Tuesday, June 21, 2011

How Much Gold Should You Hold?

Short answer: as much as you can!


One of my blog's readers today emailed me on how to go about buying gold quietly.  I passed along my suggestions (short answer: coin shop).  The question provided the spark for today's submission.

For everyone, it all depends.  Some of the factors include:

(1)  whether or not you own any now, and how much
(2)  your net liquid wealth
(3)  your being able to store it safely
(4)  the balance of investments you currently have
(5)  your assessments of the financial and investment landscape ahead
(6)  how much your spouse will let you buy     :-)
(7)  silver?

There are others, but let's go through these factors one at a time.  Re (1), you would have to be VERY POOR in my book not to own any gold.  Yes, yes, I understand gold is expensive.  Gold can be bought in tiny quantities though if you have little money.  I am not sure where, but you can buy in tiny quantities (I think you can actually get little 5 gram and even 1 gram wafers).  With persistence you can find some 1/10th oz Gold Eagles, I have given them away to nephews and nieces...  A 1/10th oz Gold Eagle will set you back some $175, almost anybody can come up with that.  There is not really a good excuse I can think of for almost everyone not to own at least some gold, even if it is not much.  And I could argue that the economy and the twisted financial system we have should push relatively poorer people INTO a gold position.

Re (2), measuring your gold value divided into your NET LIQUID WEALTH (not counting your house, car, etc., but also taking into account current liabilities) may be the key metric for most people.  Let's just make up something for illustration.  Let's say you have a stable job, no major financial problems now and you have $10,000 in the bank.  Many personal portfolio managers (mainstream ones even!) say it's OK to have 5% - 10% of your net liquid wealth in gold.  In this example, that would be $500 - $1000 in gold.  MANY of us, and MANY at Zero Hedge would say this amount could be quite a bit higher (more gold), and I would agree.  In this example, if you bought an oz of gold, that would work out to $1540 + $70 (say) premium (American Gold Eagle).  You would then have $1540 in gold out of your $10,000 net wealth or some 15%.  I am personally at around 12% of my net liquid wealth in the PMs, and gold is 75% of that (platinum, silver and palladium in declining order make up the balance).  I am comfortable, for now, with 12%.  That will probably go up in time though, as income arrives to me.

Re (3), I (and others) say if you do not have it in your physical possession, then you don't own it.  I keep my gold in 5 different places...  I would be OK with anyone holding SOME gold in a safety deposit box there at the bank, but I would probably urge most to hide most of your gold somewhere securely.  Refer back to my earlier article about hiding your gold.  Some of my readers came up with some great suggestions...

Factor (4) is related to (2).  Gold is the best diversification there is.  Diversification is important.  If you already have a farm, for example, there would be less pressure from me to tell you to buy gold.  A farm is a nice hard asset (also assumes you don't have burdensome taxes or mortgage on it and that it is somehow productive -- producing income).  A farm, however, is not liquid.  You still need gold even if you won a farm.  If ALL you have are paper investments (stocks, bonds, money market accounts, etc.), then you need to go out and buy some gold immediately!

Re (5)  If you believe that we are close to being royally screwed by the apparently reckless and precarious financial landscape before us, then you will sleep better owning MORE gold than if you are an optimist.  I am a pessimist, that is why I hold a large amount (relatively speaking) of gold.  But, I can be optimistic too!  Platinum is for optimists...

It is best to have your spouse on your side!  So re (6), my wife grudgingly accepts the facts that the banksters and .gov are lying to us, so she allows me to buy.  Also, every time we take a vacation somewhere, I balance that expenditure by beefing up my gold holdings.  In this way, I can at least keep adding to real savings even if we spend money...

(7) Silver...  (I was hoping by now to have a Guest Post by an expert on silver.  I will reach out to the three I know who know a lot about silver to write an article for me, I do not feel I can do silver proper justice)  I really prefer gold to silver, but do recognize that silver is also a wealth preservation mechanism too.  Silver is more volatile, and is used by industry.  The silver experts I "know" can probably make "fundamental" arguments about how few oz of silver there currently are.  If you LIKE silver well OK.  Maybe the best balance would be to own more $$$ value in gold, but to own more oz of silver.  Silver might be better spending money in a TEOTWAWKI as well.  But, gold will carry your wealth through it (assuming that there IS a world after TEOTWAWKI...).

Even mainstream personal money advisers say it's OK to have 5% - 10% in gold!  And yet how many people actually have that much?  There are only TWO people I know (other than myself) who have over 5% in PMs...

And as DoChenRollingBearing is fond of saying: as money comes in, I take a part of that dough and buy GOLD with it!  Sounds like pretty good advice to me...


  1. Hey Robert, It's been a while. Deadlines are killing me. I liked the article. My wife is on board with the gold and silver stacking so no worries there. We try to keep the bulk of our savings in PMs. With all of our liquid or semi liquid assets, we probably have close to 20% in PMs. That's about half gold and half silver. We just moved the kids' college funds into PMs and we had fun letting the kids pick the coins they wanted. We store our stash in several different places. None of them is anywhere near a bank. We don't do palladium or platinum but for a kick I did buy some 1oz copper coins. I didn't buy many but they are up about half again what I paid.
    Keep up the good work. (I read you blog daily, just haven't had time to post lately).

  2. Interesting post. I put 18% of my family wealth into gold mid 2009 when it was $800 an ounce and am very happy with my decision.

