There’s a chance that these coins, though released as bullion coins, may start to take on a bit of collector’s premium, since they aren’t made any more. That doesn’t mean you need to rush out and buy every one that you can get your hands on, at any price. Most of the value of these coins will continue to be the gold metal content. If you want them for this reason, go nuts. If you can purcahase a few Gold Buffalos at a reasonable premium, then they are a good choice. Just don’t forget to keep them encased on a hard plastic shell, or you will scratch / scuff them pretty badly.

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It seems like the US public is getting very numb to huge numbers.  Figures in the tens and hundreds of billions just don’t seem that large, when we’re staring at a ~$2 trillion deficit for this year alone.  Add on a few billion here, and a few billion there, and no one seems to really care that much.  My question today, is simply, why?  Do we just not care, or is it that we don’t care because the money is imaginary?

What if we were spending in gold bullion?

Imagine, for a moment, that instead of borrowing money that doesn’t exist so we can overspend, the US had to use gold bullion from its reserves.  Take GM for example ( because it’s a well-known example, yet hardly the worst ).  Instead of the roughly $50 billion in digital ones and zeroes that we’ve poured into the company, imagine that we sent them about 50.8 million ounces of pure gold to keep them afloat.  Gold from the US reserves – once spent, it’s gone. 

Unlike our current fiat system, where we can continue to borrow more and more until the system implodes, you can’t borrow more gold.  Once it’s gone, spending stops. 

Would we care more if our money was finite?

That’s what I’m getting at.  If the US money supply was finite, and each dollar spent on X meant one less dollar spent on Y, would we all care more about where our money went?  Even if you don’t like the idea of a gold standard ( its usefulness is a debate for another time ), I can’t help but think that you’ll agree with me.  Thinking of money in terms of something solid and finite would help us all care more about spending. 

You can take this to heart with your own finances.  Don’t think of your various lines of credit as “money,” because they’re not.  Think only of the dollars you have on hand, and in the bank.  Quite a simple lesson that we can all take.  If only the US government would take note.

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This impressive coin contains .99999 fine gold ( 5 nines – incredibly pure stuff ) – 100 kilograms of it.  That’s 220 pounds of  pure gold.  The selling price is 5% over spot, which is very reasonable in this day of higher gold premiums.  At today’s gold price, the purchase price of this coin would be – you might want to sit down for this – $3,173,205.  That’s over three million clams.  American clams, at that – worth more than Canadian the last time I checked.

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Which of these would you rather have?  Lately, more and more folks have been picking option number two.  That’s right, these days many people are feeling more confident with an ounce of pure gold in their hands instead of a ( roughly ) a thousand bucks.  The spot price of gold is about $933 as I write this – add on a premium for the Gold Eagle pictured here, and you’re nearly at a cool grand. 

Advantages of Gold

Well, the dollar is in the toilet if you haven’t noticed.  Traveling abroad is absurdly expensive in dollars these days – nearly every major foreign currency is worth way more in dollars than it used to be.  Back here in the states, inflation is out of control.  Everyday things like food and gasoline are skyrocketing in price, week after week.  A dollar just doesn’t go as far as it used to, as they say.  Meanwhile, the shiny yellow metal ( AU for the nerdy types ) is up about 40% over the last year.  Over the past several years, gold has been an incredible store of value – that cannot be said for the dollar.  With potentially unlimited greenbacks available vs limited ounces of gold – which do you think has more “intrinsic” value?

Advantages of the paper stuff

My mortgage company doesn’t accept payment in gold coin or bar.  Nor does my grocery store.  Even my local coin dealer wants the green stuff in exchange for his wares.  The fact is, the green stuff spends a lot easier.  No need to convert it into another form of currency before spending.  I can also keep Federal Reserve Notes in the safety of my bank.  I don’t need to lie awake at night and worry about being robbed like I would with a big pile of gold.  If my bank gets robbed, then I won’t be held liable – my bank will keep my money safe.  Also, in the event of hyperinflation, I can burn my money to keep warm.  You can’t keep a fire going with gold coins.

I’m not crazy but…..

There are some pretty crazy “goldbug” types out there who are constantly preparing for the end of the world as we know it.  They stockpile gold, food, and guns, just waiting for the day when things really go south.  I’m not in that camp.  But at the same time, I have extremely little faith in the short-mid term future of the US dollar.  Gold, on the other hand, has been the world’s longest and most consistent form of money.  It’s been around for thousands of years, and won’t be going anywhere.  For now, I’ll continue to buy gold ( and silver ) when I have the extra greenbacks to spare.

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Saturday, I took my wife to my favorite coin shop ( ok, the only coin shop I’ve ever been to ) to take a look at a bit of gold.  Naturally we had to hit the ATM first, since coin shops only accept cash.  The margins are apparently pretty thin, so credit cards will destroy any chance they have at making a profit.

I decided to pick up two 1/4 ounce American Gold Eagles, rather than a single half ounce.  The quarter oz gold eagle is slightly smaller than a US quarter, though it’s noticeably heavier.  It also makes a very distinctive ringing sound when flipped into the air.  The picture isn’t clear at all ( remember, I’m bad with the camera ), but I got one 1999 and a 2002  issue coin.  The years don’t matter a bit to me; I’m just buying for the metal content.  Spot price was 917 when I bought, so that would be $458.50 for the half ounce.  The fee was 10% over spot ( a bit high, but then again I didn’t have to pay shipping ).  All in all a good buy, and one I was happy with.

