Aug 20., 2022 / Miscellaneous
How Much Gold Can I Keep At Home?
It’s no secret that gold has seen an incredible run lately, with the price of one ounce of gold hitting a historic $1,300. But how many ounces can you expect to hold in your possession before you need to start thinking about diversifying? This blog discusses this question and provides some insight.
Gold bugs would have been optimistic about this development, given their belief that gold will continue to hold its value over time and can be used to protect against inflation and currency devaluation. Others, who were more skeptical about gold, were concerned that the “gold bubble” was about to burst due to the high price levels and an increase in supply. Still, others are scratching their heads over the wildly oscillating prices.
Critics of gold say it is simply a currency with a fixed supply that has no value. In contrast, advocates view gold as an alternative store of value in case of a financial crisis and economic uncertainty. Many analysts believe the current price rise is caused by increased bullishness on commodities and investors purchasing inflation hedges to protect their holdings against deflation.
One thing is clear: Gold’s price is not related to its intrinsic value. It’s not even close. The most up-to-date analysis states, “the price of gold has no relation to its intrinsic value. It’s not even close.” Nonetheless, gold enthusiasts have noted that the price of gold will continue to rise until 2013.
In 2014 and 2015, demand for gold is expected to be strong, particularly in India and China. These countries will also likely be able to expand their reserves, increasing the supply of gold. But by 2015-2016, when there are likely to be rising doubts about the long-term sustainability of high levels of government spending and rising debt burdens in the US and Europe (in addition to other factors), investors will turn their attention back to cash. There is simply no room for gold in the global economy, particularly given its high price compared to other investments.
It’s also possible that the price of gold will continue to rise in the short term by a considerable amount. For example, if Greece exits from the Eurozone, investors will likely recognize that the Greek economy can no longer grow and regain competitiveness. In such circumstances, investors may be willing to pay up for US Treasuries due to fears of inflation and currency devaluation rather than buy gold. But these fears will soon fade as uncertainty wanes, leaving few opportunities for an alternative safe-haven investment.
With gold, the first risk is physical theft, particularly in the form of bullion stored in a vault. Although many investors would balk at having their gold stolen (and some may not be able to sleep well if they were the subject of such a heist), it’s essential to recognize that this is a percentage game. For example, for every 100 tons of gold owned by an investor, only one ton is likely to be physically present. The rest is being used as collateral for loans or held in other forms of storage. The second risk with gold is theft by counterparty fraud (in this case, banks). While not all banks will be held accountable for physical theft, most will lose their reputation if there is evidence of malpractice. Therefore, investors must have a safe place to keep their gold to avoid the possibility of a gold heist.
A third risk with storing gold is that of physical damage. Gold has shallow stability and durability – even lesser metals like lead and zinc are less likely to be attacked than gold, which can also withstand high temperatures up to 1,140 degrees Celsius without melting. However, other products used in refining or manufacturing can have much higher risks of damage.
In many ways, this is troubling for gold investors. A one-ounce gold coin can be cut into approximately thirty pieces or 1/3 of an ounce. Each piece could then be stored in a safe deposit box at a bank. The problem with this scenario is that, in times of financial crisis, the chances of bank runs for physical gold are high since many people will want to access their wealth quickly. Many banks will have trouble meeting this increased demand, and there will likely be lineups with new customers and those on old accounts. There is a real risk that some or all of the 1/3-ounce chips will be lost in such events.
Some sources claim you could keep a ton of gold in your house and still have plenty left over. But I think it is more realistic to say that you would probably have your fingers burned after a few years of holding gold. So make sure you have some safe place to store your gold when it becomes “politically unattractive,” as it may be on any given day.