This is a bit of a departure from my typical article, but it seems timely, and it seems that people who are concerned about preparing for their own self-defense, are also the type of people who take steps to prepare for their financial future.  So perhaps it’s not so unrelated after all…

Occasionally on gun forums the discussion will turn to “prepping”, or preparing for a variety of scenarios that are usually abbreviated as “SHTF” (or, politely, when the Stuff Hits The Fan) , or “WROL” (Without Rule Of Law), or “TEOTWAWKI” (The End Of The World As We Know It).  Now, it’s far beyond the scope of this blog to go speculating on the politics, or the likelihood, of any such scenario arising, and how to cope with such a scenario if it were to come about.  But I would like to address one particular aspect, especially for those of us who may not be independently wealthy…

Gold.

(or, specifically, Gold & Silver).

Are gold and silver the best places to put your money?  Should you be buying gold coins, or gold bars, or “junk silver” or ZomBucks or other such offerings?  What about BitCoin?  Will the banks collapse? How will you survive if hyperinflation comes?

The reason this came to mind is because it’s nearly impossible to turn on a cable news show, or listen to a talk radio station, without being barraged with ads or talk about buying gold, and about how gold is safe, and gold will increase in value, etc.  And, further, I just read a story where people on the lower end of the economic scale tend to think that gold is the best investment and to distrust real estate, stocks, etc., whereas people at the top of the economic pyramid tend to have exactly the opposite view.

Should you be buying gold?  Will gold prepare you to ride out a financial collapse?  Is gold the best place to put your money, and will it go skyrocketing in value?

In short — no.  No, no, and no.  Gold’s great for what it is, but unless you’re very wealthy and have a few hundred thousand dollars you’re looking to preserve, I would say gold should not be your #1 priority for preparing to ride out a financial crash/WROL/SHTF scenario.  There’s a much, much better place to put your money.

And no, it’s not silver!

It’s lead.  Specifically, ammo.  And steel — as in, stainless steel (or blued steel, your choice)… heck, polymer will do.  I’m talking about guns here.  Or, a third option, batteries.

But those things don’t go up in value!

I frequently say “stick with me here” in these blog articles, and I would indulge your patience again, because (for some of you) I’m about to turn your world upside down, but this is a highly important concept you really need to understand.  Gold doesn’t go up in value.  Yes, the price of gold changes, and it fluctuates with speculation, but — overall, gold isn’t going up in value.  Instead, it’s your MONEY that is going DOWN in value.

Ask anyone what “inflation” is, and you’ll likely get an answer on the order of “that’s when prices go up.”  But they don’t.  That’s not it at all.  The relative value of goods doesn’t change during inflation; it’s that the value of your money goes down.  The value of paper money is like water in a glass which has a leak in it — and the rate of inflation is equivalent to how big the hole in the glass is.  The higher the inflation rate, the faster the “value” (water in the glass) leaks out.  Which is why holding cash as an investment has always been mocked and ridiculed; cash’s value wastes away with time.  The government is constantly whittling away the value of money; the Fed’s stated goal is that they want to see inflation at an annual rate of 2% — meaning, they want to see your money lose 2% of its value each and every year.

Seriously.

Think about a gift card from a store… you get a gift card, and you know you have to use it soon because it’ll waste away to zero, right?  They start charging fees until the value of the card is worthless.  That’s EXACTLY what inflation does to your cash.  And the higher the rate of inflation, the faster the money’s value disappears.

Gold and silver, in general, don’t waste away.  They’re considered “hedges against inflation” because their value, in general, stays constant regardless of how the value of the currency fluctuates.  So why is gold $1,300 per ounce today, when it was only worth $35/oz in 1964?  Because inflation has eroded the value of the dollar so much that, whereas they used to be so valuable that you needed only 35 of them to buy an ounce of gold, now they’re so (relatively) worthless that you’d have to pay 1,300 of them to buy that same ounce of gold.  The gold didn’t change.  Its relative value hasn’t changed.  It’s just that the dollar has shrunk in value so small that now it takes over 37 times as many of them to buy the exact same product (an ounce of gold).

