Jul 122012
 

It looks real. But this is Iron Pyrites. However, is true gold really any more valuable?

What is the real difference between ‘real’ gold and ‘fool’s gold’ (Iron Pyrites)?  Sure, real gold is very expensive and iron pyrites is close to worthless, but why is gold so expensive and why are so many preppers so fixated on gold?

We can’t really answer the latter question, but we can provide reasons why you should ignore anything to do with gold as part of your preparations for an adverse future.

In short, real gold is indeed much more expensive than fool’s gold, but – for our purposes – perhaps they are of equal (and minimal) value.

Which Would You Prefer?  Gold or….

Perhaps the best way to discuss the relevance of gold to preppers is to look at three alternatives that we might likely encounter.

One that is a for-real alternative we all have to consider today, and the other two are hypothetical alternatives in a possible adverse future scenario.

1.  A Present Day Choice

So, you’re a diligent prepper, and you’re building up your supplies and establishing your retreat.  Let’s say you’ve just won a lottery prize and suddenly find yourself with an unexpected spare $630,000.  Lucky you!

Which would you rather do with this money?

(a)  Buy a single standard sized 400 troy ounce gold bar (based on today’s gold price of $1575/ounce this would cost $630,000).  Keep it somewhere safe and secure, and worry about it being stolen.

(b)  Complete work on your retreat, expand it a bit, upgrade some of its systems, add extra tanks for fuel storage (and fill them with fuel), buy more supplies, do some landscaping to optimize your future use of your land, and buy extra supplies for future trading or unforeseen emergencies.

Which use of the $630,000 is going to be most beneficial to ensuring your comfortable survival?

The same question applies if you have $63,000 or $6300 or any other sum, large or small as well.  There’s no limit (for most of us who are not on the Forbes 500 list!) to the investment you can make in your retreat and your supplies – and neither is there any limit to the investment you could make in gold either.

But – we suggest – buying gold will never be as useful a strategy as would be investing your cash in additional resources and supplies and materials.

2.  A Future Choice

Let’s say you’re a year or two into a Level 3 situation.  You’ve been surviving, but you’ve pretty much burned up all your stored diesel and propane, a hailstorm smashed some of your solar cells, you had a disease wipe out a lot of your crops last season, and while you’ll survive, you’re hurting a bit.  But on the plus side, you’ve been untroubled by any lawlessness or looting, and you’re starting to wonder if the million rounds of ammunition you stockpiled will all be necessary.  Maybe you might sell some of them.

Word gets around and three people come to see you, each offering to buy some of the ammo you don’t need from you.  Which of the three offers do you accept?

(a)  The first guy offers you payment for the ammo in gold.

(b)  The second guy offers to swap ammo for solar cells and diesel.

(c)  The third guy offers you food.

Now some of you might decide you’ll take option (b) and others might choose option (c), and we’ve deliberately left this hypothetical question open by not specifying actual quantities, because we are trying to point to the underlying principle.  Choosing either option (b) or (c) is each equally valid.

But who would choose option (a)?  You can’t eat gold.  You can’t generate electricity from gold.  You could freeze and starve to death in a house that was full of gold.  Gold has no intrinsic value to people focused on survival.

3.  A Stranger Rides Into Town

Two strangers ride into your prepping community.  They are from two other communities, and each are seeking to trade with your community, wanting to acquire your surplus of crops that you grew during the last season, and which you now have to trade with.

(a)  The first person offers to buy all your spare crops, and will give you gold in exchange.

(b)  The second person offers to buy all your spare crops, and will give you his community’s surplus of bio-fuel and meat in exchange.

Which offer do you accept?  Which offer is best for your community, improving its quality of life and ability to continue surviving into the future?

Hoarding Gold is a Low Priority for Preppers

Note that we deliberately make these three examples into ‘either/or’ choices, and that’s perhaps where so many people might make a mistake.  Sure, in a perfect world, of course we’d love to have lots of gold.  And diamonds.  And silver.   And warehouses full of food.  Our own oil/gas well and a working refinery alongside.  A luxury yacht with nuclear powered engines that will never need refueling.  And so on, and so on, and so on.

But in the real world, we have too little money even to buy all the things that are on our ‘Absolutely Must Have’ list.  We all need to be rifle-focused on checking off the items on our respective ‘Absolutely Must Have’ lists before we then start to add less essential and luxury items to our inventory and preparations.

Shelter.  Water.  Food.  These are the three priorities in our lives.  Gold is neither shelter, water, nor food.  And we have to choose between either gold or some combination of shelter/water/food.  We can’t have it all.

If we can’t have it all, clearly, the gold is the item best left behind.

Gold Will Not Keep Its Value in a Level 2/3 Scenario

Let’s also look at what might happen, if – and that’s a huge if – but let’s just say, if gold does end up having some sort of currency value in a Level 2/3 scenario.

One thing we can be sure of, with no if’s at all, is that an ounce of gold, costing us $1575 today, will buy us a lot less in that future situation than we could have bought with the $1575 today.  For sure, absolutely and of course, everything will shoot up in price, because it will become scarce and either hard to replace or irreplaceable.

Well, yes, everything will shoot up in price, except for gold and other forms of abstract money.

