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The 10-10-10 Financial Survival Plan

"...What does this have to do with the value of gold? Gold’s value remains constant. But as the currency in which gold is denominated fluctuates, the price of gold changes. So what appears to be fluctuation in the value of gold is really nothing more than fluctuation in the currency. Since the paper currency is backed by nothing, it is not real money like gold is. It is basically a promissory note – an I.O.U.

To demonstrate the fact that gold’s value doesn’t change, consider this: The price of a new three bedroom home in the United States today is about $200,000, or 200 ounces of gold. 100 years ago a similar new home would have cost $5,000 – about 200 ounces of gold at that time. A skilled stonemason makes about $1,000 per week today – the cost of an ounce of gold. In 1776 he made about $20 per week – the cost of an ounce of gold at that time. And in Jesus’ time the same skilled laborer made the equivalent in silver of one ounce of gold for one week’s labor.

What this means is that, while gold bullion is a good hedge against inflation, it is not necessarily a good investment. This is best illustrated by an example. Let’s say you have $10,000 in cash, and you believe that gold is going to go to $2,000 in a certain period of time. If that happens, considering the inverse relationship of gold and the US Dollar, we can expect that the dollar will lose 50% of its value. You can do one of three things with the $10,000:

1) Hide the cash under your mattress or put it in the bank. You’ll make about 1% at the bank ($100), so the results will be pretty much the same.

2) Buy bullion gold with the money.

3) Buy investment grade gold.

The probable results of these three courses of action are:

1) Your $10,000 will still be $10,000, but due to inflation the loss of purchasing power of the dollar will mean that you will only be able to buy $5,000 worth of today’s goods or services.

2) Your bullion will be worth $20,000, but due to inflation the loss of purchasing power of the dollar will mean that you will only be able to buy $10,000 worth of today’s goods or services. You broke even. Buying the bullion was a good idea – it was a good hedge (insurance) against inflation – but it was not a good investment, because it did not increase in value.

3)If you put the $10,000 in investment grade gold, it could be worth anywhere from $30,000 to $50,000 or higher, depending on how long it took for gold to hit $2,000.

“All right,” you’re asking, “what is ‘investment grade gold’?” This is gold that has more than the intrinsic value of its gold content. It is gold that has the extrinsic value of rarity. We are talking about rare gold coins. For many centuries, in turbulent economic times, investors have turned to rare gold coins as a way to both preserve and grow wealth in a small, portable manner that is simply not possible with gold bullion..."

Either way, you've definitely made me think about putting a percentage of my money into investment grade coins - thanks.

I really can't see anyone paying a premium because of how rare a coin is in really bad times. I can see it selling for its bullion content value real easy but if it is so rare no one has seen it they probally won't buy it at any price because the dont know what it is.To have value people must reconize it as valuable.

...in hard times when most PM owners start using, rare coins are worth what all the rest of the coins are worth. Don't count on high premiums when the SHTF.

So, at least for cars, the "gold always has the same value" theory doesn't hold.

I was thinking about this today, because I remembered this post. I think I have an example that illustrates that this isn't always true. About 10 years ago when I was buying gold, it was about $280/oz. To buy a small new car at that time probably would have cost between 40-50 oz of gold. Now, the same class of car would probably cost you only about 15 oz of gold. So, at least for cars, the "gold always has the same value" theory doesn't hold.

Even though there are some outliers, especially in turbulent times as you pointed out, generally I think gold does hold about the same relative value.
Gold better not go back to $280 - my wife will kill me

Kill You? Get a loan and buy more!!!!

i think I know what you're getting at - if you have gold and the price spikes and prices of goods, like food, haven't risen, yes, you've seen a gain in value

I wonder if there is anyone in this forum that would rather trade physical metal vs an ETF over such a short period of time...from my perspective all of my Gold/Platinum/Silver purchases have been long term 5-10yr...