Convincing relatives to buy precious metals...

HughK
By HughK on Sat, Feb 16, 2013 - 2:25am

So, I'm in the process of trying to get my Dad (he's age 67) to move some of his traditional retirement portfolio into precious metals.  My Mom is totally against this and will try to get him not to do that.  However, she has her own retirement portfolio which is larger than his, so they are not relying on only his savings for retirement.  

He says he's willing to move 10% into gold and silver (probably a Sprott precious metals trust), but I'm trying to get him to do more.  I have no illusions about being able to control the outcome, and I'll be cool no matter what happens, but it's interesting to see how, when people think of being conservative or safe with their investments, they automatically think that mainstream investments are safer and more conservative, when the last 13 years of financial performance suggest that precious metals are a much more conservative (as well as lucrative in the present situation) investment.

And then there's articles like this, which don't help:

"Whither Gold?  Bears Circle as Rally Hits Speed Bumps"

http://www.cnbc.com/id/100464604

"In a widely circulated report that helped touch off Friday's gold rout, Citigroup said that bullion was 'a very long cycle metal, and if it is in the process of peaking now, then history suggests it will go into hibernation for a long, long time.' "

Nevermind what history says about currencies that are debased by governments in order to monetize unsustainable sovereign debt.  :)

 

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16 Comments

Grover's picture
Grover
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Posts: 800
PMs are Insurance

Hugh,

Back when I was younger and inexperienced I would chase the funds that had achieved outsized gains for the prior reporting period with the belief that the management teams had figured it out. I was repeatedly (but not always) disappointed that subsequent returns didn't equal prior results. Having been burnt enough times, I shifted toward contrarian investing.

Precious metals have beaten the market (but not every year) for the last decade. It would have been much more lucrative to jump on the band wagon a decade ago - when the metals were cheap and unloved. Now, it takes much more fiat to get the same number of ounces. Aren't we just making the same mistakes of youth and inexperience when we expect the trend to continue? How high is up?

An investor like Warren Buffett invests for earnings. He buys companies that will provide a few percent per year return. I suspect he wouldn't sell a stock unless the outlook drops. He hates PMs because they just sit there - no return. He is a very rich man who lives like a pauper. Who can argue with him?

The first fundamental to acknowledge is that PMs aren't an investment, they are savings - just ask any Central Bank. There is a bit of speculation that this form of savings will out perform other forms of money (just as it has the last decade or so.) There also is the chance that PMs' value measured in fiat will drop. In the short term, it likely will. How far will it drop? I don't know. I do know that the more it drops, the more unloved it becomes.

The last sentence in the article you linked said:

Should Washington succeed in reforming the budget, "then I'm going to start selling gold," Moy added.

I will too! If Washington were to balance the budget, we'd immediately enter a deflationary death spiral. There would be less government outgo and more income. GDP would drop at least 7% overnight. Layoffs, closings, debt default ... lather, rinse, repeat. But, at least we'd have a sound dollar! In this scenario, why would you need gold?

Will the politicians suddenly do the "right" thing and sacrifice their careers? Hardly. Without such drastic action, the dollar cannot regain its footing. The metrics that used to work, no longer do. Even 5 years ago, would your folks think current conditions (high unemployment, high fuel prices, $1T+ deficits, fiscal cliff, debt ceiling, currency wars, etc.) would be conducive to the stock market being near all time nominal highs? About the only thing supporting growth is a massively expansive monetary policy. How long can that last and what happens when it stops?

If they trust that things will continue because they always have, they may live long enough to regret it. They sound like people who pride themselves about being self supporting. Ask them how they'll feel if your worries come true and they lose all paper promises to pay (stocks, bonds, pension.) What will they do? Is a 10% insurance policy (PMs) that has limited downside and significant upside potential really such a bad idea?

