Gold and Silver is Not an Investment

This last week, I was on a phone call with an advisor and his client who was interested in gold and silver. Regardless of case size, I enjoy jumping on conference calls. It reminds me of years ago when I was focused on my own personal production. This conference call, however, went a little differently than they normally do.
This particular client had completed high levels of schooling and was extremely intelligent. He came into our conference call with meticulous research and notes from conversations with numerous other companies. He was in retirement and was interested in positioning 10% of his assets into physical gold as a means of stability if and when “unforeseen events” occur, so that he would still be well off and would be able to live his retirement as he knows it now. His research and conversations with other companies had led him to the conclusion to purchase gold and silver Eagle, Maple Leaf and Krugerrand coins as a means of possessing his precious metal.
This client was “right on the money” when it came to why he should own precious metals, but he had been led astray in trying to understand which types of precious metals would serve him best. He was looking at physical gold and silver as an insurance policy – wealth insurance, yet the type of precious metal he was ready to purchase would have been more of an investment and would remove the insurance aspect altogether.
Through a lengthy conference call, I educated him on the difference of pre-1933 U.S. circulated coins versus the modern bullion coins, bars or rounds. There is an extremely significant difference between the two in regards to what goals they will accomplish. In most every situation, I encourage clients to view gold and silver as an insurance policy and not an investment, though they can sometimes prove to be both.
Gold and silver bullion, bars and rounds act perfectly with the spot price of gold and silver. It is not different than going long for any equity or index. If the spot price moves up, you make money and vice versa. During “unforeseen events” such as dollar debasement and recessions, pre-1933 coins tend to outperform the bullion market substantially. This is because they are real money and are real currency – in other words, they are wealth insurance.
The advisor reminded him that we are fiduciaries and are acting in his best interest. In fact, the advisor went on to say that if the client was looking at this as insurance, (which he was) then the advisor’s compensation would be less if he purchased the pre-1933 coins than if he went into funds of gold and silver for a few years.
He asked, “Why would you want physical possession of bullion which has less liquidity than a fund in gold or silver?”
I thought I would share this conversation to help clarify what we are trying to accomplish. Gold and silver should be viewed first and foremost as wealth insurance. Positioning 10% of client assets into the pre-1933 gold and silver coins helped smooth out portfolios in 2008, the dot com bubble and every major volatile market. We are not looking at physical gold and silver as an investment, but a hedge. Although significant money can be made through investment, we always recommend starting with the right kind of precious metals in your “safe money buckets.”