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If You Own Gold for "Disaster Insurance," Read ThisBy
Thursday, March 28, 2013
Why do you own gold?
Maybe you're looking for a timeless store of wealth.
Maybe you own precious metals as a "chaos hedge." When times get tough and investors get nervous, the prices of gold and silver tend to go higher.
Or maybe you're looking for "disaster insurance." If things really get bad – if the monetary system completely collapses – you might be able to use gold and silver to make everyday purchases.
There's just one problem...
At $1,600 an ounce, gold is worth a lot. It would be hard to spend a one-ounce gold coin on groceries or gas. Gold coins aren't "divisible." So they're not much good in everyday situations.
I had lunch with Michael Checkan earlier this month. Michael is president and CEO of Asset Strategies International (ASI). He's been in the gold business for decades. And he and his team at ASI have been one of our recommended coin dealers for years.
"Many of our clients own silver coins to add divisibility," he told me. "But there hasn't been a way to own divisible gold... until now."
The folks at Valcambi, a Swiss gold refiner, just came out with a new way to own gold. It's called the CombiBar. Michael gave me the full details. I thought it was worth passing along...
"I've dealt in the gold market for over 40 years," he told me. "This is the first time I've been able to solve the divisibility problem with gold."
These gold bars come in 50-gram sizes. That's about 1.6 ounces, or around $2,600 at today's price.
The bars come perforated in a 5 by 10 grid. Each square is exactly one gram of gold. And the squares can easily be broken off, by hand, into one-gram pieces...
At today's price, one gram of gold is worth around $50. So if the situation ever came up where you'd need to spend your gold, one-gram pieces could easily make small purchases.
These bars offer the divisibility that no gold coins can.
The benefit of divisibility does come at a price. The CombiBars will cost you the price of the gold, plus a 13% premium, along with shipping, handling, and insurance. (You can get a discount for large orders.)
A 13% premium might seem pretty steep. But remember, even generic gold coins trade for a 6%-8% premium right now. So the "divisibility premium" is actually only a few percent.
Personally, I don't expect the world to fall apart. I don't expect I'll ever buy groceries with my gold. But lots of folks own physical gold to protect themselves from that situation. And if it does happen, it'll be useful to be able to divide your gold into small increments...
This isn't the right opportunity for everyone. If you own gold to speculate on its price, this isn't for you. But if you own gold as a "disaster insurance," it's worth considering.
Good investing,
Brett Eversole
Further Reading:
Doc Eifrig doesn't think the world is headed for ruin. But like you'd buckle your seatbelt before driving your car, Doc recommends owning some gold and silver... just in case. Read more here: Here's What Poor People Don't Know About Gold.
And last year, Doc showed readers how powerful holding chaos hedges in your portfolio can be. "When investors get nervous about bad economic news... debt crises in Europe... and the specter of runaway inflation in the United States," he writes, "stocks fall, and gold and silver rise." Get the details here: The Sensible, Low-Stress Way to Own Gold and Silver.
Market NotesCYPRUS IS SMALL POTATOES COMPARED TO THIS TREND Yesterday, Italian stocks reached their lowest point in months. The Cyprus/euro crisis is driving the decline. It's more confirmation that our "Asia up, the West not so much" idea is working as expected...
For years now, we've written about a big trend we've labeled, "Asia up, The West not so much." The trend is the gradual increase of Asian economic power... and the gradual decrease of old European economic power. Many European countries have declining population growth and onerous business regulations. This creates a headwind against the region's stock and real estate prices. Many Asian countries have healthy population growth and are embracing free markets. This creates a tailwind behind the region's stock and real estate prices.
We often frame this idea by comparing the returns made in the big Singapore stock fund (NYSE: EWS) versus the returns made in the big Italian stock fund (NYSE: EWI). Singapore is a global financial hub and is considered one of the world's easiest places to do business. It also sports a low corporate tax rate. Italy is deep in debt and tough to do business in.
As you can see from today's three-year chart, the recent Cyprus debacle is a small part of a much bigger trend. Since early 2010, the EWS (blue line) and EWI (black line) have plotted very different courses. Factoring in dividends, Singapore is up more than 30%. Italy is down 30%. When it comes to Italy, we'll take the wine and food... you can keep the stocks.
– Brian Hunt
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