I don’t know how many of you actually look at the so called “survival” advertising out there today, but I find it getting pretty mundane and self defeating towards the aspects of emergency and disaster preparedness planning. In particular, I find the advertising and promises of the metals trading companies rather hard to swallow. Don’t get me wrong, investing in precious metals can be very financially rewarding, but I wouldn’t want to bet my chances of surviving the coming times on a single ounce of gold.

In spite of the history of its wealth properties there will indeed come a time where gold will not be all that valuable. Not in the immediate future, mind you, but sometime in the future the wealth value of gold will diminish and another commodity will take its place. There was a time in history that aluminum was more valuable than gold, remember? Wealth value of any commodity has more to do with the issues of supply and demand than its other properties. Oil is a commodity that has high value and it has no other real use besides providing fuel at a reasonable cost. If the market were to be flooded with oil, the cost would go down. In a supply contraction period the cost is driven upwards by the demand. Gold works the same way, so doesn’t silver and any other precious commodity.

As I stated, investing in precious metals can be financially rewarding and it is for many people. But to stack your odds of surviving the coming times on a pile of bullion may be a catastrophe in and of itself should the ultimate meltdown occur. Why? Think of it in the long term planning aspects. The world buys and sells based upon the medium of currency. Different countries have different values to their own currencies, but the all deal in money in its cash form and terms. For example, when you go down to the grocer and get a loaf of bread and a gallon of milk, what do you give the cashier in exchange for that bread and milk? You don’t shave off a piece of bullion, you give them cash. It matters little as to the form of cash or currency you give to the cashier. Cash, check and credit are all imaginary currency. And that currency is based in large part upon a promise of the issuing government to make good on that currency. It’s called a fiat currency, or promissory notes. There is no gold involved in the backing of those notes today. In a sense, one could say we live in a world dominated by fake, or monopoly, money.

You are merely trading that promise for some article you need, such as food for your family or a roof over your head. We tend to look upon the term ‘barter’ as an archaic word that really has no place in a modern economy, but the fact is that you are still bartering. You are bartering a promise that the government made concerning that little piece of currency you gave to the cashier. It isn’t viable wealth in any sense, it’s a vague promise. So what happens to a currency when that government made promise vanishes, and the government cannot make good on the promissory note? The economy collapses and you are out of luck. That wad of hundred dollar bills you have stashed away is good as tinder and nothing more. Well, actually it has another use, but that one won’t get you that gallon of milk for the kids either.

Trade is based upon need and desire, and the desire aspect more generally controls the value and tender amount of that trade, not some piece of paper that says a dollar is a dollar.

To give you an idea of what I mean by value and dollars, let’s take a look at whiskey. I don’t know whether you approve of whiskey or not, and it really doesn’t matter for this discussion because it makes foe an excellent demonstration product. I prefer Scotch Whiskey, so we’ll use that as our example.

Say I was to go down to the local liquor emporium and buy a 5th of Dewar’s White Label. The usual size is a 750 ml bottle when you buy whiskey, but it is available in other sizes. That costs me about $22.00 for the bottle. Now, we are in the US so we need to change that volume into ounces, and we have 25.3 oz, US. Using the volume to find the dollar value gives us an actual price in today’s dollar of $1.15 per ounce. That’s pretty expensive for a drink that does you no good, so why spend the money? Because we have a desire for the drink, which in turn gives it value.

Now, let’s go down to the pub and get a Scotch on the rocks, and we specify Dewar’s instead of a well Scotch. They rook me out of five dollars, not including tip, for the drink. Two ounces was the measure of Scotch in the glass, or so I’m told, which means that the same product costs me not $1.15 per ounce, but $2.50 per ounce. The Scotch was the same, but there was a higher dollar price tagged to the value of the drink. The reason for that is clear; when we buy at a bar we are paying for the business’ operations and stock for resale. But still, we place a higher value on an ounce of Scotch at a pub, than we do for that same ounce at home.

The moral of the story is the same no matter what item you use for establishing a value. Would I have paid $10.00 for that Scotch on the rocks? Not in any way shape or form. If I didn’t like the stuff I wouldn’t have bought it in the first place, so in that case the Scotch would have zero value for me. Value is an arbitrary figure that we place upon something, and that figure varies depending upon the desire to obtain that product, balanced against its availability.

