4 ms·

If the current financial system fails how does it help to have bits of paper saying that you "own" gold in a warehouse somewhere?

jasode 6y ago
I didn't downvote your comment but a lot of regular people do buy physical gold (coins & bars)[1] and store the precious metals in a safe. That said, I don't know how much the gold price is affected by gold ETF vs physical transactions. [1] example of gold coins that are very popular with easy liquidity: https://catalog.usmint.gov/coins/precious-metal-coins/gold/ https://catalog.usmint.gov/coins/precious-metal-coins/gold/ [2] example of liquidity via ebay sales: https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+coin+us+mint+%221oz%22&_sacat=0&rt=nc&LH_Sold=1&LH_Complete=1 https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+co...
- tomalpha 6y ago
  One interesting advantage for UK buyers of gold coins specifically, is that if they're legal tender they're exempt from (Capital Gains) taxation[0]. Even if the gold content is worth significantly more than their face value, which is almost universally true. [0] https://www.royalmint.com/invest/bullion/discover-bullion/capital-gains-tax-on-investments/ https://www.royalmint.com/invest/bullion/discover-bullion/ca...
  - alasdair_ 6y ago
    This reminds me of the guy who paid his employees in silver dollars and paid taxes on the nominal value paid instead of the market price. He also ran a separate business that bought all the silver dollars back for the market price right next door. It all went well for him until he started a payroll company to do the same thing in multiple states.
    - refurb 6y ago
      Potentially kooky website (many gold bug sites are), but it has some details for anyone interested. https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-horrific-miscarriage-of-justice/ https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-hor...
baconandeggs 6y ago
It doesn't much. But you could own actual, uhm you know, gold.
- TheOtherHobbes 6y ago
  You could, but unless you have tiny 1gm slivers you'll find it hard to buy food with it. For total meltdown SHTF scenarios soap, alcohol, cigarettes, chocolate, and maybe seeds are much more practical as barter currencies. Even without SHTF scenarios, physical gold is a poor store of value because selling physical gold to a broker is an expensive business. A lot of prestige gold coins are sold at a price premium which brokers will just ignore when buying from you. Even on weight alone, you're very unlikely to get anything close to your purchase price unless the price has gone up by at least a double figure percentage. The real question is how bad the Covid recession/depression is likely to get. If you're assuming there's a depression-scale downturn then "paper" gold makes more sense than a lot of other investment classes.
  - dmm 6y ago
    > For total meltdown SHTF scenarios There are many, many scenarios other than Business-as-usual and Mad Max. Look at how hyperinflation has played out historically. In Argentina in 2001, imported things like medicine became very expensive. People sold small amounts of gold for fiat when these kinds of expenses came up.
    - arethuza 6y ago
      To be fair my comment up thread was wondering about a failure of the financial system - which I interpreted to be more like Threads than The Big Short.
Humphrey 6y ago
I guess it depends on whether the company with your precious metal in a vault chooses to honour your piece of paper or not. I guess the trick is to tap the "ship me my gold now" button before Mr Robot wipes their database.
- arethuza 6y ago
  More like whether the employees of the company who runs the vault realise that they aren't going to paid at the end of the month and simply run off with "your" gold. In a serious collapse it would seem the logical thing for them to do.
cinquemb 6y ago
And a lot of those papers saying that you "own" gold have similar issues compared to those that say you "own" stock/bonds… rehypothecation, leverage, liquidity, etc.
indigochill 6y ago
Although generally I agree with the thrust of this question, supposing someone is adequately prepared to weather the failure of the financial system to some anticipated recovery (and they are correct at predicting the recovery), then a failure is an opportunity to amass wealth by trading actual useful commodities for these bits of paper at extortionate rates, expecting to be able to collect a greater return once the recovery arrives. That said, I'm mainly playing with a hypothetical here. I'm highly skeptical the system will outright fail simply because the majority of the wealth (and thus power) belongs to those with a deeply vested interest in not letting it fail and there's generally not much power owned by those who actively want it to fail. Fiat has worked this long, so why not longer? When the chairman of the Federal Reserve becomes a prepper, then you know it's time to find a shelter.

