Excellent idea for a thread, John. Timely too.
Gold makes sense to me as a Y2K hedge. It's the classic portfolio diversification against currency collapses and other disasters. For example, at this moment the Sydney spot-gold fix is about $302.00 an ounce. This is up significantly from an August low of about $273.00, and reflects global fiscal concerns as economies in the Pacific Rim, Russia, Brazil, et al. unravel. I think Y2K will deal the ultimate blow to international financial systems, thus my desire to own some gold.
A few posts back, Dwight Taylor asked what if Y2K doesn't happen? Suppose we wake up January 1st, 2000 and everything is functioning normally. In that case, I think the downside risk of gold, if purchased at current levels, is minimal. Gold is near the "producer price" now, i.e., it is valued at the cost of mining and refining it. If the price drops below this threshold, marginal mining companies will go out of business, supply will shrink, and the price will find support. Therefore, at the worst, gold will be a wash if used to bridge a non-event Y2K -- I don't think stocks and other financial instruments will hold up nearly as well, especially if Y2K does happen.
In the introduction to this thread, John Mansfield asked some questions. What coins are the best investment, and what's the difference between historic and new coins? From what I've read and learned, 1-ounce gold bullion coins are probably the best. They're recognized, value is widely published, and the spread is reasonable. Canadian Maple Leafs, American Eagles, and South African Krugerrands are the most commonly traded. ML's are "four nines fine", i.e. 99.99% fine gold. Eagles are alloyed with silver and Krugerrands with copper, so they shine less than the Canadian coins, but all contain one Troy ounce of gold.
I've been told to avoid coins with numismatic value as a Y2K hedge because of excessive, subjective, and sometimes hard-to-define premiums. The main advantage of old gold coins in a crisis would be that the government is less likely to recall "collectors' gold" vs. "hoarders' gold" as happened during the Great Depression.
Best price? I shopped everywhere from local pawn shops to widely advertised precious-metals brokers. The best prices I found were from Monex (if I committed to large purchases, the premiums shrank), and from a bullion broker in a local stamp and coin shop. Actually, the local guy is cheaper because he sometimes buys gold locally; in so doing, he does not have to pay shipping, middle-man, and insurance fees -- he passes the savings on to me. If you can establish such a relationship with a local person, it works well. Expect to pay a premium of 3% to 6% above spot, less for Krugerrands, more for Eagles and ML's.
Gold vs. silver, platinum, or palladium? The other metals are industrial metals and their value is likely to decline precipitously if industry declines post-Y2K. Gold is also an industrial metal, but not solely -- it also has intrinsic value as a currency (since the dawn of man).
Why not buy stocks of gold-mining companies? Do that too for the sake of diversification. Owning the physical metal holds the least risk, but has relatively little topside. Stocks move more proportionately when the price of gold moves, thus more profit (and more risk). The greatest leverage can be had via gold futures. For the record, gold stocks moved opposite other stocks in the 1929 crash, but cratered with other stocks in the 1987 swoon. In 1929, gold stocks were very low compared to the rest of the market; in 1987, they had soared in value with the rest of the stock market. Right now, they are moving in opposite direction to the broad market, having been severely depressed when most stocks were in a bull-market bubble -- the XAU, a widely followed gold/silver index has popped from ca. 50 to 86 since the August bottom for about a 70% rise. Bullion, on the other hand, has risen about 10%. If the spot price of bullion continues to rise, I expect gold stocks to continue the disproportionate appreciation shown so far (a la 1929, not 1987). |
