We frequently refer to gold coins as an investment, but that is actually a misnomer.

May 27, 2011 – We frequently refer to gold coins as an investment, but that is actually a misnomer. When we invest in any instrument we put some of our capital at risk, expecting to cash in the instrument at some future date and realize a profit. In the interim we expect to be compensated for the risk through returns – either interest or dividends. The important thing about investments is that we entrust our wealth to some third party based on that party’s suggestion of good returns. And our wealth becomes their liability.

Gold coins are just money, pure and simple. When we take physical possession of gold – and that is a very important distinction – we have not entrusted our wealth to another party. We are not compensated through returns, but neither have we put our capital at risk. We have only put our money in storage.

That is why “smart money” rails at buying gold coins. Stored capital from their perspective is guaranteed to lose value over time. I agree wholeheartedly – when that capital is currency or currency based paper. But the argument doesn’t stand up when the capital is gold coins.

The difference is that paper assets – whether equities, bonds, or currency – depreciate in terms of purchasing power, and rather quickly at that. Real money, however, neither appreciates nor depreciates. Gold coins stored away today will buy as much in ten – or a hundred – years as they will today. No more, no less. The question about the wisdom of buying gold coins has no relevance in terms of traditional investment and needs to be reframed.

Say you have the equivalent of one year’s groceries to invest or store for the next 10 years. If you invest you will be paid returns, but you will have to plough them back in to keep up the investment’s worth as the underlying currency declines. Or you can receive stronger returns by putting your capital at greater risk.

Either way, the trend over the past several decades virtually assures that when you cash in you will be fortunate to buy 8 or 10 month’s worth of food. And there is a real possibility that you couldn’t afford even a loaf of bread. Had you bought and stored gold coins, however, you could eat for an entire year.

Regardless of your appetite for risk, prudence dictates that a good portion of your wealth be safely stored for the eventuality that your traditional investments lose their worth. Regularly buying gold coins and storing them securely will ensure there will always be food on the table, no matter what happens.

Kevin Johnson

Senior Staff Writer –

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