Grover

sootsme's picture
sootsme
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Re: convincing relatives to buy PMs

Hi Folks,

My best argument for PMs is thier ability to hold thier purchasing power better than fiat money. For years, we used to hear that the price of a nice custom suit was about an ounce of gold. How does that compare with the fiat price of that suit? Many commodities including PMs have held thier relative value to other goods much better than our Yankee dollar. The Fed is chasing a relatively constant amount of stuff with a constantly, rapidly expanding pile of dollars, so obviously each individual dollar is worth a smaller part of the total pile of stuff. However, since the relative amount of most commodities compared to the overall amount of stuff stays more constant, the commodities' relative worth in the scheme of things stays closer to constant. The advantages of PMs over other commodities are: easy storage, portability, widely recognized, and infinite shelf life. Plus, they're really cool...

Mike K's picture
Mike K
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To PM or not to PM...

My opinion for what it is worth, PMs will likely go ballistic at some point in the near future. This is based on the fact that so much of the global economic system is dependent on paper backed by nothing more than promises. Once people loose faith in this system due to the end of growth (peaking of oil production) and the ridiculous printing money backed by nothing then it will collapse and there will be a flight from everything paper/electronic to anything real and tangible. Only a small proportion of this "fake" wealth needs to be directed toward Gold and Silver for them to do a moon shoot! There is so much money invested in Gold and Silver ETFs as one example and yet there are so many more of these promises to Gold and Silver than there is actual metals so when the time comes for people to call it in and request delivery they cannot all be covered (not to mention the fact that Comex has changed the game by allowing themselves to pay out any Gold ETF in paper!!).

To me, Silver has more potential upside. However, Gold is what is kept by central banks around the world and is what China is accumulating as fast as they can. When this global economy crashes and a new one emerges I am sure it will have to be based on Gold and Silver because no-one will trust a fiat currency again surely?

The problem I see with investing in Gold and Silver is that they are insurance and the problem with receiving a big insurance payout is that the proverbial has hit the fan in order for it to be paid! That means one may be well off but all of those around them may be destitute and this is a dangerous situation to be in (still better than being destitute!). Key would be to not show any sign of wealth at all. This is also why I recommend paying the premium for small denominations (and coins) for PMs. It may cost more now but it will be very difficult to move large bars down the track if the price goes up 5-10 times what it currently is which is a distinct possibility when you see the amount of fake money/assets (CDOs, derivitives, ETFs etc etc).

No one has a crystal ball and can predict anything 100% however that does not mean we shouldnt attempt to gather information and make informed decisions based on probability and likelihood. It takes quite a bit of personal research to build up the confidence to invest in PMs and to understand the medium to long term nature of the investment. Dont watch the prices daily. Hell, I even make sure I forget the purchase prices because I am not buying to make capital gains (although I believe I will!). I buy to preserve wealth and to offset my mortgage (which I pay minimum payments only). When the horse bolts, I will be on it. Any who put it on the house will miss that ride (the PM ride!). I reckon I will be able to pay off the mortgage and have plenty left over when all is said and done.

Its going to be an interesting ride! Good luck to all.

Mike K

Oliveoilguy's picture
Oliveoilguy
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The Year of Silver Giving

Looks like PMs are once again getting hammered. I'll try to scrape up a few fiats to buy some silver rounds. I've been giving my daughters a few coins here and there over the years for Birthdays and Christmas. The great thing about this gift is that children tend to save it. With my daughters, 100 USD will invariably go to purchase some clothes (they all have jobs that require a good appearance), whereas 3 silver rounds will be saved. After many years they are beginning to have a small "stash".

Let's make this the year of Silver giving. All physical purchases help bring the paper market back toward reality. Who knows, we might be near the tipping point where Silver shorts capitulate and the physical market seeks it's true value. That would be positive for all PP members.

thc0655's picture
thc0655
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Don't bother

I've been in a similar situation with my mother-in-law.  However, I would never try to convince someone else (except my adult children) to exchange some of their fiat currency for gold/silver money.  I'm no expert and don't feel right saying "Follow me" unless I believe I am an expert on something.  On the other hand, I don't hide my strategies and interests when it comes to investing and PM's and if someone shows any interest at all then I try to engage them in that conversation when they show an interest.  If the person shows significant interest I point them to the Crash Course and to Michael Maloney's Rich Dad's Guide to Investing in Gold and Silver.  That has been the maximum extent I have gone with my children and they have put some of their young adult savings into gold and silver instead of fiat.  Others are disinterested but a few seem to be walking leisurely down the path I sprinted down 3 years ago.