Growing collection of precious metals

The last time I displayed my precious metal collection, it was quite a bit smaller.  Back then it consisted of just 8 ounces of silver and 1/10 oz of gold.  Here’s my collection today:

A bit different picture, isn’t it?  In that pile are 88 silver eagles ( I have 90, two didn’t make it in the picture.  I guess they were shy? ), 13.744 oz of “junk” US 90% silver, 1 1/10 oz gold eagle, and my two latest 1/4 oz gold eagles.  So that’s a total of 104.514 oz of pure silver, and 6/10 oz of pure gold.  Compared to many bullion collectors, it’s not very much at all.  But this time last year I didn’t own and silver or gold bullion – so I think it’s a great start.  Plus I’ve got my wife’s support too – more in that in a later post.

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What is this guy talking about?

Sure, you’re thinking it.  And the picture to your left doesn’t help at all.  The picture is actually an example of what I don’t mean.  Diversifying your cash doesn’t mean having $1′s, $5′s, $10′s, and $20′s sitting around.  Though the face value is different, each of those bills are really the same thing – US Federal Reserve Notes.  Same goes for the numbers in your bank account.  Just like the bills, your savings is subject to inflation, or the shrinking in value of the US Dollar.  The more time that passes, the less your cash is worth.  That, my friends, is why you need to diversify.

Gold and Silver can help

I know I’m on a precious metals kick lately.  But the fact is, they are a great way to diversify your cash.  Both gold and silver are legal tender currency ( in the form of American Eagle coins ) in the United States.  Granted, you shouldn’t spend them at face value, but the fact is that they can be used.  In other words, they are money, as real as the greenbacks in your wallet.  Really they’re a combination of money and an investment.  Following my investment rules – if you “buy them right”, you will do just fine.  Don’t overpay for gold and silver because they are shiny.  Pay a reasonable price for them, and they are a great diversification.

Precious Metals are Liquid

If you need greenbacks in a hurry, both gold and silver are very liquid.  A quick trip to your local coin dealer will turn your metals into cash in no time.  If you prefer, you can list your coins on Craigslist or Ebay as well.  Either way, it won’t take more than a few days at most to get some good old-fashioned money in your hands.

Hedge yourself against inflation

Don’t go out and empty your savings account to buy gold and silver.  At the same time, it’s smart to have a position of one or both.  As a general rule, as the US dollar decreases in value, gold and silver increase.  By the same token, when the dollar increases in value, gold and silver decrease.  By owing both, you create a balanced system of hedges.  You won’t get rich this way, but you won’t see your savings destroyed by inflation either.

Take a percentage of your savings account and invest in metals.  The percentage you choose is up to you.  More metals = more risk, but a stronger hedge against inflation / a weak dollar.  A lower percentage means lower risk, but also lower inflation protection.  Only you can decide how much risk you are comfortable with.  I have been slowly buying metals over the past month, and plan to continue to do so.  Inflation is here to stay for now, and I don’t see a stronger dollar in the near future.  I am preparing myself for it as best I can.  You should do the same.

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Anyway here’s what arrived in the mail – 3 oz of silver, and 1/10 oz of Gold.  That 1/10 Gold Eagle sure is tiny, there’s no doubt about that.  I included a picture of it next to a dime for reference – it’s actually smaller than the dime.  Pretty crazy that I paid $97 for that isn’t it?  The really crazy part is that gold pieces just like this one are going for $130-$140 on eBay right now.  I could turn it for a pretty hefty short-term profit if I wanted to.  Of course, I would have to assume that the price of gold would drop such that I could get another great deal.  I’m not convinced of that, so I’m not a seller just yet.

Finally here is a picture of all the silver and gold that I’ve managed to get my hands on so far.  My current in-hand total is 8 oz of silver and 1/10 oz of gold.  I do have one more order on the way, though I’m going to be quiet about it until it arrives.  I’ll only say that I’m eagerly awaiting it’s arrival, so that I can add it to my growing collection.

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Here’s how to get the same deal

Here’s the company : 1st American Reserve, phone # 1-888-324-2646.  You’ll need the Vault Verification Number, which is ANRAGS308.  This ad ran in Freedom-NRA’s official journal from March 08.  You don’t need to be an NRA member to get the deal – though if you are, you can purchase a total of 5 Silver Eagles and 3 Gold Eagles.  Since I’m not much of a gun guy, I got capped at 3 silver and 1 gold.  I’m happy with the deal though – any time you can buy precious metals in American Eagle format, for less than spot, you’re getting a good deal.

Oh, and remember, if you do order one or more of the Gold Eagles, remember these are the 1/10 oz coins.  They are about the size of dimes, so don’t be alarmed when they are small . Once I get mine I’ll post a picture with both a dime and silver eagle for reference.

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Disclaimer: If you invest in gold, and lose money, then you’re on your own.  I’m not responsible for any gain / loss you may incur.  Invest at your own risk, and invest only money you can afford to lose.

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