If you have spare money at present, after having bought everything on your ‘Absolutely Must Have’ list, we suggest you use that spare cash to stockpile things of real rather than abstract value – the things that will shoot up in value.  Extra fuel.  Extra solar cells.  Extra food.  Extra fertilizer.  Buy more land.  Plant more trees.  And so on, and so on.  These are all things that will either be valuable to you in the future, and/or will be valuable things you can sell/trade with other people.

But what would you do with gold?  Remember how you answered the second and third question above.  You didn’t choose to exchange your spare ammo with the guy offering you gold, did you.  You didn’t swap your town’s surplus food production for gold either, did you.

What say the situation were reversed – you now have only gold, but nothing else, and you’re having to persuade someone to sell you food or whatever, and the guy with the goods you need is choosing between your gold or another person, offering to swap food for bullets or fuel or something else – anything else – useful.  What do you think he will choose?

The Gold Standard, How Much is Gold Really Worth, and Other Economic Issues

Some people and preppers believe it was a mistake when the US and other countries abandoned the gold standard, and they further suggest that a lot of the problems in the world since that time have been due to leaving the gold standard behind.

Frankly, and although we came top of the Economics classes in our Masters degree, we have no dog in that fight at all, and neither should you.  We have no opinion as to the validity/error of abandoning the gold standard (like much of economic theory, it is a complicated issue which calls for value judgments as much as for dispassionate calculation), and, more to the point, no interest in the topic.  What’s done is done, and nothing we can do will change it, and neither will embracing gold personally make us any richer, or more attractive to the opposite sex, or anything else either!

Gold has only been a good investment if you bought and sold at the right times.

Nothing to do with gold has anything to do with being a better prepper.  Gold is a distraction that takes our focus – and potentially our funds – away from matters of much more essential importance.

As you can see on this chart, and more clearly on its related website, it is true that if you look only at the last six or so years, gold has been a great investment.

But it is also true that it has dropped 15% in the last six months, and 19% from its peak at the beginning of September last year, and it is also true that for twenty or more years prior to about  2004, gold did not go up in price at all.  So, as an investment, gold is far from a guaranteed sure thing.

Let’s circle back to the question we asked at the start of this article, and slightly rephrase it.  Why is regular gold so expensive, compared to other bright shiny metal?  Why has it gone up in price so much over the last few years?

The answer to this surely simple question is awesomely complicated, and probably has to do with complicated international speculation, hoarding, and things close to price fixing.  But the real true answer is that there is no underlying intrinsic reason why gold should be so expensive.  Gold is like the emperor’s new clothes – it is an unreal artificial thing that only has value as long as everyone agrees it has value.  As soon as people start to turn away from gold, its value could plunge again, just like it did in the early 1980s.  After briefly going over $800 an ounce, it crashed down to less than half that price, ruining a lot of people in the process, and did not return to $800 for almost 30 years.

Because of major players with vested interests in sometimes protecting and sometimes manipulating the value of gold (not just individuals, but also banks and entire nations) the value of gold is and will remain an artificial thing, and we ‘ordinary people’ play in those markets at our peril.

Summary

Maybe gold might return to a form of commonly traded currency in a Level 2/3 situation.  But, even if this were to happen, we do not suggest you ‘invest’ in gold at present in anticipation of it becoming a valuable item in the future.

If you have spare cash at present, your highest priority is to enhance the level of your preparations.  When you feel that is fully optimized, if you have remaining cash, we recommend you put that extra money into more supplies to be used as future trading goods.

Future trading goods will massively increase in value in a Level 2/3 situation.  The relative purchasing power of gold will therefore decrease.  Future trading goods are both a better way of carrying forward wealth, and are also something that may directly impact on your own ability to survive comfortably and well.

You can’t shelter in gold.  You can’t drink it.  You can’t eat it.  For us as preppers, it therefore should be of no interest or relevance.

  3 Responses to “Is All Gold Really Only Fool’s Gold”

  1. I completely agree about gold! You cannot EAT IT! (It is bloody dirty anyhow).
    What about silver coins? R U still invested in the stock market at all?
    It scares me! (I still have my retirement crap in it, but don’t trust the Jon Corzine’s and MF Global like fraudsters. I know I need to put the money into hard assets, but would like it to grow somehow too.
    Silver is low right now. I think hard assets are definitely #1, then the rest.

  2. Everything we said about gold can be said equally for silver, too.

    We do have some positions in the stock market, but typically do very poorly there, alas. If we ever start suggesting stocks to buy, ignore us!

    Hard assets are definitely sensible. Then there’s one other thing too – land. Sure, we know that property prices have been dropping or mushing around the last few years, but that was a short term correction to the preceding period of madness. The thing about land is, as has been observed famously before, they’re not making any more of it. Population pressures meet the law of supply and demand and there’s only one thing that land can do – increase in value.

    It is true that some parcels of land, in some areas, will go up faster than other parcels elsewhere, and in the long term, we’re all dead. And it is true there are holding costs associated with land ownership that many times mean it is better to buy developed land that you can rent out so as to cover your costs of ownership.

    Perhaps the best investment of all – land in the form of establishing your own retreat.

  3. […] reader comment in reply to our article about not investing in gold made us realize that we need to consider not only what are not good investing strategies but also […]

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