We pay more for a Scotch on the rocks in a pub because we can’t walk over to the kitchen and make our own. Precious metals work the same way, and so doesn’t any other investment. For the price of something to be high, there must be a high demand coupled with low availability. Gold and silver are commodities that are limited to supply on hand, and while that supply keeps growing at less than the demand for these metals, the price will continue to climb. So, it makes for a good investment medium. But like all other investments, don’t do it unless you can afford to lose the money you put into it.

The reasoning for that is because no investment is an assured investment. The bottom line is that if in fact the bottom falls out from under society, and the economy collapses rapidly, and the infrastructure comes to a screeching halt, where will that investment be, and how much will it be worth?

If nobody has any money to buy gold, where will the demand be? The demand will be lower, which will drive the value lower. If you bought high, you lose. The next factor is what kind of investment is it? Many firms only transmit a paper to you that says you have purchased so many ounces of gold. If the ultimate collapse occurs, what good will that paper be to you? If you have physical bullion, how will you spend it? Suppose you want to get a bottle of Scotch and new of someone that had one for trade. How big of a slice of that bullion will it take? No one really knows as the value of that bullion is up for grabs.

The bottom line I am getting at here is that while precious metals may well be a good investment tool, they make a lousy survival tool. There are too many variables, too many ifs involved with the medium. If you believe currency by way of gold and silver metals will still be useful in the coming times, then I suggest you buy as much junk silver coins that you can accumulate. The value of these may be high, or they may be low, nobody knows, but I do know that when the crap hits the fan, the rules will immediately change. And I believe those rules will change in ways that most people will not be able to fathom in the coming times.

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Comments
  1. Jeff Howe says:

    For the most part, I agree with you. I have some silver, but I bought it back in the 80s more as an investment. The problem with gold as a security blanket in difficult financial times is that its intrinsic value is determined by the commodities markets which makes the price volatile. Sure, it may shoot up to $2000 an ounce, but it could drop to $500 an ounce as well which effectively cuts the value one holds today in half.

    There is one scenario, though, where I think having some gold can be justified. If we hit a period of hyperinflation which totally devalues the dollar for an extended time, there is the potential for the government to replace the dollar with another currency. The swap value of the dollar for the new currency probably won’t be a on a one-to-one ratio (or there will be a time limit established to get all dollars changed over) and that is where gold could hold the value you need to make a fair swap.

    In the case where dollar valuations are iffy, the more appreciable items one holds, the less one’s net worth will be demolished by financial turmoil – especially if those appreciable items were good value when initially purchased.

  2. dlsoucy says:

    Jeff;

    I agree with your points, and as I stated, gold can be an excellent investment tool, provided you can afford to lose that investment. My points are directed to the fact that one should not use gold or any other type of investment as a way to develop your disaster preparedness plans. In other words, if you cannot afford to buy gold and stock up on food, water, seeds, medical supplies, guns etc etc, don’t invest in the precious metals. Something that you may not be able to utilze in a complete breakdown will be a waste of your resources. You can’t eat or drink precious metals, and if you can trade it, how are you going to determine what that metal is worth in a trade. Remember, in the ultimate breakdown there will be no government to back a fiat based currency, so all values are up for grabs.

  3. greg says:

    Hello,

    Your points are well taken. I have switched out of the dollar to other currencies, stronger than the US dollar. However fiat currencies and banking in general are doomed to failure in the future, in my opinion. I have large positions already in gold, silver, and even copper. For the last couple of months, the returns have been excellent. Where they will go in the future is unknown. If the world economies collapse I do not know of better investment alternatives. Perhaps you might have some suggestion? Or is it your view that all investments are doomed in an economic collapse? If money is worthless, and gold and silver are also, what has real value? Perhaps only land and stockpiles of food and medicine. Your thoughts on this would be appreciated.

    thanks,
    Greg

    • dlsoucy says:

      Gold is in fact a good investment tool, provided you meet certain criteria. As with any other kind of investment, you should not invest money you cannot afford to loose. We need to remember that FDR made it illegal for americans to own gold bullion and currency with the stroke of a pen. If that should occur under Obama or hios succesor, can you afford to give up your gold to the government for whatever price they desire to place upon that gold, if any?

      The point I am trying to make is that you should first make sure you have a solid roof over your head, protection, food, water and everything else you need for long term survival in the coming times. Gold is good, but what if it becomes worthless, or close to it? With the probability of food supplies becoming scarce, the price of gold will become meaningless compared to the price of food. We too often envision the future penned in by today’s values and ways. If in fact a collapse should occur, everything will change, and we have to be able to adjust for these changes. We cannot do that if we are anchored in today’s model of investment as it relates to the moment.