Here, let me give you a graphic example that perfectly illustrates it: you can buy a $1,000 bag of U.S. quarters from a gold & silver dealer, but they won’t sell them to you for $1,000 — they’ll charge you $15,536.95!  Seriously, we’re talking about buying a bag of quarters and dimes, the exact same thing cashiers used to give you as change from a paper dollar… With a face value of $1,000.00 (so, that’d be 4,000 quarters, or 10,000 dimes) but it will cost you over $15,500 of your paper dollars in order to buy that $1,000 worth of quarters  (at today’s silver price, which is about $19.64 per ounce).  Why?  Because those quarters and dimes were made prior to 1965 — and back then, quarters and dimes were made out of silver (well, 90% silver).  There is no silver in today’s quarters; today’s coins are made from metals that have extremely little value.  Now, if you go to a vending machine and put in one of today’s quarters, or one of those older silver quarters, they’ll work the same.  If you go to Wal-Mart and pay for a pack of gum with a 1964  silver quarter, or with a 2014 quarter, the cashier will take either and value them equally.  But if you went to a silver dealer, he’d give you 25 pennies for that 2014 quarter, but he’d give you almost four dollars for one of those older silver quarters.  This is a graphic example that shows that today’s money is worth literally 1/16th of what it was worth just 50 years ago.

The value of the pack of gum didn’t change, its price didn’t go up, it’s that the value of the money went down, and that’s why you have to pay so much more for it.  This is the effect of inflation — it makes your money plummet in value.

And, in a SHTF/TEOTWAWKI/WROL scenario, it’s likely that we might encounter hyperinflation, like other societies have faced (such as Germany, Argentina, and Zimbabwe).  In a situation of hyperinflation, prices don’t soar!  Instead, the money plummets.  The value of the underlying goods doesn’t change, it’s the value of the money that changes.  Think of it like this — in 2008, a loaf of bread cost $2.79 in the USA.  It cost over $800,000 in Zimbabwe dollars.  In 2009, that same loaf of bread cost $2.79 in the USA, and it cost over $10,000,000 in Zimbabwe dollars.  Did the bread change? Did it become suddenly more scarce, or suddenly more nutritious?  Did it get bigger? Could one loaf of bread now suddenly feed 10x as many people?  Of course not.  The thing that changed, is that people lost faith in the Zimbabwe dollar, and were not willing to part with a truly valuable good (a loaf of bread) unless you gave them more and more of those Zimbabwe dollars.

The same thing is happening in all countries that are experiencing inflation.  It’s not that the goods are becoming more dear, it’s that the money to buy them is losing value.

So how do you survive hyperinflation?  If you’re in a hyperinflating society, get rid of your money as quickly as possible.  Convert it into something that has lasting value.  If the money is plummeting in value, get out of it.  Buy something.  Buy a house.  Buy food.  Buy batteries, or ammo, or guns, or gasoline, or bungee cords.  Convert your money into something useful, so that it will hold its value and not plummet, like a paper currency will (and does, and is basically designed to do).  Or, alternatively, if you need to keep it in paper, convert it into a stable currency.  The value of the US dollar barely changed between 2007 and 2008, but the value of a Zimbabwe dollar shrank to where in 2008 it was worth 1/230,000,000 of what it was worth in 2007.  Hyperinflation is a local phenomenon, just because one currency is hyperinflating doesn’t mean other currencies are.

So that brings us back to gold, and silver.  Why not buy all the gold and silver you can?  It’ll protect you against inflation and hyperinflation, right?  Well, yes, maybe.  But that’s a rich person’s game.

For the financially challenged, frankly, gold and silver are downright silly investments.

Why?

Because gold and silver can’t DO anything.  They just sit there.  They’re a means of exchange, but they in and of themselves have no actual workable properties.  They will retain their value.  They are a “store of value”; if you have the ability to buy ten loaves of bread today, and you instead buy an ounce of silver, then five years from now it’s likely that you could trade that ounce of silver back for ten loaves of bread — regardless of how much the local currency may have devalued.  So it works, yes.  But so will many other things — and those other things may have actual intrinsic and usable value too.