Doug's picture
Doug
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agreed THC

I have had similar experiences.  Most people will listen politely, and may even agree, but don't go out and actually buy anything.  My longest term friend (we've known each other for 35 years) often says to me "You were right about gold" but then does nothing about acquiring any.  Like you, I've stopped talking about it unless it comes up in conversation.  My kids get it.

Doug

HughK's picture
HughK
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Posts: 760
Thanks

Thanks to everyone for your insights.  I love the idea of giving gifts of silver coins to kids once in a while, and I definitely agree that pushing other people too hard is often a game of high energy for very little results.

I usually am not too passionate about convincing others of a minority belief, whether it's the dire nature of global warming or the amazingly convenient timing of the anthrax attack for the passage of the Patriot Act.  However, when it comes to friends and family, I would love to get my loved ones out of paper and into precious metals, even for just a small percentage of their savings.  But this is a decision that they either will or will not make as they see fit.

Since we will all benefit from using less energy to get greater results, your responses are a good reminder that people have to make up their own minds, and that it's actually quite hard to be in a situation where one starts to think differently.

Strangely enough, it's probably because of some fiction stories by Paolo Bacigalupi that I become interested in major shifts in civilization.  In 2008, I read these near-future science fiction stories (e.g. The Windup Girl, The Calorie Man, The Tamarisk Hunter, The Yellow Card Man, Pump Six).  

"The Windup Girl" is set in a sinking Bangkok some 100 years or so in the future.  This sparked my interest in a deeper look at global warming, so then I read Hansen's "Storms of My GrandChildren" and Lynas' "Six Degrees," and a few others (McKibben, Oreskes).

In 2009 I stumbled on a copy of the documentary film Crude Awakening, and, perhaps also because of Bacigalupi's fictional accounts of a future with no oil, I watched this with my students (I'm a high school teacher) and for a while I just sort of let the idea of peak oil simmer in a very agnostic manner, as I focused on global warming.

Then, in the spring of 2011, I came across Mauldin's "Endgame.".  Even though I don't agree with many of Mauldin's policy recommendations, I really appreciated the way he communicated the severity of the sovereign-debt issues in the rich world.  The next thing I did was to go buy some gold, which is very easy to do where I live.  This was really a gut-level move, poorly researched at the time.  I had no idea how much gold had gone up from 2003 to 2011, and if I had known, I may have balked.  Then I got a copy of "This Time is Different," as Mauldin heavily features Reinhart and Rogoff's seminal quantification of financial crises.

By June of 2011, I had a thesis about the three big shifts in civilization: 

1.stagflation and a currency realignment (the decline of Post-WWII US economic hegemony)

2. peak oil and other resource limits

3.  the dawn of the Anthropocene, a new geologic era characterized by human influence on the Earth's climate and biosphere, for many reasons, but above all, global warming

Maybe because I was at a meditation retreat from June of 2011 to February of 2012, I didn't find Chris' "Crash Course" until Feb. of 2012.  His three E's immediately jumped out at me as a much more succint and informed way of explaining what I was only starting to discover and now I have become fascinated with these big shifts.  I watched Kjell Aleklett speak at the last ASPO International conference last May, and now we are using short excerpts of "Peeking at Peak Oil" in one of my courses.

Where it really gets good is the civilization-level view, with Diamond's "Collapse," Tainter's "Drilling Down," and Lester Brown's "Plan B"  Their writing makes most of the daily headlines look like children playing make-believe in the dining car of a runaway train.

Many students find these ideas interesting on a theoretical level, but most still don't appreciate the ramifcations for practical decisions, such as what they might want to learn after high school.  On one level, it's not quite as exciting for them as it is for me, because they have not been taught old paradigms, such as Keynesian fiscal stimulus, monetarism, or the efficient market hypothesis, and therefore these new ideas don't seem very revolutionary.  (One 11th grader recently asked me, "You mean most high school students don't learn about peak oil?")  On the other hand, when they consider that spring break airplane flights and iPhone data plans may not be the best use of their parents' scarce resources, the cognitive dissonance sets in and they start to squirm a bit.