  4. greg Clark says:

    Hello again,

    I understand your point about having a roof over your head, etc. I have a few properties, free and clear. I am prepared as much as possible in terms of readiness for a financial collapse. However, if money has no value, then what does? You are suggesting gold, silver, etc. will possibly become worthless. If money and gold are worthless, then the only alternative is predominately self-survival. That would entail either barter, or being entirely self-sufficient in terms of food, medicine, etc. However, there are a lot of people in the world, like me , who have varying and ascending degrees of financial stability. I think there may be many more people like myself, who could possibly survive the impending financial collapse of world banking, and one day, like many historical periods of economic downfall, gold and silver will have real value again. If your ideas are correct, even in the worst scenario, gold and silver will be impacted only for an indefinite period of time. Gold will always, in my humble opinion, have intrinsic and real value, as opposed to artificially inflated promissory notes. (ie. fiat currencies).

    • dlsoucy says:

      Well good for you, you’re much better off than most people are going into the game. You’ve got a better chance than most. You are correct in that gold will always have intrinsic value, and therein lies the crux of the problem with assuming gold can be common barter in the coming times.

      Thanks to the misleading efforts of many to paint the coming cashless society into a picture that it really isn’t going to be, it has been viewed with much misunderstanding. Many interpret this thing as something arcane, controlled by a few people whom the conspiracy peddlars want to place in a bad, but probably deserved light. The fact that gold can have a value unconnected to any governments ability to control makes it an undesirable element in any country’s currency valuation.

      I believe that there will always be national currencies, but those currencies will become valued to a more or less level of worth in comparison to the world markets. We see the drive by the current US administration to push China to revalue its Yuan so it is more closely allied with the US dollar. The world currency markets continue to fluctuate as the dollar declines in value, while others rise or decline as well until one day, all will be equal.

      But as that trend occurs, we see nore and more countries moving towards the usage of plastic for transmitting tender, and now cell phones, and eliminating paper currency. Great Britain has passed a law banning paper checks as an exchange of tender by I believe it was 2016. Many countries are trying to eliminate certain denominations to make it more convenient to use plastic. even here in the US, in New York cabbies will not accept cash for the most part, more and more public transportations are changing over to non-cash payment schemes….

      I could go on and on for pages, but you see where I am heading. Eventually, even though tender will always be based upon currency, actual currency will disappear to be replaced with credit/debit payments for all transactions. At some point I can envision the governments of the world deciding to make gold illegal for use in financial transactions in some way, perhaps by banning its individual ownership as FDR did in the thirties.

      Gold is, as I’ve repeatedly said, a great investment tool, but that is all it should be used for. One can make tons of cash, but we need to remember that if such an above described scenario becomes fulfilled, what will you do with all of those little gold bars? Unless you have bought your gold under the table, on the black market, the government knows how much gold you own, and where you live.

      I’m looking at this discussion not into the very near future, i.e. five to ten years, but fifteen and more years into the future. It will take time for all of this to come together, but the ball has already been nudged, and is rolling along gathering steam every day. In one decades time from now we will see a completely different picture of the world around us, and a decade after that it will be far different still.

      Gold is good, but if we are prohibited from using it as a way to provide for our daily needs, what will we use?

      I really can’t discuss my ideas completely in this short venue, much as I’d like to, but I do discuss them on my Blogtalk show, and currently have started a series on setting up your long term survival homestead for the coming times. Perhaps you’dlike to listen in to the podcasts?

  5. greg says:

    Well, we both share a dismal view of the future for currencies. As you noted, plastic will ultimately replace currency, which will also eradicate any sense of financial or personal privacy. People will become as digitally transparent as their computer’s digital identity.

    As for gold, in Thailand, the gold shops sell gold bars with 96.5% purity. There is no ID required and no records made of transaction, big or small.

    In terms of world currencies and banking, I think it is possible that tremendous change could occur within a few years, if that. Bernanke loves QE, as do many others that wish to artificially stimulate inflation by watering down the dollar. As the dollar continually and steadily falls into the abyss of becoming worthless, several other world currencies will be negatively effected. Heaping debit on top of debit is a sure road to financial collapse. The US has become the forerunner in this pursuit.

    Thankyou very much for responding to my questions. I would be quite interested about your ideas concerning “long term survival homestead.” People should start to be aware that survival of the fittest will be those who are prepared for the worst.

  6. yoshikawaa says:

    Great post!

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