There are a whole host of reasons to own gold and silver, all converging together to make precious metal ownership a wise thing to do and a potential way to store wealth, for both the conservative saver and speculator alike. There are a lot of facets to the whole subject, many of which we touch on in this article but in essence the following assertions will be explored.

• Paper currencies like the dollar, pound and euro aren't money.
• Private Institutions via central banks and government steal what value your currency has through inflation.
• Public and Private Debt is higher now than ever before in history and the world financial system is on the brink of collapse.

To begin to understand all of this we first have to look back in history and re-examine money and its evolution.

Originally we had the barter system where goods and services were exchanged directly. The trade was extinguished immediately so there was little or no risk to either party. There were many problems with this system. To be able to buy something, you needed the seller to want something you had, or through a series of similar exchanges, something you could obtain. Change could often be difficult to facilitate because some goods couldn't easily be divided. People who produced perishable items had time contraints on their store of wealth and some people, by the nature of what they offered, had no means to store wealth at all.

It wasn't long before this was solved in the form of items that represented value. Historically this has been anything from feathers, shells, teeth and bones right through to paper money. The most successful and enduring (until recently that is) is undoubtedly metal coins. Made from metals that had been desired by humans for thousands of years, coins were:

• Limited in supply due to the metal they were made from.
• Easily divisible.
• Durable in use, though even metal over time wears down.
• Reliable in value because people were owning something of intrinsic value.
• Easily made uniform to ensure one coin equalled another.

Coins made perfect sense and solved the problems of the barter system.

Originally, coins were valued for their pure metal content, but as civilisations that issued money grew, certain standardised coins emerged that were relied upon by the people to contain fairly exact amounts of pure metal, much like well established coin mints today.

At this point an opportunity to defraud the people arose, an opportunity that the Roman Empire took on a number of occasions. By placing a value on the coin and then shaving them, drilling holes, cutting pieces off and smelting with more common metals, the Romans could create more currency than the available gold would have allowed.

Emperor Diocletian in the third century AD, in an effort to fund domestic spending and empire building continued this currency debasement. When the people began to lose faith in these debased coins, he actually issued price controls and attempted to force the people to accept their "legal tender" coins by threatening them with the death penalty. As a consequence, rather than lose money by accepting debased coins or risk death by selling goods at their true value, merchants simply stopped trading, causing an economic depression.

This debasing of coins did not happen in isolation. History is replete with examples of this.


Fractional Reserve Banking

A more modern phenomenon resulting in the debasement of the value of money comes in the form of what is known today as fractional reserve banking. This is where the reserves a bank holds is only a fraction of the value of the deposit receipts it issues. This really began in England...

People used to deposit their gold in a gold-smiths vault for security, paying the goldsmith to look after it. The goldsmith would issue a receipt of deposit, also known as a gold certificate. These soon began to circulate as payment because they were more convenient than physical gold and, at any time, the certificates could be redeemed for gold.

The goldsmiths soon realised that most people passed around the certificates as payment and never physically took the gold from the vault to pay someone. This meant they were able to produce more certificates for gold than they physically stored. They were able to lend people money and receive interest on it. Providing not all the depositors demanded their gold back at the same time, they could fulfil any nominal withdrawals.

more coming soon...

There are a number of ways to invest in gold and silver; coins, bullion and stocks/shares. Each have their upsides and downsides.

Coins

Pros

Easy to take personal possession of.

They can be totally private.

No account/storage fees.

Their quality is guaranteed by the mint. That means they will be readily accepted as payment during a currency crisis and you don't need costly assays to determine their metal content.

You own physical metal, not paper contracts that could go up in smoke.

They're a convenient, liquid and easily divisble way of spending during a currency crisis.

Easily Divisible for inheritance purposes and free from government scrutiny and/or tax.

Difficult to confiscate.


Cons

Costly way to own metal in the form of a high premium over spot rates.

Need to be secured/insured privately.

More effort required to convert them back to currency, so during non currency crises when they're not legal tender and not widely accepted by the public they are less liquid.

Slightly more knowledge required to obtain non-bullion coins (older coins that once contained silver for example) that do in fact contain precious metal and not simply nickel, Cupronickel or zinc.

Bullion

Bullion can take the form of small bars, which in many ways need to be considered like bullion coins with the added advantage that the premium you pay over spot it less, but with the disadvantage that they may need to be assayed before someone will buy them from you. In all other respects the pros and cons for coins apply.

By bullion I really mean buying gold and silver and paying a custodian to store it for you. There are many different ways to go about this and this is explained in more detail here. But roughly....

Pros

Low premiums over spot rate mean you get more metal for your paper money.

Professionaly secured in a vault and fully insured means you don't need to worry.

You own physical metal, not paper contracts that could go up in smoke.

Easy buying/selling allows you to keep your money out of paper cash and banks, but available when needed.

Some custodians operate digital gold/silver currencies, allowing you to pay other people with gold account in metals, not cash in much the same way as PayPal accounts operate.


Cons

Entrusting your gold with someone else. Confidence in your custodian needs to be established.

Storage/Insurance costs.

Easier to confiscate. It's happened before in various forms, but is less likely now because so few people actually have any. For a more detailed discussion of this topic in click here.

Stocks/Shares

Pros

No annual account fees.

Can earn money through dividends

Potential for profits many times greater than holding physical metal.

No security or insurance required.

Fairly easy to convert back to paper money.


Cons

Potential for bigger losses due to falling prices, particularly for short term traders who are over-leveraged. As with any financial instrument or transaction, the greater the possible rewards, the greater the risk.

Companies can go bust and your stocks/shares go with it.

Entrusting your wealth to the people managing the company rather than the market forces (in isolation) that you determined are blowing in the favour of precious metals.