The Psychology of Buying Precious Metals

I’ve been advising my friends, family, and neighbors to buy precious metals to protect their assets against inflation for several months now. A number of questions have come up.

  • How do I know that the coins I buy aren’t forgeries?
  • I looked at Franklin Sanders’ website and he seems a bit idiosyncratic; is he ok?
  • Once I buy silver coins, where do I store them?

These are good questions. But before answering them, I want to discuss the psychological factors behind the choice to buy precious metals. Buying gold and silver bullion as a safe haven presupposes letting go of certain beliefs about the way our monetary system functions and how that system is likely to fail in the coming years. Let’s take a look at them.

Belief # 1: Dollars and Banks Make Your Assets Secure

We all grew up believing that keeping dollars in a passbook bank account preserves our savings in the most conservative way. The bank protects the money from theft and even pays us a fee called “interest” in return for the right to lend our money to other people.

Most folks who buy precious metals challenge this assumption  for a number of reasons:

  • The Federal Reserve’s monetary policies have seriously eroded the purchasing power of the dollar;
  • Inflation makes the going interest rate effectively negative; and
  • Fractional reserve banking (the mechanism that allows a bank to lend 90% of its deposits) poses this risk: if the loans that its depositors financed default in large numbers, the depositors can’t get their money back (and yes, FDIC could easily go belly up if enough banks fail simultaneously).

The catastrophic collapse of the banking system during the Great Depression happened so long ago that few of us grew up thinking in these terms. And you wouldn’t be likely to ask why the U.S. Constitution explicitly mandates gold and silver as the national medium of exchange unless you knew about the numerous hyperinflationary disasters that befell many of the Colonies. Without studying some history and understanding some rather arcane concepts about our monetary system, questioning the safety of a good old fashioned bank sounds like lunacy.  You may as well try to convince a five-year old child that Santa Claus does not exist: either he won’t believe you, or he will be emotionally devastated.

Belief # 2: The Next Fifty Years Will Look The Same As The Last Fifty Years

The past fifty years of America brought a level of material wealth to more people than could ever have been possible at any other time in human history. It is natural to assume that things will continue as they have. The alternative view embraces the realization that this unprecedented level of wealth results from:

  • Unsustainable consumption of natural resources;
  • The availability of cheap petroleum;  and
  • The willingness of foreigners to finance our national debt.

There are good reasons to question the long-term viability of these conditions. The emerging industrial countries (most notably China and India) are competing with us for natural resources. And they are discovering investments more secure and lucrative than the US Treasury Bonds that finance our national debt.

The signs of decline are all around us: the rising cost of food and medical care; the growing doubt about America’s ability to ever repay its national debt; the rapidly rising price of gasoline, home heating fuel, and electricity.  The frantic pace of our lives makes it hard to notice the signs of deterioration and to understand what they mean for our economic future. Good old fashioned denial also plays a role.

The Hesitation To Dive In

A dispassionate examination of the facts and a lucid understanding of a few economic concepts easily expose the fragility of our monetary and banking system. The same goes for the material changes that will affect our standard of living in the coming years. This knowledge has motivated some of my friends and neighbors to explore purchasing precious metals.

But my informational answers to the very reasonable questions people are asking me don’t always satisfy them. A few days ago my wife and I answered the same question about Franklin Sanders three times in one day from the same person. So I think there’s more to these questions than the quest for information. There’s also a good deal of anxiety.

So let’s be clear. It takes a major shift in consciousness to make this chioce. One has to let go of some deeply held assumptions about the solidity of the monetary world in which we earn and spend. Psychological shifts of this magnitude always raise fear and anxiety.

So as I answer the specific questions about buying precious metals, pay attention not only to the information itself, but also to your reaction to what you are doing. You are giving concrete form to your preparations for an uncertain future. By doing so, you are demonstrating to yourself an acceptance of the great uncertainties that the future does indeed hold. Investing even a tiny portion of your total savings in silver bullion coins gives form and reality to your beliefs. Psychologically, that’s a big deal.

A Few Answers

With that, I’ll just say a few things now to address the specific questions that folks have asked me recently.

  • How do I know that the coins I buy aren’t forgeries?

The pre-1965, 90% silver U.S. coins that I recommend are miniscule in silver content (0.715 of their face value, to be exact). It just cannot be worth anyone’s while to counterfeit them. Forging 10, 100, or 1000 ounce bullion bars would be much more lucrative. Today’s relatively low price of silver (around $13 per ounce) makes the proposition even more unlikely. Moreover, if you put one of these coins side-by-side with a newer coin the difference will hit you over the head: the silver ones are bright and shiny while the newer ones look dull and grey.

To set your mind at ease, put in a minimum $100 MAP order with Franklin Sanders and then have the coins checked out at a coin shop. While you’re there, inquire about the coin dealer’s commission on the same coins. The answer will help you understand the value of the MAP.

  • I looked at Franklin Sanders’ website and he seems a bit idiosyncratic; is he ok?

Franklin makes no bones about discussing his political and religious beliefs on his website. I have found this to be the case for quite a few precious metals dealers (check out Don Stott’s website for comparison). No question about it, the precious metals community marches to its own counter-cultural drum.

More to the point, I don’t do business with Franklin Sanders because I agree with everything he has to say (though with an open mind I have learned a thing or two from him about the nature of our monetary system). I find Franklin Sanders to be an honest and ethical businessman. He created the monthly acquisition program to make the purchase of precious metals as affordable as possible: he believes that everyone has a right to protect their assets against the foolish and reckless monetary practices of the government. He also has a great sense of humor (don’t be surprised if he asks you for your “gulag number” when he’s getting your zip code).
I have no affiliation with or other reason to promote The Money Changer. Buy from someone else if you wish. Just understand that the Monthly Acquisition Program makes the purchase of gold and silver bullion coins as inexpensive as it can possibly be.

  • Once I buy them, where do I store them?

Some folks hide their precious-metals at home. Others prefer a safe deposit box. Storing them at home poses the risk of theft or of forgetting where you buried them (this can and has happened). On the other hand, if your bank fails, you may not have access to your safe deposit box during precisely the period of time that you need to get to it. And if, as happened in 1933, the government confiscates gold, it can supervise the opening of your safe deposit box to seize your assets.

The thought of storing my financial safety net at home makes me nervous and I’d rather not do so. The best bet, I think, is to use a safe deposit box until you start to see signs of potential bank failure or some similar disaster. At that point, the relative security of keeping your silver bullion coins at home would outweigh the risk of the safe deposit box. You must always keep a close watch on economic events as they unfold.

Finally, please remember that I do not recommend putting all or even any significant portion of your assets into any one asset class, precious metals included. All I recommend is buying some amount of precious metals on a monthly basis or as often as possible.

The Usual Disclaimer

I am not a professional financial planner and have no credentials in this area. You should always review your long-term financial plan with a qualified financial planner. I recommend finding one who understands monetary inflation and peak oil. My only purpose is to educate you about ways to protect your financial well-being in the face of the dark period of economic and social collapse that looms ahead of us in the next decade.

© 2008 Philip Glaser


2 Responses to “The Psychology of Buying Precious Metals”

  1. Tim Ramsey Says:

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  2. silver values Says:

    An outstanding share! I have just forwarded this onto a colleague who had been conducting a little
    homework on this. And he in fact bought me dinner simply
    because I stumbled upon it for him… lol. So let me reword this.
    … Thank YOU for the meal!! But yeah, thanks for spending some time to talk about this topic here on your website.

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