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Why investors for income buy gold and silver?

Tuesday, July 5, 2016

It has been a long time since I blogged about having some precious metals in our portfolio and some newer readers might not even know I blogged about gold and silver before.


What do gold and silver have to do with investing for income?

Sounds like a scam?


If you think like this, congratulations! You will never fall victim to Geneva Gold and their friends!


Gold and silver coins can be mesmerising. I know. They look so shiny and beautiful. They twinkle, reflecting light. They look almost like they are winking at you.


I have a friend who fell so much in love with the two silver coins I gave him as birthday presents that he went and bought many more in different designs. I gave him bullion coins but he went and bought proof coins with numismatic value (i.e. worthy of collection). Oh, dear.


Anyway, why do I have gold and silver in my investment portfolio? Are they investments?


Many people say that we should have some precious metals in our portfolios. The late Dennis Ng had 7% of his portfolio in gold and silver, if I remember correctly. 


Dennis was concerned with the excessive money printing in the world and this is also why Jim Rogers says we should have some gold.


Fiat currencies are flawed. Governments around the world can print as much of their own money as they like. The supply is, theoretically, limitless. 

This infinite supply of paper money is unlike gold and silver as their supply is finite. Technology has not found a way to synthesize gold or silver.

Basic economics tells us that, over time, excessive money printing leads to immense inflationary pressure.

So, if you think that I buy gold and silver as an insurance against fiat currencies, you are right.



Of course, if we are traders, we can trade some gold and silver for profit. 

However, if we are investors for income, then, buying gold and silver requires an understanding that although precious metals are not income generating assets, they are probably important enough assets to keep some.

I can hear some protesting.

Yes, gold and silver are not income generating assets and it will even probably cost us some money to hold them. 

OK, even if we do not keep our gold and silver in a safe storage facility, we would still incur opportunity cost as the money used to buy gold and silver could have been invested in income producing assets instead.



Ouch. Yes, I know the feeling.




Do you believe in insurance? 

In the purest (and correct) form, insurance is an expense. It is not free of cost. It is not an investment. It doesn't generate income.

The elderly understand and believe in gold as they see it as a store of value.

I remember when gold got cheaper in years past, my grandma would go to the goldsmith to buy more gold. Not the best way to buy gold as I would have bought gold bullion coins instead but why did she think the way she did and did the thing she did?

I like to think that I understand.


I believe in insurance and with silver prices so low, I bought more silver in the recent past and, in fact, I bought more just before BREXIT too.



So, should you buy some gold and silver? I suppose it will depend on what you believe in.



Related posts:
1. Where to buy gold?
2. Silver bullion coins.
3. Silver savings account.

14 comments:

Sillyinvestor said...

AK, how did you buy SIlver?

US ETF? or you buy bullion?

SMK said...

i agree but not for the same reasons.

I don't see gold as insurance, rather take the risk to long gold derivatives instead, believing in a long drawn episode of loss of faith in fiat currencies if it happens.(as a result of central bank actions)

and I 'diversify my bet' with other commodities.

http://shiohmekiah.blogspot.com/2016/07/gold-most-winning-investment-in-2016-so.html

AK71 said...

Hi Mike,

I have physical silver (i.e. silver bullion coins) as well as some paper silver in a UOB Silver Savings Account. :)

SMK said...

ak also got regular savings plan. lol

when did you start?

AK71 said...

Hi SMK,

Many years ago when silver was very, very cheap. ;p

SMK said...

clap clap. silver laggin behind gold so much, overdue for aggression.

tong said...

where to buy silver bullion?

AK71 said...

Hi tong,

I blogged about this before:

Where to buy silver bullion coins?

Happy shopping! :)

ys said...

Hi AK,

What do you think the silver and gold coins from Singapore Mint? Some are very big. Is it worth?

AK71 said...

Hi ys,

Singapore Mint sells proof coins. Weight for weight, they cost more than bullion coins. You would be paying for the numismatic value and not just value of the gold or silver. Unless you are a collector, proof coins are not value for money.

tong said...

ezekiel 7:19
They cast their silver into the streets, and their gold is like an unclean thing. Their silver and gold are not able to deliver them in the day of the wrath of the Lord. They cannot satisfy their hunger or fill their stomachs with it. For it was the stumbling block of their iniquity.

AK71 said...

Hi tong,

Giving up all your wealth soon?

I know someone who did and became a missionary. :)

tong said...

meaning in time of worldwide famine, weath cannot buy food

AK71 said...

Hi tong,

Oh, yes. If it is the end of the world, it is the end of everything. :)

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