So how exactly would investing in precious metals help me in the long run?

nasn7985
By nasn7985 on Wed, Dec 19, 2012 - 9:36am

Helo everyone!  I was wondering how would investing is a precious metal like gold or silver help me in the following senario:  lets say today I bought $40k worth of silver ($33/ounce).  A year from today Silver hits $100/ounce, now my investmentn yielded $121,212.  My question is, why should i be very excited at this point, wouldn't everything else cost more as well?  My guess is the only benefit is that I don't actually make money, but simply not lose money either.  For the sake of the argument, if the silver hit $1500 instead and now  my money is almost $1,800,000!!  Should I be excited because now I have almost $2 mil or because my  money is keeping up with the skyrocket price of everything ese, the most basic necessities of life if you would?  You take would be much appreciated! 

13 Comments

Grover's picture
Grover
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The Trick

The trick to making money in a zero sum game is to find assets that are undervalued and avoid those that are overvalued. Think of it as keeping a beach ball under water. It takes a lot of effort to suppress it and it is difficult to keep it down for a long time. When an imbalance comes along, the ball squirts out and rapidly approaches its resting state (on the surface.)

You should ask yourself how far is up? In your example, silver went from 33 to 100 to 1500. At what price would you sell? When you sell your stash, you no longer have it. If you don't sell, you don't have the money it is worth. I'm planning to observe how the public reacts. Now, PMs are neglected by most of population. As in 1980, once the mania has reached its peak, it is time to trade an overvalued asset (PMs) for undervalued assets.

Grover

Adam Taggart's picture
Adam Taggart
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Purchasing power protection

While I agree with Grover that PMs, particularly silver, are undervalued in today's market -- let's assume for a moment they aren't. For this exercise, we'll assume they are currently fairly valued.

The primary reason to own PMs is to preserve purchasing power. So in your example, if the price of everything goes up due to currency debasement, you are keeping your purchasing power constant by storing your money in precious metals vs paper currency. In an inflationary world, that is a tremendous benefit.

The vast majority hold their wealth in fiat which buys much less at tomorrow's prices. You, on the other hand, can buy as much as you could today (assuming PMs are fairly priced tomorrow, too).

Now, add to this great benefit the likelihood that PMs are currently undervalued. In your example, your purchasing power tomorrow is now higher if PMs move closer to their intrinsic worth as paper currency devalues.

shizah's picture
shizah
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Store of Value

I agree with Adam's analysis. I look at owning precious metals as more of a store of value than anything else. If I happen to make money because of price increases, great. 

The thing to remember is that gold and silver have intrinsic value and all fiat currency is basically worthless. There is not one paper curreny that has lasted more than 100 years, while gold and silver have for thousands of years been a store of value. 

Along with crash course, you should check out the creature from jekyll island...here's the wiki link for you.

http://bit.ly/U8ZL32

nasn7985's picture
nasn7985
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Well said

Well said, Grover!  I appreciate you input.  

nasn7985's picture
nasn7985
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Very informative!

Thank you, Adam for your thoughts on that!  It sure makes a whole lot of sence--preserve purchasing power.

brianboru's picture
brianboru
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Taxes on selling gold

All this on preserving purchasing power makes sense. But I just found out that there is a 28% tax on gains from selling gold. Don't you need to take this into account when calculating future purchasing power? It doesn't get mentioned much in discussions of gold.

shizah's picture
shizah
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Posts: 6
Gold Taxes

Brian.

That is true...but there are ways to not pay 28%. I'm not a CPA, financial advisor, or a broker, so I'm not going to go real in depth for you. I will give you a hint and you can take it from there! One way is through an IRA that can be set up. Here's some info. for you on that - http://bit.ly/Tel0R8

Take care!

janb's picture
janb
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Posts: 55
gold taxes

States have capital gains taxes, also.  In MA, you pay an additional 12% state capital gains tax on the sale of PM's (they are categorized as "collectibles") .  In other words, your total capital gains hit on the sale of PM's is 40% (combined federal and state) in MA.  I think it varies from state to state, but you are taxed at the rate where you reside and pay taxes.  So if you are saving for a specific time horizon or item, you need to think about the the consequence of selling.  Best, Jan

Abu Hudhayfah's picture
Abu Hudhayfah
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Posts: 8
Thumbs Up

Thanks for the post Shizah, those are two very valuable links. Really look forward to the Movie - The Creature From Jekyll Island.

I think alot of you guys are not thinking outside of the box when it comes to capital gains taxes. Is the system in the States so inter-connected that the GOV knows when you buy PM's and knows how much each citizen has??  If thats the case, you guys are truly oppressed people like us in the UK!

Doug's picture
Doug
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Posts: 2763
Abu Hudhayfah wrote: Thanks

Abu Hudhayfah wrote:

Thanks for the post Shizah, those are two very valuable links. Really look forward to the Movie - The Creature From Jekyll Island.

I think alot of you guys are not thinking outside of the box when it comes to capital gains taxes. Is the system in the States so inter-connected that the GOV knows when you buy PM's and knows how much each citizen has??  If thats the case, you guys are truly oppressed people like us in the UK!

I think its safe to assume that any transaction done over the internet is traceable, no matter whether it is in the US or anywhere else in the world.  I doubt that the US gov at this point is tracking PM transactions, but the record is there if they want to look at it.  Our anti-terror laws probably make it that much easier for them.  We all live under the looking glass.

Doug

Abu Hudhayfah's picture
Abu Hudhayfah
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Posts: 8
Non-Internet transactions are traced too

In the UK, the Gov requires PM sellers to acquire names and addresses of the buyer, even if your buying a measly silver coin. These sellers are then forced to declare all transactions to the Gov (probably a result of the capital gains tax scheme). Its getting to the point now where sellers (like jewellery shops) want to take a photo of you and some are even requiring you to provide your passport details or else they wont sell to you!! 

Similarly in the UK you are not required to admit to the Gov that you own any PMs, but they "know" you have pocession of it due to this process listed above.

Surprised to hear that the US has not reached this level of "diligence" yet, despite the paranoia surrounding "terror".  Take advantage while you still can.

nick707's picture
nick707
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Posts: 4
Big Brother

It is best to make your transactions in person and under 10,000 a day at any one location. Thus the dreaded Government forms are not required, here in Arizona. I have not sold any back yet but I am assuming the sell back should be under 10,000 a day at any one location also?

Mike K's picture
Mike K
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Joined: Dec 15 2012
Posts: 13
Also keep in mind...

... the amount of money invested in CRAP, derivitives, CDOs, T-bills, blue chip stocks, etc etc. I dont have the actual reference but I do recall that gold makes up something like 0.03% of the global financial assets? When the masses realise that pretty much 99% of the financial assets are not worth the paper they are written on it will only require a small percentage of them to more their wealth into something real like PMs for it to go nuts. There will be capital gains to be had!

Personally, i dont just see it as JUST a preserver of purchasing power. I think there will be a flight to safety that will push the price much higher than many anticipate. How long that will last for I am not sure. I am sure it will overshoot and may take some time to find that equalibrium of value that people decide to assign to it once the dust clears???

If anyone else has seen the data which shows the small percentage of how much gold is worth compared to the rest of the paper financial assets it would be good to have that referenced for others???

Cheers

Mike K

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