But, as far as trying to interest friends and family in micro-responses to the macro-trends, whether the great ROI for solar hot water heating or the conservatism of saving in precious metals, I have not been very successful at getting people to see things differently, and much less to act on this.  Sometimes I think that you all and I are more open minded, or just better at thinking broadly.

But other times I wonder if it's just luck.  Maybe if I hadn't had my imagination caputured by Bacigalupi's "The Windup Girl" and "The Calorie Man," I would never have become interested in these big shifts.

Finesilver's picture
Finesilver
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"Look into It"

I never try to convince...I simply say "look into it' and those that actually do look deep enough winds up out stacking me.  They have to convince themselves.

shizah's picture
shizah
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Convincing relatives to buy precious metals...

HughK,

Such an interesting scenario you've laid out regarding your parents. I always find it interesting that people in your parents age range of 65+ years of age in retirement or about to retire steer away from PM's. I would always think of people in my age range of 35-40 years old are the ones avoiding PM's.

I've included an article to Forbes that is pretty interesting talking about how the dollar has fallen compared to other currencies and how our purchasing power has declined.

http://bit.ly/XJNPTf

Given their ages - they have seen a lot of financial turmoil in the economy. They have seen the value of dollar decline and inflation over their lives and I think this article points this out...unfortunately!

The thing I always stress and convey to people is my philosophy on PM's. To me, PM's are nothing more than a store of wealth - working to preserve what I've worked hard to accumulate. If I happen to make a profit, well then that's just icing on the cake, so to speak.

Maybe try that approach with your folks if you have not already. They've worked hard and would want to preserve the assets they have accumulated over their lives. 

Best of luck!

Woodman's picture
Woodman
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Posts: 1028
Just lead by example

About all you can do is lead by your own examples, and let them decide on their onw.

LesPhelps's picture
LesPhelps
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Posts: 728
Perhaps bother, if you care

I am certainly no expert either.  However, I am absolutely comfortable telling people, who's financial well being I care about to consider a currency hedged position.

My perspective is that any financial assets that will not be needed for 5, or better yet 10 years, will be safer in hard assets than virtually anything else.

The problem is not convincing people that gold is good.  The problem is getting them to admit that we are on the cusp of a permanent global change.  Most are suffering from Global Head in the Sand Syndrome.

Les

thebrewer's picture
thebrewer
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Posts: 110
Not my Dad

My father got clobbered back in the 80's on silver and to him, the mere mention of buying PM's sets him off on a rant which includes him telling me I'm making a mistake going long on silver. He's an active investor but I watch him make one bad investment in paper after another. I'd be willing to bet his portfolio overall is down if you look at the last 10 years but he won't take advice. He's 75 so to say he's set in his ways is an understatement.

Poet's picture
Poet
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Posts: 1891
Get The Basics Right First

Isn't it said that "Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves"?



I think the first thing is to make sure relatives are well-situated with no debt, strong resiliency, tools and equipment, goods and skills for barter, health, etc. These would be the primary concerns and more than enough to occupy most people. That is why they are primary in the "What Should I Do?" series that follows the Crash Course. For those who have tackled those steps, then consider silver.

In my view, gold is probably out of the hands of most people by now. Especially when it may make more sense in the future to pay someone with a silver coin for goods or services, than to part with a one-ounce gold coin easily worth a month's gross pay for a common laborer. Such a coin could attract the wrong kind of attention or purchase too much conspicuous consumption - which is why I just prefer not to have any.



Charles Hugh Smith has a lot of wisdom in this regard. I higly suggest reading it:

The Art of Survival, Taoism and the Warring States (June 27, 2008)
"Because the best protection isn't owning 30 guns; it's having 30 people who care about you. Since those 30 have other people who care about them, you actually have 300 people who are looking out for each other, including you. The second best protection isn't a big stash of stuff others want to steal; it's sharing what you have and owning little of value. That's being flexible, and common, the very opposite of creating a big fat highly visible, high-value target and trying to defend it yourself in a remote setting.

