Precious metals don’t provide a steady stream of income and sometimes require an annual storage fee. However, it could still make sense to invest in them for several reasons. First, the demand for gold in China and India is huge, and central banks all over the world buy them to hedge against political turmoil, hyperinflation, invasion, economic warfare, and environmental disasters – things that can happen at any time. Gold is a proven long-term wealth asset that’s useful when the market is sliding deep into crisis.
Gold is also bought as insurance against fiat currencies. When investors lose confidence in the dollar, gold prices go up and vice versa. Currently the price of gold is wavering at around $1,150 – $1,180 per ounce. Fifty years ago an ounce of gold could be traded for about 13 barrels of crude oil. Back then oil was under $10 U.S. a barrel. Today in 2014 oil costs more than $80 a barrel because the U.S. dollar has lost a lot of value. However an ounce of gold today is still worth about 13 barrels oil. 🙂 People often discuss the strength of one currency against another. But in the long run no fiat currency can keep up with real money and hard assets.
One way investors can get exposure to gold and be paid in precious metal dividends is through physical dividend programs. Dividend programs that involve precious metals allow companies to pay shareholders with physical gold and/or silver rather than cash.
Physical dividend programs usually allow stockholders of participating companies to tailor-fit the dividend payouts. The dividends can be purely precious metals payment, or mixed with cash. Investors may change their dividend payout preference whenever they desire. Endeavor Mining Corporation is one of the mining companies that can pay its investors with physical gold. Neil Woodyer, the company’s CEO, said that paying shareholders with the precious yellow metal is part of Endeavor Mining Corporation’s “crusade in rebuilding investor confidence in the gold sector.”
Physical dividend programs sound interesting. I wonder if there are any companies in Canada that offers it.
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Random Useless Fact:
1 ton of discarded cell phones contain more pure gold than 1 ton of newly mined gold ore. (source)
Liquid,
Interesting post.. I never heard of the GBI Physical Dividend Program before.
Me neither. I just heard about them recently. Could be interesting for people who are using the permanent portfolio strategy.
An interesting gimmick but one tailored to the mentality of some of their investors. There is a crowd that truly believes the world will collapse and all fiat currencies will fail. Only precious metals will survive. The companies offering a physical dividend are genius at tapping into this. They get to save money by sending out a coin at cost but at spot rate prices with all fees given to the investor.
Yeah the real winners are going to be the brokers who make money no matter what happens to the price of precious metals heh.
Now here comes out crazy-prepper-zombie-apocalypse-believing-Steve: “The ONLY reason I would want to own gold is for insurance purposes in case the zombie apocalypse happens (with fiat currencies collapsing and such). In this kind of scenario, I’d want to hold physical bullion rather than some company “promising” to hold the gold for me – do you really think these companies are going to give back the gold in a zombie apocalypse? Well, now the world has gone to shit and I have a bunch of gold bars and coins. Wait…. what can the gold even do for me? There are probably more serious considerations like surviving from the hordes of zombies/cannibals/deviants so I guess this gold bullion is pretty useless. When I try to trade it for food, other survivors laugh in my face and ask me why they would trade their precious food and resources for such a useless piece of metal? Dammit, I should have bought a chest full of guns, crossbows, hunting knives, and survival gear and buried it in an undisclosed location instead of collecting stupid, useless gold bullion….” Now, back to the real world. I really don’t understand why one would want gold when they could… Read more »
I the only reason I would buy gold is for insurance as well. For Americans who retired in 2007 or 2008 those who had gold were better off than investors who only held stocks and real estate. In 2008 the Dow Jones fell 40%, and the housing market was also down significantly in the U.S. However the price of gold held steady. If there was another financial crisis in the future, a couple years after I retire, then having a diversified portfolio is how I would try to protect myself. I don’t think gold should be a large part of one’s nest egg. The permanent portfolio sounds overly ambitious to me. But maybe keeping 1% of a portfolio in gold can come in handy when someone might lose a job during a recession, and don’t want to liquidate their depressed stocks. If their severance package runs out and they need money then they can sell their gold to a bank or a bullion dealer right away. 🙂 1% precious metals holding doesn’t add a lot of risk to someone’s overall portfolio, but like you said, it’s pretty good insurance against uncertain times.
Haha in truth I do agree with your position – thought I’d make it fun by brining out the crazy zombie apocalypse believer in me 😉
And of course I also understand why one would want to diversify into “inferior” asset classes outside of stocks 😛
Liquid,
I’ve also heard the gold bugs talk more and more about gold being “insurance” to fiat currencies. I guess so, if by insurance policy you mean a metal that bombed in value from $1,900 to $1,100 per troy ounce. You’ve got guys like Peter Schiff screaming louder and louder everyday the price of gold falls that “NOW” is really the time to buy.
Liquid, skip the bs! You’ve already got this one figured out. Real estate is the insurance to fiat currencies. It’s useful, has intrinsic value. Provides income. When it’s paid off and in your name, well then it’s yours forever, or at least until the Bolsheviks revolt. Are you gonna live your life in wait for the world to collapse?
JR
As a great investor once said the market can be wrong for far longer than you can hold out on. Sure maybe one day gold will hit $2,000 an ounce, but if it’s going to take 20 years to get there then that’s not a very good annual rate of return. I will stick with stocks and real estate as my main investment holdings 🙂
I wonder if real estate prices have also kept up with oil and gold prices. :0)
Need to be cautious with miners in developing countries also when the metal prices are high but the economy is very bad.