(Official Discussion) Gold, silver, and other precious metals for sane preppers
Tom Hunt - May 20, 2021
This article claims that the basis behind precious metal valuation in the modern age is industrial usage, and that this is why they would hold value in a SHTF scenario. This is basically false. The modern reason for precious metal valuations is the same as the ancient reason: 1. they’re scarce, and 2. they’re widely considered valuable.
(Yes, this is circular. It’s just reflexivity; the value comes from the demand, and the demand comes from the value.)
Notably, in the case of gold, held stocks are several hundred times annual production, and industrial use is only a tiny proportion of annual production. If people stopped using gold as a savings instrument and it was valued based only on industrial demand, then the price would crater; it’d be $10/oz or less for centuries. Silver has a less extreme ratio and greater industrial use, but is qualitatively similar. Meanwhile, the platinum group are priced as (expensive) industrial metals, not savings instruments; their held stocks are small compared to annual production, and most of their demand is industrial.
This means that gold and silver (“precious metals”) are categorically different from platinum-group. If you invest in gold or silver, you’re investing in a Schelling point whose value is primarily monetary. If you invest in the platinum group, you’re investing in an industrial commodity whose value is primarily industrial. These are two very different investment theses. Notably, if you invest in precious metals then the important factors governing your investment performance are macroeconomic and monetary (e.g. is the environment inflationary or deflationary, are investors spooked or optimistic); if you invest in industrial metals then the important factors are industry-specific (what’s the demand for new catalytic converters like, how efficient are platinum mines).
Personally, I would generally recommend against investing in industrial metals. They aren’t primarily stores of value, so they aren’t likely to exhibit useful economic properties during a SHTF event; their value depends on the relevant industries remaining in good health. But if you want to invest in the continued good health of the automotive industry or whatever, you can just buy stocks, and get more direct exposure and better performance during normal times.
squidvicious - March 6, 2022
Good points. I’ve “done my own research” on this and Crypto recently (actually, been privy to other smarter people talking about the latter) and here’s a couple observations:
1. Crypto (any one of them) has been described as a decent place to store value. Like gold, people have decided it HAS value, so it could be a good store. Unlike gold, there are like a million crypto varieties and many last just long enough for the creator to get rich and disappear. Gold is harder to keep of course…it’s heavy and not very portable.
2. I saw one tech-bro/crypto pumper say Crypto was better than land as a store of value. Mostly, because, in his words, Crypto was more flexible (portable, could be easily broken into smaller portions for trade, etc.). However, land actually has several advantages. It also can be broken down into smaller portions for trade/sale. But, perhaps most importantly, land has value even if nobody else wants it! Even with all the restrictions on land use, you can harvest timber, grow food, build a house, etc.
Will share one final tidbit, was watching a webcast recently with our financial brokerage service. The head economist was asked about crypto. He made the following points…
1. rolled his eyes
2. composed himself and admitted that the technology has great potential for payment systems, etc.
3. admitted it could be good store of value, except for the fact that there are lots of them so picking the “right one” could be challenging.
4. the risk is that eventually Central Banks will get involved. What happens to Dogecoin once the US fed establishes its own digital currency? This theory is already being tested in some countries (Japan, Cambodia, China — which backs theirs at 1:1!) Yes, it goes against the decentralized nature of crypto, BUT… it does start to reign in the security of it too (less laundering, fewer scams, etc.). With the current Ru/Uk conflict raising more awareness of shady deals, it seems only a matter of time before regulation.
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