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- How much gold should you own
- Six months…
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One gold vendor to avoid at all
costs
“How much gold should a person buy, as a percentage of
their wealth?”
Janet C wrote in to ask this question after reading last
week’s articles “A
gold and silver buyer’s guide” and “A
gold and silver buyer’s guide part II.”
I’ve heard some
people say that you should own 5% and sometimes 10% of your net worth in
precious metals.
I wouldn’t put such a hard and fast number on it – instead
I’ll give you a simple metric that will help you decide if you have the bare
minimum of gold or silver that you might need in a
worst-case-scenario.
After all, we’re not buying gold and silver necessarily
because we 100% believe that a currency crisis is inevitable, or that our
dollars will be rendered worthless, no ifs ands or buts.
I buy gold and silver because of the increasing likelihood
of that event, but I’m not absolutely certain that such an event will come to
pass. If I was absolutely certain, then yes, I might transfer 70-80% of my
net worth into gold, silver, durable goods and potable water.
I won’t tell you the exact amount of gold and silver I own,
but I will tell you a simple metric that I’ve told my family and close
friends to use.
I don’t know if more than one or two of them have listened,
but here’s my rule of thumb:
Look at your budget
for your monthly living expenses. Stuff like food, water, transportation,
clothes, heating oil, etc. Add it all up to find your average monthly cost of
living. Multiply that number by six, and then buy a mix of gold and silver
bullion equal to that six month estimated cost.
Why six?
Assume we enter into a real life, ‘as seen on TV’ currency
crisis, with food riots and long lines at the gas station, wheelbarrows
filled with cash to buy a loaf of bread, etc. In this circumstance I estimate
that at the VERY least, you’ll want to have enough gold and silver to cover
six months’ worth of your living expenses.
Six months would give you enough time to figure out the next
step – whether that’s moving in with relatives across the country, or finding
a new home in a different area – even moving overseas, or starting a large
garden or small business that would be in demand in the aftermath of a
currency crisis.
Hopefully, six months of living expenses isn’t more than 5%
of your net worth – it’s probably also an affordable amount to get started
with.
Anything more than that six month supply is extra security
for your bottom dollars.
I wouldn’t advise putting more than 30% of your net worth in
gold or silver. That’s way too many of your eggs in one basket.
Another question from the mailbag…
Tom H wrote in to ask:
“Before I purchase anymore gold coins (20 Franc Swiss)… do you have any
concern about Goldline?”
I’m going to bash Goldline – but first, Tom brings up
another type of bullion I didn’t mention last week…
I actually like the 20 Franc Swiss coins. They’re not quite
as recognizable as the British Sovereign, but they’re a nice alternative.
They have an interesting history as well. Historically, these 0.1867 ounce
coins (a little less than 1/5 an ounce) were given as wedding gifts to newly
married couples.
They’re also attractive, and since they’re no longer minted,
they sell for a small numismatic premium above spot. They’re not really very
rare – just rarer than regular bullion. As I said last week, I don’t really
have any use for “rare” or numismatic coins. I buy coins for their bullion
content and their recognizability.
As I said, these coins have a gold content of 0.1867 ounce –
which would mean the gold content is worth about $250 at today’s spot
prices.
Right now, Goldline is selling this coin for over
$425.
I won’t even dignify this company by linking to their
website. At the risk of getting sued by this firm – I think they give gold
retailers a bad name – and I see absolutely no reason to do business with
them.
The company I buy some of my gold from,
Blanchard Online, sells this coin for $286.87.
That’s about 16% over the current spot price of the gold –
but that seems to be a competitive price for this semi-collector coin. I’ve
seen it for a little bit lower, but not by much.
In Goldline’s defense, I don’t begrudge them their ability
to sell bullion for whatever price they want. We don’t need laws against this
kind of operation. If you don’t do your homework and shop around, then you
will probably pay too much.
Caveat emptor – the latin for “buyer beware.” It’s a rule
that applies to everything from a can of soup to gold bullion to a new home.
Know the product that you’re buying inside and out before you buy it, or you
will inevitably pay more than you need to.
If you have anymore questions about gold or silver, please
send it to [email protected].
Good investing,
Kevin McElroy
Editor
Resource Prospector