"I know this runs counter to just about everything that's being recommended by others, but if you're a "hick" like me, then you know it rings true. The flatlanders are scared because they're alone and isolated; we're not scared. We've endured bad times before, and we don't need much to get by. We're not saints, but we will reciprocate to those who extend their good spirit and generosity to the community in which they live and in which they produce something of value."

http://www.oftwominds.com/blogjun08/survival6-08.html

As many of you already know, Charles Hugh Smith has written quite a number of articles hosted here, as well as on his blog.

Poet

letitbe's picture
letitbe
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Posts: 3
gold silver as insurance

its true if you bought in 1980 at peak you would have got burnt. However I view our gold and silver as insurance. My wife constantly worries about price I dont care to much. If you want to hold fiat or stocks then thats a choice I would not like these days although we hold some stocks. Fact is if as im 90% sure will occur theirs a huge financial crash gold and silver will protect you. If not which I believe unlikely then our other assets being property and soem shares will be safe. 

We hold 25% gold and silver bought at average of aorund 1400 us$ an onz for gold and average 32 us$ for silver. 60% is in property in UK and where we live in Asia and 15% or so in stocks mostly gold mining and silver mining stocks. We look long term around 20 years + even though im over 65 mainly because I have adaughter ages 6 and so want to protect her and my much younger wife. We used to be 90% property with no gold or shares and adjusted that over last 3-4 years.

Even if gold halves it wont go to nothing unlike some of our shares did and property is fine long term but if hard times really come (these are not hard times yet) then rents will drop and maybe no rent or not much at all.

I predict but could be wrong in next 3-5 years maybe sooner fiat money (any major western currency) will fall in real terms (after inflation etc) by at least 30% property in most markets in real terms will fall at least another 20-30% and shares will halve.

As I said noone should look at gold and silver as investment its insurance and a way to preserve what you have should it all go tits up which im 90%+ sure it will

 

 

 

letitbe's picture
letitbe
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Posts: 3
art of survival

very true words but when it gets really nasty it does not work like that ever IMO. I spent a lot of time in Indonesia and when crash came in 1997 theri money went from around 3,700 to GBP to 27,000 overnight. As a indonesian poor friend said to me at time. I earn 2000 rupee a day and rice was around 400 a kg I need 2 kg of rice to feed my family a day and have neough for some meet and vegitables and a little left for a small toy for kids or lipstick for wife or beer for me sometimes. Now rice is 3000 ruppee a day and i still if lucky get 2000 a day. He said I can live without chicken or meat or whisky or rest and just have rive and some vegitables, I live in a hut with no debt and all around we help each other best we can but people are getting desporate and even close family members are starting to steal little we have. Its getting violent and im scared. After that riots killed many thousands mostly real poor.

So a simple life is great. We have a small farm and share what we can maongst our poor workers who mostly earn only aorund 10us$ a day (and thats double what anyone else pays). We live well and our child goes to a top international school. However if and when shit really hits the fan well be glad we have soem gold and silver to feed ourselves. Luckely where we live most people pay no rent and in tropics food is very plentiful. Also people around dont need heat and even most who have migrated to cities for better life ande money still have failies back in country with some land and can return to grow rice and keep pigs and chickens. A lot still live like that but its changiong rapidly and poor are selling their small plots at an increasing pace to buy cars and rest and are lured into cities with much higher wages. Then thye get credit and become slaves when before thye were poor but free.

Its really sad watching it happen over last 20 years in Asia and soon like west only rich will own land and be free.

So yes friends and those around are a great asset but id hate to rely on that only when it gets really nasty. 

So we keep 25% in gold and silver with around 60% of that stored outside from where we live as insurance.

 

 

 

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
currency insurance

Good information letitbe. 

Insurance is exactly how I term gold and silver ... currency insurance.  I advise folks that I have health insurance, life insurance, disability insurance, long term care insurance, homeowner's insurance, car insurance, liability insurance, etc. but I hope I never have to use them  I also have insurance against a currency de-evaluation or collapse.  That insurance is in the form of gold and silver.  Many "get it" when PM ownership is phrased that way

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