If one is to ask pretty much anyone (except of course my feline companion) – most folks see doom and gloom. While I am an optimist, almost to a fault, they may have a point. I am not an economist; and I don’t pretend to be – so I’ll summarize a lot of the legal stuff that resulted in the following:
Nixon receives a lot of flack for taking the US off the gold standard. But did he really do it? In 1933, when Nixon was just a wee lad, FDR took us off the gold standard (gold was still used to back international trade) to shore up the economy, and prevent a run on the banks by consumers who lacked confidence in the economy. All persons who owned gold (and silver under Silver Purchase Act of 1934) were ordered to turn it in to the Fed, and in return they received $20.67 per ounce. In 1934 the Fed raised the price of gold to $35.00 an ounce, where it stayed until 1971. The citizenry of this great land were not permitted to own gold until President Ford signed legislation permitting Americans to own gold. The goal of the two acts (Gold Reserve Act and Silver Purchase Act) were to nationalize the nation’s supply of gold and silver.
Did Nixon take us off the gold standard, yes….and no. He did irreversibly sever the ties to gold that, until this time were in place. But FDR started the separation. There is a pretty good article written in 2011 on the 40th anniversary of that (dare I say it, tragic) decision. While the article is interesting, I found more value in the comments; and I encourage you to read them also.
What does this little history lesson prove: nothing. Our great land has been off the gold standard for 80+ years (officially or not). The buying power of the dollar has steadily decreased. Ron Paul talks about paper based currency, and if you have the time, it is very interesting. The bottom line – if you can afford it; it is probably a good idea to have some precious metals in your portfolio.
By now I’m sure you’re asking; why, what is the purpose of this article? Well, it got started after one of those telemarketer gold people called. While they quickly decided that my measly $5.29 wasn’t worth their time; it got me to thinking. I looked up their competition, and I talked to them on the phone; and they also didn’t want my measly $5.29. but I did learn some things from them that I’d like to pass along.
- They will not convert a portion of your companies 401K plan into a self directed IRA. I’m sure there is a way to do it, but they want nothing to do with it.
- I like the idea of holding precious metals in an IRA that you cannot touch.
- If you are a small investor, investing less than $5,000; you’ll get more bang out of your hard earned dollars buying silver. This brings up a question – what type of silver – Coins, rounds, or junk?
Remember the phrase about the turtle and the hare, the turtle eventually wins the race, and for our purposes: this would be dollar cost averaging. What am I talking about. Well, take my measly $5.29 (a cup of foo-foo coffee from an expensive coffee house) as an example.
$5.29 x 5 working days = $26.45, but we’ll round down to $25.00 for our purposes. $25.00 x 4 weeks in a month = $100 a month to invest, which will equate to $1200 a year. Now we have $100 a month to invest in precious metals. Where should we start?
According to “the-moneychanger.com” you should invest in gold only if you have more than $5000 to invest. I think it is safe to say that silver is my answer. So small investors keep your head up! There is a way for us to get into the markets and we have options. I’m not recommending any mutual fund, ETF or stock. I’m talking physical material. There are three basic types of silver to look at: coins, rounds/bars and junk.
Coins consist of silver coins that have been manufactured by government mints, these coins have a face value. This is important because they are actual currency. Probably best is the silver American Eagles. Why- because they are manufactured by the US Government and are readily recognized so their liquidity is higher. the government minted eagles have a lower silver content, so the coin is actually heavier than rounds with a higher purity. This “lesser” purity makes these coins more durable, which will be useful in barter situations. Of course, you pay for this with higher entry costs. The American Eagles contain 1 troy ounce of silver, as do the rounds and bars.
Rounds/Bars. Rounds and bars are produced by private manufacturers. As a result, the silver purity is usually a bit higher than the government coins. This means they won’t wear as well and aren’t as heavy. Of the rounds, I prefer the one that has the Indian on the front, and the buffalo on the reverse. It is my favorite round. It is made by several private mints. I do not recommend bars – but that is just a personal thing.
Junk silver. Junk silver is US coinage dated before 1965. What’s so special about that year? Prior to 1965, coinage in the US of A was based upon an the equation that $1.00 US consist of 90% silver and 10% copper. This same dollar contained 0.7234 ounces of silver. The circulated “value” drops to roughly 0.715 ounces of silver. This accounts for material lost due to handling and erosion.
The first thing you need to do is look through that stack of change on your night stand, and if you have any dated 1964 or earlier, you need to mail them to me (ok, just put them aside, they’re worth more than their face value!). A quick way to find out determine the value of your “junk” silver is to do the following math (my cat taught me this, ok – he didn’t; I saw this simple method):
- Total the face value of the junk silver.
- Multiply the face value by 0.715 (If you have silver dollars or 1/2 dollars, you can up that ratio to 0.718).
- This will give you the quantity of silver (in ounces) that is contained in your collection of coins.
- Multiply this by the current “spot” price of silver.
An example:
- I have $25 in junk silver coins.
- 25 * 0.715 = 17.875 ounces of silver
- 17.95 * 16.18 (Silver spot price) = $289.22
Where is a good place to buy silver? There are two places that I like, these are APMEX and JM Bullion. There are things that I like about each of them. APMEX has never steered me wrong; but don’t forget to take into account the price of shipping. JM Bullion may be a bit more expensive, but they have free shipping. I receive no incentive for recommending them.
Interested in gold? Me too. Currently it is outside my reach (See above on the investment threshold). There is a place called BullionVault, and they have peaked my interest. I’m curious if anyone who reads this has used them in the past, and if you have, let me know your thoughts. Do you recommend them? Is it easy to retrieve your material? How are their fees? Inquiring minds want to know.
So, in conclusion; no, I don’t think the sky is falling and I don’t think we need (as a country) a return to the gold standard. With that being said though, I think the dollar is on the same general decline that it has been for awhile. It is good, sound logic to want precious metals as a hedge against inflation and the devaluation of the dollar that is bound to occur. I’m not stopping my other investing, only adding a new branch.
Good luck – happy investing.
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