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I am living in Europe and I am considering buying gold to protect my money in case of a possible crash. My first idea was to get bars of gold and leave them inside the vault of my bank. The main problem seems to be that I will not be able to utilize these bars of gold right after the crash, because they are way too big for small transactions. It seems to be better to buy several really small pieces (about 1g each, current worth about 50 Euro or 71 Dollar) and keep them at home.

What would be a good mix of bars? 5000 Euros (or 7100 Dollar) in gold really small to be liquid after the crash and the rest in the vault? Or would you consider the vault insecure after a big crash and everything should be kept at home? I am not sure what I must consider in such a situation. What would be a good approach?

Demento
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    Have you thought realistically about what is the sort of "crash" you are trying to protect yourself from? – Tal Fishman Sep 05 '11 at 02:29
  • My biggest worry is that the Euro dies and each country reestablishes a new currency like we had before the Euro. Economists like Franz Hörmann claim that the end of the current money system is near and I want to be prepared for the worst case. – Demento Sep 05 '11 at 05:56
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    If you're mostly worried about the Euro, you could always buy GBP, USD or AUD (or whatever) notes, or buy assets in those countries. – poolie Sep 05 '11 at 22:51

4 Answers4

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Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways:

  1. You point out the problem with using gold for day-to-day transactions. So why are you only looking at gold? Gold has historically been used for savings and large purchases. Silver, and sometimes copper, are the metals of choice for day-to-day purchases. I would suggest you purchase some silver and gold bullion coins like these: gold, silver. You'll pay the least amount over spot with a bullion coin. Attempt to purchase with cash if possible.
  2. Your suspicion about bank security is valid. In 1933, Franklin Roosevelt ordered Americans to turn over their gold to the Federal Reserve in exchange for paper currency. Frederick Campbell went to his bank in attempt to withdraw his gold. The bank refused to hand him his gold. The bank said they would have to hand it over to the government. Frederick took the bank to court. The court sided with the government and the government got to keep Frederick's gold. Diversification is just as important in regards to storage of your metals. A safe deposit box is safer than a bank vault. However, I still wouldn't keep all my metals in a bank safe deposit box. There are many other alternatives one of which should be your home. Be creative and don't tell anyone you own metals.
Muro
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  • Silver and copper's value is driven by industrial uses... so hoarding copper may hurt you in the event of a bad economic situation short of utter collapse. – duffbeer703 Sep 05 '11 at 23:55
  • Because an item has other uses does not preclude it from being used as money. Cigarettes, wheat, corn, and tobacco have all been used as money even while they were used industrially. – Muro Sep 06 '11 at 02:05
  • For day-to-day transactions one might consider hoarding some old circulated silver coins. The coins hold no numismatic interest and maintain a known quantity of silver, making them ideal for day-to-day transactions. These can be found on eBay for slightly above spot price. – Jerry Penner Sep 27 '13 at 12:48
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Look at a broader diversification. Something like:

  • US Treasuries
  • US Dollars, Australian Dollars, British Pounds, Canadian Dollars
  • Gold and silver ETFs

For physical gold, I'd look at a mix of gold coins and bullion. Study the pricing model for coins -- you'll probably find that the spreads on small coins make them too expensive.

There are a few levels of risk with storing in a vault -- the practical risk is that your government will close banks in the event of a panic, and your money will be inaccessible. You need to balance that risk with the risk to your personal security that comes with having lots of gold or cash in your home.

My recommendation is to avoid wasting time on the "Mad Max" scenarios. If the world economy collapses into utter ruin, we're all screwed. A few gold coins won't do much for you.

duffbeer703
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    yeah in a mad max scenario, a stockpile of good antibiotics might be worth more than it's weight in gold.. Physical gold is a pita.. you pay huge commissions whenever you buy or sell, you have to sell in units of whatever it is you bought.. I'd much rather own IAU or GLD, which is backed by physical gold, but I don't have to mess with keeping it safe, and paying $7 to scotttrade or schwab is a far better deal than 5% to some dealer. Might add swiss francs to your list of alternatives – Chuck van der Linden Sep 08 '11 at 18:09
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You are really tangling up two questions here:

Q1: Given I fear a dissolution of the Euro, is buying physical gold a good response and if so, how much should I buy?

I see you separately asked about real estate, and cash, and perhaps other things. Perhaps it would be better to just say: what is the right asset allocation, rather than asking about every thing individually, which will get you partial and perhaps contradictory answers.

The short answer, knowing very little about your case, is that some moderate amount of gold (maybe 5-10%, at most 25%) could be a counterbalance to other assets.

If you're concerned about government and market stability, you might like Harry Browne's Permanent Portfolio, which has equal parts stocks, bonds, cash, and gold.

Q2: If I want to buy physical gold, what size should I get?

One-ounce bullion (about 10 x 10 x 5mm, 30g) is a reasonably small physical size and a reasonable monetary granularity: about $1700 today.

I think buying $50 pieces of gold is pointless:

  • are you really going to pay for your groceries or dinner in gold?
  • they would be physically tiny
  • there would be high transaction costs to buying or selling them

However much you want to have in physical gold, buy that many ounces.

poolie
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If the "crash" you worry about is a dissolution of the euro, then the main thing you should concern yourself with is liquidity. For that, purchase the most highly liquid gold ETF or futures contract, whichever is more appropriate for the total amount of money involved. Any other way and you will lose a significant chunk of your assets to transaction costs.

If, on the other hand, the "crash" you were concerned about were the total collapse of the world economy, and people around the world abandon all paper currencies and resort to barter as a method of trade, then I can see buying several small pieces being a rational strategy, although then I would also question whether you were a sane individual.

Tal Fishman
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