Thursday, October 20, 2016

How much gold and silver should an individual or family have to protect their wealth?

For those who invest, save, or stack gold and silver, the question always arises on what kind, and how much should individuals or families have to protect themselves from a financial disaster, or to protect their wealth.  The answer of course is arbitrary since no two people live under the same circumstances, but there are some general rules to help in diversifying yourself from the cycles of economic chaos.


If there is anything the last 100 years have taught us is that either by greed, corruption, natural cycles or simple chance, economies and currencies will have periods of extreme decline.  And sadly for most people, no matter how many times the financial system fails, few prepare themselves for that one time the turmoil will come to effect them, or even their entire community.

In just the past 20 years we have seen two economies go into hyperinflation, and several others experience currency crises and deep depressions.  And while the United States and most of Europe has not fully collapsed into any of these scenarios, history shows that at some point all empires fall, and all monetary systems fail.

But will it be in our lifetimes?

If the financial crisis of 2008 proved anything it is that systems can seize up and collapse in a matter of days.  Yet unlike the phantom specters of events such as Y2K or even the more recent Brexit vote, people often don't have months or years to prepare for change and must learn to make monetary preparation a lifestyle choice.

So the question still remains... how much gold and silver should individuals or families accumulate to be solvent in nearly any crisis or financial cycle change that could take place?  We know in Venezuela right now that on the streets an ounce of silver will buy enough food for a family to last 3-4 months, and a gold ounce coin will buy a house.  But more than this, when the inevitable global financial collapse comes what will you need to be able to both survive, and set the foundations to thrive in what new system emerges.

The first thing one must do is change their mindset.  When determining the amount of precious metals to own the solution is not determined in price or value, but in the number of ounces.  This is important because their values change daily, and are different in relation to the hundreds of different currencies operational around the world.

Second you must do a real evaluation of your wealth, incomes, debts, and needs.  And from there it becomes much easier to figure out what goals to set in accumulating a stack.

Thirdly you must recognize what each form of precious metals does for your portfolio and how to allocate it.  The best rule of thumb is to see the metals and metal stocks in this light.

1.  Gold - Wealth protection
2.  Silver - Barter and also Investment
3.  Mining Stocks - Speculation

Each of these are also in the correct order of risk, with gold being the least risky and mining stocks being the most volatile.

Here is a good example of how much of each metal you would need if there were no longer cash or income from employment, and the economy had moved into an inflationary spiral.

Chart courtesy of Jeff Clark

But as with all financial crises, there are no cut and dry parameters or limits to be fully covered.  As I noted today in Venezuela, only three ounces of silver would cover your food needs for one year.

In times past brokers who actually believed in precious metal ownership suggested having 5-10% of your wealth held in both gold and silver, while another 5% might be dedicated towards speculation (mining stocks).  But this adheres to the premise of value vs. ounces, and since your would be holding the metals physically in hand, ounces are the most important determinant.

As I am not a Certified Financial Planner, I can only give suggestions and thoughts based on my experiences and prognostication of future events.  And with this in mind for myself as a single unmarried individual, my minimum stacks would be like this.

10 ounces (or equal grams) of gold bullion
500 ounces of silver
$500 - $5000 in speculative mining stocks

In the end this article is not meant to determine exactly for you how much gold and silver you would need to protect your wealth and hedge against financial crises or uncertainties.  But it is a beginning from where you can assess your own situations and set some short, medium, and long-term goals because the time for buying any type of insurance is always before the disaster strikes, not while it is happening when that insurance will be far beyond your ability to afford it.



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