Generally, investors buy gold or silver for one of three purposes: as an investment, as an inflation hedge, or for survival purposes. Investors who buy for investment purposes tend to view gold and silver as commodities, whose prices fluctuate because of supply/demand fundamentals. For example, in 1998 Warren Buffett completed the purchase of 129.7 million ounces of silver. Buffett’s purchase, which became legendary in only a few years, was probably for investment purposes. However, it may have been an inflation hedge; Buffett’s not saying. In fact, Buffett has said very little about his silver investment. One thing is certain, however, it was not for survival purposes.
Investors who fear inflation, either price inflation or monetary inflation (which causes price inflation), buy gold or silver as inflation hedges. During the 1970s, precious metals prices skyrocketed in response to price inflation that reached 13%. During the 70s, popular precious metals investments included everything from 1-oz silver rounds and pre-1965 U.S. 90% silver coins to 100-oz silver bars and 1-oz Krugerrands. When the Federal Reserve got inflation under control in the 1980s, much of the gold and silver bought in the 1970s was sold and the proceeds put back in paper investments.
Investors who buy for survival purposes fear the worst. Those fears include the Federal Reserve printing so many dollars that the dollar will become worthless, which is the history of all paper currencies not redeemable in gold or silver. Fear of a financial meltdown, which would close banks as in Argentina and Paraguay in 2002, is another.
Argentineans and Paraguayans who had to foresight to bailout of the banking systems and covert their assets to gold or silver were protected. Not only did banks close, but also when they reopened depositors were limited to the amount of money they could withdraw. Meanwhile, the Argentinean peso and the Paraguayan guarani sank in value. Shortly after those crises, Brazil defaulted on its international debt and its real sank.
Those are the kinds of situations that investors who buy for survival purposes want to protect against. In doing so, these investors buy gold and silver in forms that can be used for money or to barter for goods and services.
The best forms of silver for survival purposes are pre-1965 U.S. 90% coins and 1-oz silver rounds. The most useful forms of gold would be 1/10-oz Gold Eagles and 1/4-oz Gold Eagles. But, before going forward, it is imperative that we discuss which coins to avoid. That is because hundreds of web pages promote numismatic and collector coins, as well as foreign coins. Such coins are simply wrong for survival purposes.
If the time ever comes that gold and silver coins were again used as money, coins would be worth only their metal content. Numismatic (collector) premiums would disappear. Anyone using gold or silver coins to buy goods or services would not be asked, “What’s the mint mark on your coin?” Nor will they be asked, “When was it minted?” The question would be, “What’s the gold content?” Hand someone a St. Gaudens and tell him it contains .9675 ounce of gold, and it will be difficult–if not impossible–to convince him to accept it at more than .9675 times the price of gold.
Numismatic premiums are fleeting in normal markets. (See our Old U.S. Gold Coins page; you may also want to read our Myths, Misunderstandings, and Outright Lies page.) Numismatic coins are bad investments for the average investor anytime; for survival purposes, they are simply wrong.
If you ever need to use your gold and silver to buy goods and services, you will want silver coins and small gold coins. Additionally, those coins should have certain characteristics to ensure they are readily accepted. First, survival coins should be stamped in English. Most Americans do not read foreign languages.
Second, the coins should have their gold or silver contents stamped on them; except for the bullion coins, most do not. In an emergency, having the gold content stamped on a coin could go a long way toward causing someone to accept it.
If your furnace goes out in January, the local heating guy may have never seen a gold coin before. If you hand him a $20 St. Gaudens, how does he know it contains a little less than an ounce? If you try to get him to take British Sovereigns, how can you prove they contain .2354 ounce each? Try convincing the guy at the auto parts store that a French 20 franc contains .1867 ounce of gold.
Third, the coins you buy for survival purposes should contain amounts with which Americans are comfortable. We understand one-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce coins. Americans do not easily grasp the concept of .2354 ounce or .1867 ounce.
For survival purposes, avoid arcane foreign coins. (Although more British Sovereigns have been minted than any other coin, Sovereigns are not well known in the U.S.) Simply buy the popular modern bullion coins, the best of which are the American Eagles. They come in four sizes: one-ounce, 1/2-ounce, 1/4-ounce, and 1/10-ounce. For more information, visit Modern Gold Bullion Coins. (If you have been told that bullion coins are subject to confiscation and that old U.S. coins and/or foreign coins dated before 1933 are exempt, you really need to read Myths, Misunderstandings, and Outright Lies.)
Another plus for Gold Eagles: They sell at small mark-ups over the value of their gold content. Generally, Gold Eagles carry lower premiums than foreign coins of comparable sizes. And certainly, Gold Eagles are cheaper than old U.S. gold coins.
Finally, the question arises whether to buy gold or silver. Probably both, but if you are investing $5,000 or less, go exclusively with one-ounce silver rounds or circulated pre-1965 U.S. 90% coins. If you are investing larger amounts, say $20,000 up, you will probably end up with gold and silver.
If conditions were to deteriorate to the point that gold and silver re-emerged as the preferred forms of money, you would want lots of small coins. If you were buying canned food, you would need silver coins because gold coins, even 1/10-ounce ones, would have great value. If you have only silver coins and need something of high value, then you simply trade a larger number of silver coins.
At current prices, an investment in silver results in more than fifty times the bulk and weight than if the same investment were made in gold. Therefore, large investments in silver create storage and handling challenges for some people. If storage and handling is a problem for you, then go exclusively with 1/10-oz Gold Eagles for the first $5,000 or so. Still, try to have some silver coins on hand.
Although we prefer American Gold Eagles for survival purposes, Gold Maple Leafs, Krugerrands, and Kangaroos would serve nearly as well. We recognize that Maple Leafs, Krugerrands, and Kangaroos are foreign coins and that above we advise against foreign coins. However, Maple Leafs, Krugerrands, and Kangaroos are bullion coins that have the desired traits for survival purposes. They are stamped in English, come in convenient, well-known sizes, and sell at small premiums over the value of their gold content.
The choice of the form of silver for survival purposes is a toss-up between one-ounce silver rounds and circulated pre-1965 U.S. 90% coins. Rounds have their silver content and purity stamped on them. However, circulated pre-65 U.S. 90% silver coins once served as money and could do so again. Additionally, these coins circulated as recently as the late 1960s, and many Americans remember using them. Yet, pre-65 silver coins do not have their silver content stamped on them, but if the dollar were repudiated people would quickly learn the value of pre-1965 U.S. 90% silver coins.
If you are considering precious metals for survival purposes and would like to discuss the matter, call us at 800-528-1380. Our normal hours are 7:00 a.m. to 5:00 p.m. MST, Mondays through Friday. However, we often take calls before 7:00 a.m. and more often after 5:00 p.m. Sometimes we can be found in the office on Saturdays.