    I most certainly would not do the same thing again as although I think gold has a lot higher to go, I do not think it is the bargain it was and some corrections (aka manipulations) may occur that would prove to be a good time to pick up larger quantities. But I agree with the maxim: as money comes in buy some gold.

    Personally I have all my wealth in gold, silver and a couple of diamonds (picked up very cheap when the recession first hit) in expectation of eventually getting married.

    I like silver even though I got bummed during the last 'correction' in May. I am certainly no expert but have read that due to supply constraints (COMEX warehouse inventory has depleted by over 60%, from around 85,000,000 oz to 32,000,000 oz, in just two years), silver is a better bet in the shortterm whereas gold is better for the longterm holdings.

    If this is true, ideally one would ride the silver price surge and then change some/all into gold when you feel the ratio is at its peak (I heard a respected PM analyst say they thought silver:gold ratio would end up 1:5 due to shortage in supply).

    I didn't see any replies to my comment on USG interference in PM markets and guessed people were not interested in my paranoid ramblings. So I'm intrigued to know why Robert and Vernon would not keep their PM's in a bank?

  3. At any given time, meaning using the Dollar Cost Averaging, (if you post $xxx.00 to savings/retirement/one bucket or another) I have been doing 10% to PMs since 2007. Previous to that, it was just the 401k. After 2008 when the 401Ks became 201ks, I started really piling on the PMs. Still, I'd advocate ANYONE at any age to do 10% PMs - in the long run it's a winner.

    As to the split between gold and silver, do your own research. I know DoChen likes gold, I like silver - but this may be hair splitting - in the end, fiat papers will doomed - ANY PMs will save your ass. Good point gold is, easier to transport larger amount of wealth in lesser amounts of weight - down-point on gold, it was what they confiscated last time. Bad-point silver, after some accumulation you need a truck to transport it all. Just do your own research and decide which you like - in the end, there will be gold holders that need 'change' in silver and silver holders that need more compact means of transporting their wealth - BOTH are wonderful.

    The Navigator.

  4. As FOFOA says...

    buy as much as you are comfortable with!

  5. Jonny, it's a matter of trust. I do not trust the banks. I do business with a local credit union but they do not have any storage locally. The only local banks where I am that provide such a service are Wells Fargo, Chase and B of A. I will give my PMs away to strangers before I do business with those crooks.

  6. Vernon: as in you don't trust them per se so won't deal with them out of principle or simply fear they could go bust so you could lose access to your safe deposit box?

    Are there not private safe deposit box companies in the US that are not associated with banks?

  7. Jonny, (re: banks) both. There are private companies that will handle storage locally. It's not a safe deposit box exactly but very similar in function.

  8. My comment re safety deposit boxes would be that if you have a very insecure environment (eg, you have been burglarized before), then I have no problem with putting a part in a safety deposit box. PART!

    Vernon & Jonny, I am going to guess that the private vault companies would charge more than the bank. I looked at vaulting options in Switzerland and Austria, the cost was VERY HIGH. Strictly for high rollers with LOTS of gold to protect.

  9. If I were going on a trip for a couple of weeks, I would consider a FDIC bank box.

    But, the kicker is, the banks do, and have had items stolen from boxes by employees.Also, the IRS can open them anytime they want.
    Used to,
    to get into a box, you had a key, and a sign in was neccessary, and the bank had a second key.
    It was necessary for both to be used to gain access.

    No more(at least at my Bank),door to SD vault is wide open, single key(you have it).

    Then we have bank holidays(lol),forced holidays?.
    Storage with anyone except within your immediate grasp, is unacceptable to me.

    Insurance $$$ is insane, and you OUT yourself to the system even further.
    I will take my chances holding them,and so will anyone else thinking of relieving them from me.

    All(that I know of)99% of the banks have sold out when the Swiss caved, that ended them(Banks) as a storage of any type.

    Also expats all over have been getting Even their checking accounts closed!,and finding it almost impossible to open new ones.

    Simply because they are Expats from the US!

    As for Do's comment on how much you hold,depends on if you can sleep well at night.

    Personally I am at well over his 12%, and waiting for the mkt to freefall, and pick up another 15/25% more.(when you stop and think), you are only replacing 10%, 40% ,50%,etc of your current liquidity.

    What's left in frn's will be/is/most likely lost, or devalued/inflated to the point of almost being worthless.( the US $ has lost over 10% in the last 2+/- years.)

    The old safety net for exchanging US fiat, for a safer fiat, is now OUT the window.
    All are tied together.(the Global cabal is complete).

    Basically there are only three categories I can see to invest(insurance) in.

    Pm's,Oil, Farmland & only the strongest of the strong for any equities.(long term bet)

    At this point, I fear there are no, will be no even mediocre safe currencies left,when the smoke clears.

    As stated in a post yesterday, there are a lot more ways out of the US than on a commercial airline.
    That will be the route I would take.
    IF it get's as bad as it appears it WILL.
    Peru,Uraguay,Argentina(parts),Ecuador, would be places to look.(if Argentina,Bank in Uraguay),far safer.
    As for foreign passports/immediate citizenship,property ownership(actual) forget it.
    Unless your prepared to lay down $300/$450k from what I have been able to find out.And there are only two countries left where this is possible(as far as I have been able to find out).
    As DoChen has married a Peruvian gal, he has an automatic IN.
    Smart way that turned out brother!!.Also, anyone with mixed heritage, check into dual citizenship, or Expatting to the old country.
    A little coin, goes a LONG way in the countries mentioned.

    Anyone with more, better idea's post them please!.


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