jasode 6y ago

I didn't downvote your comment but a lot of regular people do buy physical gold (coins & bars)[1] and store the precious metals in a safe. That said, I don't know how much the gold price is affected by gold ETF vs physical transactions. [1] example of gold coins that are very popular with easy liquidity: https://catalog.usmint.gov/coins/precious-metal-coins/gold/ https://catalog.usmint.gov/coins/precious-metal-coins/gold/ [2] example of liquidity via ebay sales: https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+coin+us+mint+%221oz%22&_sacat=0&rt=nc&LH_Sold=1&LH_Complete=1 https://www.ebay.com/sch/i.html?_from=R40&_nkw=gold+eagle+co...

tomalpha 6y ago
One interesting advantage for UK buyers of gold coins specifically, is that if they're legal tender they're exempt from (Capital Gains) taxation[0]. Even if the gold content is worth significantly more than their face value, which is almost universally true. [0] https://www.royalmint.com/invest/bullion/discover-bullion/capital-gains-tax-on-investments/ https://www.royalmint.com/invest/bullion/discover-bullion/ca...
- alasdair_ 6y ago
  This reminds me of the guy who paid his employees in silver dollars and paid taxes on the nominal value paid instead of the market price. He also ran a separate business that bought all the silver dollars back for the market price right next door. It all went well for him until he started a payroll company to do the same thing in multiple states.
  - refurb 6y ago
    Potentially kooky website (many gold bug sites are), but it has some details for anyone interested. https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-horrific-miscarriage-of-justice/ https://www.fff.org/2013/12/09/the-u-s-vs-robert-kahre-a-hor...

baconandeggs 6y ago

It doesn't much. But you could own actual, uhm you know, gold.

TheOtherHobbes 6y ago
You could, but unless you have tiny 1gm slivers you'll find it hard to buy food with it. For total meltdown SHTF scenarios soap, alcohol, cigarettes, chocolate, and maybe seeds are much more practical as barter currencies. Even without SHTF scenarios, physical gold is a poor store of value because selling physical gold to a broker is an expensive business. A lot of prestige gold coins are sold at a price premium which brokers will just ignore when buying from you. Even on weight alone, you're very unlikely to get anything close to your purchase price unless the price has gone up by at least a double figure percentage. The real question is how bad the Covid recession/depression is likely to get. If you're assuming there's a depression-scale downturn then "paper" gold makes more sense than a lot of other investment classes.
- dmm 6y ago
  > For total meltdown SHTF scenarios There are many, many scenarios other than Business-as-usual and Mad Max. Look at how hyperinflation has played out historically. In Argentina in 2001, imported things like medicine became very expensive. People sold small amounts of gold for fiat when these kinds of expenses came up.
  - arethuza 6y ago
    To be fair my comment up thread was wondering about a failure of the financial system - which I interpreted to be more like Threads than The Big Short.

Humphrey 6y ago

I guess it depends on whether the company with your precious metal in a vault chooses to honour your piece of paper or not. I guess the trick is to tap the "ship me my gold now" button before Mr Robot wipes their database.

arethuza 6y ago
More like whether the employees of the company who runs the vault realise that they aren't going to paid at the end of the month and simply run off with "your" gold. In a serious collapse it would seem the logical thing for them to do.

cinquemb 6y ago

And a lot of those papers saying that you "own" gold have similar issues compared to those that say you "own" stock/bonds… rehypothecation, leverage, liquidity, etc.

indigochill 6y ago

Although generally I agree with the thrust of this question, supposing someone is adequately prepared to weather the failure of the financial system to some anticipated recovery (and they are correct at predicting the recovery), then a failure is an opportunity to amass wealth by trading actual useful commodities for these bits of paper at extortionate rates, expecting to be able to collect a greater return once the recovery arrives. That said, I'm mainly playing with a hypothetical here. I'm highly skeptical the system will outright fail simply because the majority of the wealth (and thus power) belongs to those with a deeply vested interest in not letting it fail and there's generally not much power owned by those who actively want it to fail. Fiat has worked this long, so why not longer? When the chairman of the Federal Reserve becomes a prepper, then you know it's time to find a shelter.