The problem with Gold bullion

ARCO

I like Barber halves. Alright I have touched on a numismatic subject, now to my musings on the problems of gold bullion.

I love gold coins, and have maybe 15 ounces of gold mostly in bullion form (mexican Pesos, and world gold coins) so as a collector I enjoy the gold and appreciate that it does retain its value.

The biggest problem I have with gold bullion is that the network of buying and selling gold is sooooo small. Fiat currency (at least for now) works exponentially more efficiently than does gold. As far as I know every business place in the US pays in dollars and not gold. Every business in the US exchanges services or goods for dollars...not gold. If I go buy 25 ounces of gold thinking some emergency is coming and then it passes and I go to sell my gold, where do I go to sell the most stable value of money since the dawn of man and money? I have to go to a pawn shop or coin shop and even in a large metro area there are only a dozen buyers at best. In addition, there is no competition and if the pawn shop owner doesn't like my face, he can kick my ass out of his shop and I go home with my gold and no money to get home because I am out of gas. I don't like his offer? I either find another coin shop owner who is buying and accept his terms or no deal. Now, if I have cash, I can take it to anywhere, anytime, anyplace and buy what I need.

Now all that is fine for those who want gold. Reading the gold sites as they hawk their advice I wonder what planet they live on. Are they able to effeciently convert their gold for groceries, movie tickets and popcorn on a Saturday night, or a hot latte at the local coffee shop? It just seems odd that so many people want something that for all intents and purposes is grossly inefficient in day to day transactions and that can only be redeemed by pawn shop or coin shop owners...the dregs of society! Shouldn't the most consistent storehouse of money have other avenues of effecient buying and selling besides asking your local pawn shop owner what he is paying for gold and hoping he is in a good mood and is not in a custody battle with his "ex"?

I guess what I am trying to say is that gold seems useful not as a hedge against inflation (tell that to those who bought in on the rise in 79-80), but in the off chance that all of society devolves into anarchy and war and the goverment and all fiat currency fails. Then it will be worth thousands of those very self same dollars that all the gold bugs hate anyway!

I love gold. I love its heft and its color in coins and in bullion, but buying gold bullion as a "storehouse" seems a contradiction, when in today's enviroment, the means to sell or trade gold efficiently for other goods and services is nearly non-existant.

any other musings on the subject?

Tyler

Sequitur

Here's your man.

ychange

disagree, there are a few places to liquidate in a still civil society.

bullion can be sold online to places like Kitco , you can call, lock in your price that day, less than 1% back from spot prices. insure and mail them the gold within a specified period of time, (you'll need to put up credit card info on larger trades as collateral on the spread if you fall through on the deal), and you can have your check in a week.

bullion can be sold over ebay like water in the desert, it is a rare bar of gold there that closes for less than spot. of course, you need to weigh in the costs/risk of dealing with ebay/paypal, but at least you are not eating the shipping and ins., the money could be in your paypal/bank account the next day after a 1 day auction, even less with a fairly priced BIN!

bullion if bought at a low price can even be sold to street dealers at whatever % back of spot, and *still* net a solid gain. gold for cash, right there.

lastly, i found this one out the other day, Scotiabank here in Canada will accept bullion and gold coin as deposit!!

walk into the bank, deposit gold into account at the current market price. (i still need to try this one out, thinking of opening an account to give it a try.) i do imagine there is a hold on the funds, and i do not know their % back of spot, so this might be worse and more hassle than letting a dealer pocket 1% more per oz.

those ounces bought around $300 *can* be liquidated easily north of $400, and such should be the case as long as society as we know it plugs along.

if all hell breaks loose, that's why you own a home or land or guns. shiny metal wont mean much if you have no food, water, or gas, and no one is selling anyway! the gold is for the usual, yet not apocoliptic, devaluation of fiat currency over time and meltdown/bubble up cycles seen in any country's economy over a lifetime.

it *is* a hedge againt any paper or electronic recording of wealth.


*edit*: i should stop posting passed midnight...

MajorDuty

I'm kind of partial to platinum....

Ryana

<< <i>if all hell breaks loose, that's why you own a home or land or guns, shiny metal wont mean much if you have no food, water, or gas. >>



I agree. Also if things get bad and paper money collapses, there will be a lot more places to liquidate gold and silver. A barter system would probably develop as well. If things get really bad, guns and gas will be more valuable. The gas for making improvised incendiary devices.

ychange

me, i'm a big fan of nice clean well water.

was joking with a buddy the other day, saying there will eventually be "potable water" contracts traded on the commodities and futures market.




as for coins, i'm starting to like Barbers too, but only XF or less,..still think MS and PR pieces are weird looking.

gamer1958

<< <i>I guess what I am trying to say is that gold seems useful not as a hedge against inflation (tell that to those who bought in on the rise in 79-80), but in the off chance that all of society devolves into anarchy and war and the goverment and all fiat currency fails. >>



Welcome to life post-Bretton Woods. Once upon a time US dollars were convertible to gold; after 1933 US Dollars were still convertible to gold (at $35 an ounce) only if you were European. I believe there was a period in there that actually made it illegal for Americans to own gold; anyway Nixon took away the gold standard for good in 1971, and gold was allowed to "float" where it eventually was driven to $875 (?) or so in Mar 1980. Inflation was partially responsible--but so was speculation and political events (Shah of Iran/Ayatollah US hostage crisis).

I agree with you--gold is primarily a "disaster" hedge; I also consider it an inflation hedge (as long as you buy prior to inflationary periods). My own approach is no more than 5% of total holdings, diversified betwen bullion and mining companies; as you point out, the 1979-80 phenomenon would have been a very bad time to buy gold. On the other hand, in that same period, you could also have bought long-term Treasuries yielding 14%!!! As bad as things look, the world usually finds a way to muddle through, hence the trust in fiat money...

Agree that selling bullion can be a problem; in fiscal/political emergencies though, the theory is that if governments disintegrate and paper money becomes "worthless" you should be able to take those common-date worn-out silver dimes and quarters, the Krugerrands, whatever and buy your gas, bread, water, etc with it. The paper money gets used to light the stove....

thebeav

<< <i>The biggest problem I have with gold bullion is that the network of buying and selling gold is sooooo small. >>



I have to disagree with this statement. As a buyer, seller and schlepper for the last 26 years, I don't know anything that could be more liquid. Heck, my paper-boy will accept gold as payment.....

Paul

BigGreek

I own a little gold for mostly sentimental reasons.

But if you want to create a meaningful financial hedge I suggest you
look into either mining stock (their gold is in the ground) or the gold
equivalent shares which recently started trading.

I like mining stocks. I look for one's with lots of stuff in the ground and
which are not overly hedged themselves. Most even pay a small dividend.
If you want to also play against dollar weakness vs. other currencies,
look for companies with lots of holdings in the U.S. as it will be cheaper
for them to operate in USDs vs. offshore companies.

I see some good long term trends for gold. Short term gold rides high
on global instability: the little jerk in North Korea, instability in mainland
China and, ofcourse my favorite, the Middle East..

KentuckyJ

I would suggest you trade GLD, if you want to hedge or profit from the moves in gold. This is an ETF (exchange traded fund) = one of the "gold
equivalent shares which recently started trading."


KJ