How safe is digital gold?

[Andy Hunt]

That's how the 'professionals' pay for their Porches

More their conservatories I would have thought.

[SILVERHARP2]

To anyone considering buying gold

1) only 10% / 15% of your investment pot, no sane person would put the whole investment pot in one asset, but then that would make everyone who bet on property insane, ha!

2) Average in , buying in one lump sum is not a good idea, and ideally wait for a decent pullback to start. So if one had 100K that would be 10K and buying say 1K per month or so over a year.

3) the OP wants a place to park money for a short period, buying gold is not the vehicle for this, you are stuck with some kind of deposit accounts, as no investment can be guaranteed to hold or gain value over such a short period.

[jcw]

they are a very reputible company and might suit someone who wanted to treat it like a savings account or someone who doesn't have access to good storage.

That is exactly why I am thinking of using it. I have sold my house and I'm looking for places to keep the money while I wait for the housing market to stabilise at a lower level. Seems to me like buying gold is far more likely to earn me a nice return on my money, but I've got nowhere safe to put it.

GoldMoney is based in Jersey. The CEO is James Turk a long respected commentator on commodities as well as bullion.

The allocated gold and silver which they sell is vaulted in London and Zurich - customers choose where they want their own bullion.

As you probably know gold can protect your savings in a high inflation environment. We seem to be in such an environment. Gold is also good in times of financial turbulence such as we are in now. Most respected commentators expect this to contiinue and probably get worse.

Two runs on banks in the developed world in the last year, Northern Rock and IndyMac. More to come.

As mentioned above the price of gold is very volatile. Silver is even more volatile.

I personally think gold and silver are both good investments at present and that they will continue to be so for at least 18 months possibly a good deal longer.

However, owing to volatility if you have not been following these markets for many months, preferably a few years, I'll tell you what not to do.

Don't spend a lot of your STR fund on bullion all at once. To give an example described on another BB from earlier this year. Somebody with a large STR fund decided to invest in gold. About £75k all at once. A couple of weeks later the price had dropped a couple of percent, he lost his nerve and sold for a loss of about £1,500.

Okay, not such a terrible loss and probably a lesson learnt. But that's what not to do. If you do it be prepared for the volatility (it's not only a raging bull market, it's a highly manipulated raging bull market).

So if you decide to invest in gold (or silver), I'd say take it slowly at first maybe 5% of your savings and get a feel for the market and try to learn why gold is in a bull market. (Gold is anti fiat currencies.)

If you still feel comfortable after a few weeks you may up the percentage.

If you like a wild ride you might enjoy silver (GoldMoney sells allocated silver also). Volatile as hell but in a couple of years some silver bugs might have made some massive gains.

If you feel uncomfortable and don't understand bullion, stay out, or at least don't put a massive % of your savings into it.

Here's a graph of the historical cost of a house in ounces of gold. Notice that it varies enormously over time in long cycles.



Some believe that we are going back to 1980, i.e. 100 ounces for an average house.

Of course, none of the above is investment advice. Just my personal opinions.

[biffvernon]

If (when) things get so bad that ordinary things like deposit accounts, building societies, government bonds etc are no longer secure, then gold in someone else's vault will also be insecure. Digital gold can be digitally stolen.

Apart from a little that is used in electrical switches and suchlike, the ultimate value of gold depends on other people's fairly irrational desire for it. I wouldn't rate that too highly if everything goes seriously pear-shaped. So don't even put very many coins under your own mattress.

[jcw]

If (when) things get so bad that ordinary things like deposit accounts, building societies, government bonds etc are no longer secure, then gold in someone else's vault will also be insecure. Digital gold can be digitally stolen.

GoldMoney sells allocated gold. The bar serial codes are listed on their website.

Apart from a little that is used in electrical switches and suchlike, the ultimate value of gold depends on other people's fairly irrational desire for it. I wouldn't rate that too highly if everything goes seriously pear-shaped. So don't even put very many coins under your own mattress.

Some people prefer precious metals over paper money because they are precious metals (i.e. relatively rare and difficult and expensive to produce).

Some might invest because they appreciate long economic cycles and know when to stay out and when to go in.

[SILVERHARP2]

If (when) things get so bad that ordinary things like deposit accounts, building societies, government bonds etc are no longer secure, then gold in someone else's vault will also be insecure. Digital gold can be digitally stolen.

Apart from a little that is used in electrical switches and suchlike, the ultimate value of gold depends on other people's fairly irrational desire for it. I wouldn't rate that too highly if everything goes seriously pear-shaped. So don't even put very many coins under your own mattress.

I would disagree with this sentiment entirely as you are compressing an event which could roll out over 20 years into an event which you are suggesting that society could breakdown in the morning and all claims to assets would break down. The whole point of owning gold is to have liquidity to convert it into something useful when the time/price is right. if the goldbug type scanario runs its course, they will be cashing out when gold has doubled or tripled from here and I guess buy depressed land/property.
If we get a more deflationary outcome, owners will still have their gold and again can convert it or pay off debts etc. (although most people that own gold don't normally have debt in the first place)


Jcw- I agree with most of your post but not comfortable with silver as it would underperfrom gold in a deflation which is still very possible (i'm speaking my book though as I bought silver in 04 for at 6$ and sold it this year for $19 and thought it was time to TMAR)

[biffvernon]

Silverharp and jcw, you are assuming that the future will be like the past, with the economy going through cycles and gold retaining a long term stability of value.