Like lead. (meaning, of course, ammunition).

So let’s say you’ve got $20, and the price of silver is $20.  You could buy an ounce of silver.  Or, you could buy a box of .308 ammo to go with your trusty old hunting rifle.  Which is the better buy?

Well, let’s put it like this — that ounce of silver may make you feel warm and fuzzy, but it’s not going to do a thing for the hunger in your belly.  Whereas a box of 20 rounds of .308 has the potential to put twenty deer on your table.  That could feed a family of four for several years…

Sobering thinking, isn’t it?

Okay, consider this — do you think ammo will suffer from inflation?  Do you think ammo is going to lose its value?  If we enter an SHTF scenario, where the trains stop running and the delivery trucks are discontinued and the store shelves are ransacked, do you think ammo will become less valuable, or more valuable?

Exactly.

Now, the thing about silver (especially junk silver coins) is that they’re highly exchangeable; a junk silver quarter is worth almost $4.00, a junk silver dime is worth around $1.50.  Having junk silver on hand for easy exchange seems like a good idea.  But you could exchange a few rounds of ammo just as easily, couldn’t you?

Is ammo a currency?

Maybe.  Look around today — neckbeards are exploiting the ammo shortage to drive up the price of ammo, charging $80 (or more) for what should be a $20 brick of .22lr ammo.  During the super-drought of 2013, I know I paid well over 50% to double what the MSRP of the ammo should have been, because I had to have it.  How much more desirable will ammo become, if the dreaded hyperinflation scenario arrives?  Especially if, during the worried-about economic collapse, they’re not making any more of it?

Properly stored, ammo should last for years and years.  So will gold and silver.  Any of them should be easily exchangeable, but there’s one big overriding difference — nobody, now or ever, is likely to actually NEED a bar of gold or a hunk of silver.  But people WILL need ammo. And guns. And, for that matter, chocolate, and whisky, and cigarettes, and batteries.  Those items will always be in demand, and they will hold their value in any hyperinflation scenario, in any WROL/TEOTWAWKI scenario, and will always be highly exchangeable.

BitCoin, not so much.  If the electric grid goes down, just how much bread do you think someone will be happy to trade you for your hard drive full of bitcoins?

Don’t get me wrong, I’m not saying BitCoin is bad.  I’m not saying gold and silver are bad.  All I’m trying to do is point out how the market forces are likely to work, and get you thinking about some options that may make more sense.  If you had $13,000 to your name, you could either spend it to buy one single 10-oz bar of gold, or you could buy a couple of decent rifles, a decent shotgun, a half dozen pistols, and a thousand rounds of ammo for each of them, and maybe a whole lot of MRE’s.  Which do you think would serve you better to survive a hyperinflation or TEOTWAWKI event?  Or, put another way — if you were sitting on that stockpile of guns, ammo, and food, and someone came to you and said “I’ll give you this 10-oz bar of gold if you’ll give me all of that stuff”, would you make the trade?

I didn’t think so.

Gold and silver are fine as a store of value, but again, that’s a rich person’s game.  Once you’ve bought your supplies, you can put extra cash into gold (or real estate or foreign currencies or whatever else makes sense to you).  But if you’ve only got a little, and you want to protect yourself and your family from financial ruin, and you seriously think hyperinflation or a WROL scenario is headed your way, I think you’d be much better off putting your limited money into steel and lead (guns and ammo) than into gold and silver.

Of course, I’m not advocating that you put the rent money into boxes of FMJ’s.  And I’m not saying we’re facing some imminent collapse of the financial system, or that TEOTWAWKI is right around the corner.  I’m not doom-and-glooming.  I’m just saying that there might be alternatives that you hadn’t considered for the money that you may be planning on putting away, and so, depending on your own outlook for the future, maybe this will give you something else to think about.