Gold and Silver as a Hedge Against Armageddon
Some investors I’ve spoken with over the years have made the case for keeping a significant portion (10% - 30%) of their assets in gold and silver. One gentleman's strategy is to keep a large stash of silver and gold coins in case the dollar becomes worthless so that he can buy food and other necessities. I mentioned to him that none of the stores I frequent accept silver bars.
Another investor and I were discussing assets that would hold up in a dollar crash. I suggested farmland. His response was that if society breaks down, people would be raiding the farms for food. He’s under the impression that those same people wouldn’t raid supermarkets and he’d be able to use his gold and silver to buy food at Walmart. When I posited this, his response was that he’d take his gold and silver to other countries. Silver, his favorite, is not very portable. At $20/ounce, you’d need to carry 100 lbs to equal a little over $30K. Gold is 100x as valuable so 100 lbs gets you to $3M. Even still, getting through airport security with a 100 lbs of gold might be a little tricky. In order to implement this type of strategy, it would be best if you had the silver/gold prepositioned in other countries.
We agree that if you’ve reached the amount of capital that you need to sustain your goals, then there’s not much downside in using some of the additional funds to hedge tail risk. Paul Tudor Jones said he owns some Bitcoin. I’d assume he’s not a believer, but I read he’s worth $7.5B so a couple million in Bitcoin it’s not going to affect the kind of car he drives or the restaurants he dines in.
We were never fans of gold and silver as investments, but once we reached our capital goal, our thinking evolved. Again, what’s the downside of holding some gold if the money you invest in it has no effect on your finances.
We believe it’s prudent to hold a portion of your assets like real estate, equities, and fixed income in other currencies for diversification purposes. For instance, If the Dollar loses value through either inflation or a loss in investor confidence, assets in other currencies could be a strong hedge. Unlike gold, these assets produce income. We’re much more comfortable investing in assets where we can quantify a fair value, using metrics, such as Enterprise Value to Operating Income, Price to Adjusted Fund From Operations, or Price to Earnings. We have no confidence as to our ability to determine the fair value of gold, silver, or Bitcoin.