If the future is fundamentally different, say for instance that the continued growth of fossil fuel production that has underlain the last century or two of capitalism comes to an end, then lessons from the history of economics become redundant.

We can't but perhaps black swans eat gold.


There was a radio 4 programme this afternoon that may be of interest:

Financial guru Alvin Hall explores where investors put money during a credit crunch. He looks at commodities, visiting the wheat fields of England, a gold bullion house and the New York Stock Exchange.

http://www.bbc.co.uk/radio4/alvinhallwo ... pip/6gx7t/

[jcw]

Silverharp and jcw, you are assuming that the future will be like the past, with the economy going through cycles and gold retaining a long term stability of value.

If the future is fundamentally different, say for instance that the continued growth of fossil fuel production that has underlain the last century or two of capitalism comes to an end, then lessons from the history of economics become redundant.

We can't but perhaps black swans eat gold.


There was a radio 4 programme this afternoon that may be of interest:

Financial guru Alvin Hall explores where investors put money during a credit crunch. He looks at commodities, visiting the wheat fields of England, a gold bullion house and the New York Stock Exchange.

http://www.bbc.co.uk/radio4/alvinhallwo ... pip/6gx7t/

It surprises me how so many people see gold as an all or nothing thing. Either it is a magical panacea which can save you from a flu pandemic, or a nuclear holocaust or even a declining economy or else it is utterly worthless (typical reasons being that you cannot eat it and you cannot live in it).

If trade and purchasing of all types disappear entirely no money will be needed. So long as buying and selling do go on people will need some form of money to do it. People have been doing so for several thousands of years using various forms of currency.

Gold is a hard currency, the hardest of currencies.

Do you know how much it typically costs to make an ounce of gold? And do you know how much that has changed in the last six years? (Hint: it has something to do with energy.)

[biffvernon]

You're right, it's not an all or nothing thing and for sure a bag of gold coins will be useful in Olduvai, but until we are there I wouldn't invest more than a small proportion of my savings in commodities such as gold.

[SILVERHARP2]

If the future is fundamentally different, say for instance that the continued growth of fossil fuel production that has underlain the last century or two of capitalism comes to an end, then lessons from the history of economics become redundant.

I'd say timeframes again, at that point when continued growth in fossil fuels ends, is not same time when all economic history is redundant, there will still be plenty of commerce 20 to 30 years after this point, that leaves plenty of time for one to get a return on gold. In the meantime one could see the breakup of the dollar or the euro and it would only take a small switch of funds into gold to send gold to da moon

[biffvernon]

You'd better buy now while stocks last then

[MacG]

Gold is probably one of the most immoral investments around. Not only is it almost useless, it takes some serious earth-raping to extract it. I don't know what others think, but I just don't want to encourage earth-raping in order to get an almost useless metal. No way. Keep your gold, I don't want to touch it. The idea to use gold as money is probably even more stupid than our current debt-and-interest based fiat money.

[grinu]

Gold has been used as a store of value since at least Egyptian times, and has survived the fall of Rome and various other collapses. I'm happy enough to convert some of my paper money into a bit of gold at the right time (already up 100% with my last batch).

For the adventurous - how about a short term punt on a leveraged gold etn: DGB. Should be ready for a pop soon.

The way I see it - I don't have room to store various supplies and I can either invest in a few things like gold, solar, gallium etc. or let it deflate in the bank. I'm happy to risk losing a bit and potentially making a lot, rather than knowing it will lose at least 5% a year, more in real terms.

Just my 2 cents (which will probably be worth £2 in a year or so).

[jcw]

Gold is probably one of the most immoral investments around. Not only is it almost useless, it takes some serious earth-raping to extract it. I don't know what others think, but I just don't want to encourage earth-raping in order to get an almost useless metal. No way. Keep your gold, I don't want to touch it. The idea to use gold as money is probably even more stupid than our current debt-and-interest based fiat money.

Yes, it can be very environmentally damaging, like a lot of mining.

I take it you don't use metals at all? And Canadian tar sands, are you quite sure you use nothing which utilized energy from tar sands?

Mobile phone? Gold is used in electronics. I hope you're phone free.

Silver? Copper? Zinc?

Gold is not nearly useless. It would be used more in industry if it were not so expensive.

Gold's greatest usefulness is as money, with all the desirable characteristics (a store of value, not just a currency).

In the next few years a lot of people are going to see their savings or investments wiped out.

Those with gold will have some protection.

That's useful. Of course, you need to know how and when to use it.

[adam2]

As others point out, gold has been a traditional store of value since ancient times, and has very roughly retained its value in the long term.

IMHO the main factor that might substantialy reduce the value of gold would be a great reduction in the population, caused by plague, famine, nuclear war, climate change etc.
Very little gold would be lost/destroyed/consumed by such events, therefore a population crash would increase the gold per head, which would reduce its value.

It would still be worth something though! paper money and other savings or investments would probably be valuless under such circumstances.