Posted on January 27, 2023
When first starting out in precious metals, people often feel a bit overwhelmed and reticent about making their first purchase. That is why I posed a question to our readers, to find out all the most common reasons that propel people into making their first gold or silver purchase.
Indeed, we all started our precious metals investment journeys for different reasons, though I suspect the responses will ring true with many of us. I will post a question on digital media from time to time, and in return, we will provide your responses while I occasionally add my own commentary. This will be a great way for us to provide actionable and educational content that should provide lasting value for new PM investors.
Welcome to our first Digital Q&A, where we pose a question to the readers and see what their responses are. Now, on to today’s question:
If you were asked by a new person to the #preciousmetals market the most important reason behind your first gold or silver purchase, what would it be?
One of the most common responses I typically get to this question has to do with wealth preservation. People see what is happening with the dollar, and are worried about whether their savings will carry them through life. As a result, people choose to buy gold and silver to save their ‘hard-earned money’. This is a very common answer that many, many of us will likely share. It is also very interesting to note that women are also very much a part of the sound money movement. That is fantastic!
Confusing Financial System
The next response comes from reader SilverDolphin, who expresses concern over a financial system that does not seem to make sense anymore. And when things don’t make sense, we go to gold and silver as an insurance policy against the unknown in the financial markets.
Rob’s Two Cents: From my perspective, this was a major reason why I originally chose precious metals as a place to store my wealth and to protect against fiat currency debasement. Further, I was worried that my retirement accounts were too inflexible to protect me in case of a market panic or bank closure. Qualified retirement accounts come with many rules and restrictions, and in my case, weren’t appropriate for the risk that I felt lay ahead. I did not feel as though the funds in my 401k would last through another crash, given their performance over the previous one in 2000.
Rate of Return
This response comes to us from poster Chris Howard, who is expressing concern over the recent broad market selloff of the last year. When ‘normal’ investments are not cutting it, people who have never owned or thought about owning precious metals seem to find their way to them.
Rob’s Two Cents: I find this to be a ‘top 5’ type of reason that people make their first metals purchase. Americans have been educated to buy and hold investments and hope for long-term capital appreciation. The major problem with this approach is that all investments move in cycles, and each long-term cycle has several shorter-term stages. Not every stage will be bullish; sometimes markets need to cool off a bit and consolidate before moving higher. Buy-and-hold strategies typically work in less volatile markets, which does NOT describe what we saw last year. Again, no surprise here for me!
The next response is one that I find a lot; it’s the ability to avoid counterparty risk. That means avoiding risks that you do not control, and are in the hands of someone else. Having uncontrollable risks can be dangerous to your investment returns over time, and to your ability to save money and have it retain its value.
Rob’s Two Cents: Counterparty risk may be the single most important reason to own precious metals. I believe we are in both an 80 and a 250-year economic cycle that is both trending towards the ‘winter’ season. What I mean is that the system has to shake out all of the misallocated capital and bad investment; hence the need for a financial reset.
When the currency stage of the financial resets has happened in the past, they have always used gold as an anchor and unit of measure for the new currency value. In other words, gold is the money of kings during such times. Gold can be a way to turn around your fortunes during difficult times while preserving the value of what you have so carefully saved.
Gold is Money
The final response comes to us from Driver-XAG, and it is both a very common answer while also potentially the most important.
That is the idea that gold and silver have always been money, are still defined in Article 1, Section 10 of the US Constitution as the following:
“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
The clause above has not been eliminated by the 17th amendment and still stands. In fact, it is considered a precept of law that powers given to the States in the Constitution and Bill of Rights not be abrogated by Congress using an Amendment – they simply do not have the power to take or give powers that are expressly forbidden to them. This has been the opinion of the Supreme Court. Alas, Congress does not always follow that concept and most people are not aware of it.
While the central bank was voted into existence in 1913 by a somewhat limited Congress during the holiday season when many officials had traveled home for Christmas, nobody implemented an amendment canceling gold and silver as the money of the land. Indeed, the dollar started out being backed by gold in a traditional gold standard system that did not end officially until 1971 when President Nixon suspended the redemption of dollars into gold.
Further, the prohibition on the State (defined as both Federal or state level) on emitting bills of credit. Essentially, it prohibits unbacked paper money or any other similar scheme. To wit, Wikipedia outlines the previous issues with bills of credit (paper money) as such.
“British colonies in North America would issue bills of credit in order to deal with fiscal crises, although doing so without receiving them as revenue in like amounts would increase the money supply, resulting in price inflation and a drop in value relative to the pound sterling. The documents would circulate as if they were currency, and colonial governments would accept them as payment for debts like taxes. They were not always considered legal tenders for private debts.
Colonial decisions on the issuance of bills of credit were also frequently the subject of disputes between different factions within the colony, and with royally appointed governors. Between 1690 and 1750 the matter was regularly debated in the Province of Massachusetts Bay, where merchants and lenders stood to lose value when new bills were issued, and borrowers stood to gain because they could repay their debts with depreciated bills. The Massachusetts bills were finally retired in 1749 when the province received a large payment in coins for its financial contributions to the 1745 Siege of Louisbourg. The Province of New Jersey issued bills of credit beginning in the 1710s, but successfully managed to avoid significant inflationary effects.”
There are many reasons why someone would want to limit their risk, take insurance against financial calamity, increase their rate of return, avoid counterparty risk, and gravitate in times of economic stress to sound money. Certainly, our Founding Fathers understood these concepts at the time, and this is why they used gold and silver as the nation’s early stable money supply.
I do suppose there is ample reason to consider whether the US should move back to a sound money standard; however, that is an article for another time! Thank you to all the readers who answered our first Digital Q&A! We will have more coming in the future.
Coin of the Week
After a week’s hiatus, we return with the coin of the week! I often spend a lot of time down in Mexico for business. Often, I am touring a silver or gold mine, or otherwise engaging in business related to precious metals. Mexico is a top 3 producer of silver, as well as a large contributor to the world’s gold reserves. They are a critical country in supplying North America with sound money in the form of both silver and gold. Therefore, I recommend to you the Gold Libertad, the pride and joy of the Mexican precious metals catalog. Feel free to pick one up next time you are shopping for your next gold coin. I love mine!