, the price will drop, so make sure you’re there at the beginning. There is no strategy that will allow you to leave your money in one place forever and actually profit. Banks and CD’s, if your lucky, keep up with “government stated” inflation.
6 ryan // Jan 22, 2008 at 6:41 pm
After the gold bubble bursts in the next few years I might pick up a few ounces. By then I will be done buying guns and food for awhile. Though I admit buying it would be more because it is cool then for worth while reasons.
7 Half Elf // Jan 22, 2008 at 8:07 pm
Bad recession news. It is defined as 2 consecutive quarters of “Negative” growth, not a market adjustment, and shake out inspired by paranoia involving government interference in the free market. When the US congress declared the practice of “red flagging” to be discriminatory, and required lenders to loan money to people they wouldn’t give money to, the lenders covered their asset’s, and attempted to turn a profit. Where is the crime in that?. Todays market is influenced by those mistakes, and the speculators who buy up oil and real estate backed futures hoping to get rich today, and to hell with every one else.
In regards to the idea of being unemployed for a extended period of time I am not impressed with the article, and think both of the subjects got what they earned by either not managing their time/lives correctly, or walking away from one job, and expecting some one to want them, but the first women didn’t even seem to list skills, let alone a work ethic.
DUDE’S DEAL WITH CRAPPY JOBS ALL OF OUR ADULT LIVES, AND DO NOT WALK OUT ON A PAYCHECK UNTIL ANOTHER ONE IS FOUND
RANT OFF: In my world you don’t let go of the vine you are on until another one is in your grasp, because gravity sucks always.
8 Rushman // Jan 22, 2008 at 9:44 pm
I have to agree with you. Gold looks cool but you got to look at the long run. The Market always bounces back. Your money buys more stock when the market is down. The money your 401k is losing right now is just the value of the shares you own. You don’t lose shares. The market came back after the great depression of course they took everyones gold which they can still do……
9 BigBear // Jan 22, 2008 at 11:34 pm
If you really need gold then go out and find it. There are plenty of producing placers in this county. Get an old map, a shovel and a pan and get after it. It’s fun and a great feeling when you actually find something. Plus you don’t have to buy the gold, all profit.
Junk silver can be found in any church yard with a metal detector. Again, fun and it gets you out of the house.
10 Ponce // Jan 23, 2008 at 2:55 am
Oldman? like you I made almost 3/4 of a mill with silver back in 1980…
I now once again hold silver but as a survivalist tool and now and not as an investing…
I am using it right now to purchased my gasoline, my cost per gallon is of $1.06 per gallon when paid with my one oz round silver coins.
At this time the ratio of silver to gold is about 54/1 when the historical ratio should be of 16/1….. invest in silver and you wont be sorry.
11 RB // Jan 23, 2008 at 5:57 am
You are totally right. Pay down as much of your debts as possible. when you are debt free, and own you house you are now like JamesD, but living in a house with a good paying job. You can now use your wages un-hundered to pursue your dreams, be they prepping, or saving for a cabin somewhere. The key part - you are now working for you - not to pay off debt. If the economy tanks, then you can take a lower-paying job, or live off savings for a while. (Savings go a looong way when you’re not paying off big debts). I think the potential for a SHTF recession for a few years is a much more realistic thing to prepare for now, rather than End of Times.
12 Kennedy // Jan 25, 2008 at 5:10 am
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13 TheGunGeek // Feb 15, 2008 at 1:54 pm
I’d rather be like the farmers during bad times that barter their food for heirloom jewelry. If times get bad, I’d rather be taking in gold and silver for excess items I have than “spending” it.
Besides, most of the unwashed masses have no clue how to tell if your gold or silver is real, they do not know that some coins have silver in them and can’t tell them apart by looking at them, and they have no clue what it’s worth even if they did know these things. Why would they take your precious metals in exchange for things they have unless they were sure they could use it to get other things from other people?
I just don’t see any practical use for it as a barter medium for when the SHTF.
Also, historical gold/silver price ratios don’t mean much. There are other uses for these metals other than investments and jewelry. As demand changes, the ratio varies greatly. One of the biggest traditional demands for silver has been in photographic film. How’s the demand for that doing these days? That can significantly alter the ratio as the price for silver drops without a corresponding drop in the demand for gold.
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15 boltcapt // Jun 25, 2008 at 1:06 pm
Just a thought … It’s all about momentum and timing. In my view, the deterioration of TWAWKI will occur over a finite period of time. During that time (which may be really short or stretch for a bit of time - even after many recognize that the end is rushing upon us) there will be a phasing of commerce from today’s world of plastic, to the world of barter for basics. During that phasing there will be the opportunity to take advantage of each of the “currencies” discussed in this thread. First, there will be a notably short period of time where plastic will still get you something; then another short window for the ubiquitous personal check; then folding money; then precious metals; then barter goods. The rapidity and depth of the “crash” will dictate the time periods during which each of these currencies retains some value. I, therefore view this not as a which, but rather as how much of each to hold. The key is clearly to exhaust each before it becomes worthless.
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