There are many ways to own gold. The best way is to buy a few one-ounce gold coins, preferably American eagles if you’re in the United States, or Canadian maple leaf coins if you’re in Canada. With one-ounce coins, you pay the lowest commission.
The trouble with gold coins is also their advantage: they are in your possession. They can be lost or stolen. They must be mailed back to a coin dealer to sell them for money. There are commissions to pay. But, in a time of national crisis, coins are the best way to hold gold for the small investor.
In a true panic, you will have a problem selling—not because of low demand but the opposite: you won’t be able to get through on the phone. There are probably fewer than 400 full-time retail coin dealers in the country, and most of them are small operations. This number must serve up to a hundred million American families. If one percent of these families ever decide to buy a single one-ounce coin during a panic, the phone lines will jam up.
You can buy gold shares. Buying gold stocks is the standard approach of most investors. The problem is, you’re not buying gold. You’re buying a company that says it has gold in the ground. You are also betting on future mining costs, management skills, and the possibility than the company has already sold its output for a fixed price.
There is a fund, the Central Fund of Canada, which holds mostly gold and some silver bullion. The prices of the two metals move in tandem most of the time. Owning shares of this fund is a surrogate for owning physical gold.
Always remember: if there is no proof of physical possession of gold, and if there are no storage charges for gold held in reserve, then you may be trading a futures contract, which is a promise to pay gold on demand. Promises to pay are never as reliable as gold in hand. Third-party verification of gold held against receipts issued for gold becomes important.
I think an electronic approach to holding gold is the wave of the future. There will come a day when banks and other financial services companies will offer these services. But that change will require a few currency crises that will catch the attention of people with money.
You should ask yourself what you are hedging against. Answers include the 15 reasons in the report, plus these more specific ones:
* Dollar inflation/depreciation
* Terrorist attack on the U.S.
* Crisis in the bank payments system (cascading defaults)
Retirement
* Capital gains taxation rather than ordinary income taxation
* Speculation: Asians may start buying gold
You should also ask yourself this question: “What do I intend to do with my gold?” Answers include these:
* Hold it as a speculation: buy low, sell high
* Hold it as a way to pass down wealth to my heirs
* Hold it as a way to hedge against a monetary disaster
* Hold it as a way to avoid paper trails
