Is it possible for the government to artificially lower the price of gold/silver?

Miscellaneous Newbies
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1

My wife and I save on a regular basis. I personally love the idea of owning precious metals, and do purchase them often. We’re throwing around the idea of keeping all or at least most of our cash above our emergency savings in precious metals. On one hand, I can see a huge safety net in converting cash to gold/silver in a atmosphere of inflation. On the other hand, I’m concerned that the government can artificially “devalue” or otherwise manipulate the markets or the dollar and crush a portfolio that is 95% metal. My biggest fear is that I’ll (hopefully) have 10s-100s of thousands in Gold and BAM, they announce a new currency like the Amero or declare a new value of the dollar and my portfolio takes a massive hit.

I follow Ron Paul somewhat closely and have read several of his books, including End the Fed. It seems that in his opinion along with others including myself, that the Fed is just pumping fiat money into the system and haven’t even began to see its effects. Eventually there is no other option but inflation, right? Is there ANYTHING else that could happen besides inflation?

I’m looking for opinions of those older and wiser than me (I’m 25) to give an opinion of allocating a large percentage of a personal portfolio to metal–tangible, hidden on my farm, metal. Thanks in advance for your opinions!

2

If I remember correctly, Peter Schiff advocates that you should:

  1. only keep what you need for your daily expenses and a possible emergency fund in the bank

  2. keep about 20% of your wealth in precious metals

  3. invest the rest of your wealth

Precious metals are just a way of storing your wealth. Since you are 25, you are about 40-50 years from retiring and needing to use whatever wealth you have saved to live on. I don’t think that anyone here can tell you what the government is going to do 40-50 years from now. We know that if the government continues printing money, the dollar will be devalued further. What the government will do when the dollar is worthless is beyond anyone’s knowledge, though maybe some will have better guesses than others.

3

What is there to invest in? Well, besides real estate. My wife and I have already decided to save for real estate investments instead of contribute to IRAs or 401ks, disregarding the tax incentives. I recall in my statistics class in college calculating payoffs in different scenarios provided something goes wrong. I calculate that the odds I’ll wake up with half of my 401k value gone is greater than the tax incentives. Perhaps I should crunch the numbers again though. If I take the money I could put into an IRA and instead save $30k every five years (in gold?) and put 20% down on a $150k rental house, my return on investment would be tremendously higher than an IRA or 401k. Any thoughts on this?

4

Real estate in terms of renting can have great returns on your investment, but you have to make sure you really know your local market, and you can still be taking on a lot of risk. A rental house might be a great idea in your area, but maybe not. Probably the two biggest risks landlords have to face are not having a tennant and having a tenant who doesn’t pay. The latter can be a nightmare scenario if there is something in your unit not up to code, as legally the tenant doesn’t have to pay until you fix it. You want to buy a unit that is up to code or really close to it, because you don’t want to be spending tens of thousands of dollars on top of the hundreds of thousands you could be spending just to buy it. Obviously you have a few years before you actually could get into this market, but you need to do a lot of research for your area or another if you intend on living somewhere else in a few years.

As far as investing in something other than real estate, Schiff is a huge advocate of investing in Asia. This is the link to his company.

5

Well, first and foremost invest in your career. Once you feel you are on the right path, create a budget that comfortably allows for what’s necessary in your bank account at all times (vacations are necessary too, you know). I would say contributing a bit of your savings to a Roth IRA is great, considering you still have quite some time till retirement. Aside from real estate and precious metals, like gotlucky said, international investments are a great option (think about Singapore). In terms of volatile or short term stocks, try the biotech industry which has been booming recently.

I do want to make the case for alternative investments/managed futures as well. Managed futures are an example of active management. Active management differs from passive managements, in that the managers are actively seeking to outperform the market instead of just getting the market determined price in returns. What makes managed futures so unique is its trend following strategies. These strategies focus on capturing long and short profit opportunities across over a hundred global markets, which represent the four major asset classes (Equity, Fixed Income, Currencies, and Commodities). Thanks to new SEC regulations for mutual funds (an open collection of investments from average investors), Managed Futures is one of the few liquid alternatives available to the investment community.

Check this out for a managed futures company

6

Oh and to answer your question, no I wouldn’t worry about government manipulating gold/silver prices (they cannot do much except buy or sell). The slight downturn in gold prices is not bad considering the almost 15-year rise. I would think this would be a good time for people to get rid of some more of their fiat money in exchange for precious metals - something of intrinsic value. Besides, no one is going to sell gold now anyways.

7

They can’t lower the price for long. They can start selling what metal they have and lower and keep the price low for a while but that is just temporary. (Albeit it sucks if that’s precisely when you need to cash in some of it for liquidity.) Problem is, however, in a some kind of SHTF scenario they can make ownership of metal illegal, or slap a 75% tax on selling it and drive you into the black market where you can only sell to some shady character that is hard to find and only at a huge discount.

8

If you are a small time investor, consider the Jim Rogers Commodity Index and the Merk Hard Currency Fund. Both have performed well over the years, and are managed by individuals who have a better understanding of where the economy is headed than your average hedge fund manager. Emerging country funds and funds specialising in medium sized asian companies have also performed well historically, but that is no predictor of future performance. Schiff has argued that investing in solid medium to large companies with exposure limited to Asia is a good way of obtaining dividend income, however I think you’d need some advice on which firms to go for, unless you are competent in researching markets by yourself. My biggest problem with dividends paid by firms is you can get more bang for your buck through peer-to-peer lending, nowadays. It may be stabler, but unless you are getting a yield of around 8%, I can’t see the point, other than diversifying your assets. You are also adding an element of currency risk when you own dividends abroad, but the dollar is probably the riskiest currency to be exposed to anyway.

Schiff liaises with the Perth mint to provide gold, and if you are a non-resident of the US, he offers a bank account directly tied to gold and silver issued by that mint, which makes it more convenient than most options. Theoretically, any country could clamp down on gold ownership, but I think it may be safer to keep it in a country like Australia, than say one like the UK, which I do not trust at all. The Australian government is a bit dopey when it comes to gold, and from what I am told, the commodity elicits very little interest within Australia.

Jim Rogers has argued we’re riding a commodity boom at present, and he is particularly optimistic about agriculture. I would say, for long term investment, you want to go for companies that provide real value and which are under-valued at the point of purchase, or which at least show a lot of scope for growth. I am no investment expert, by any means, but I would say owning precious metals (and maybe even BitCoin) is a good idea, as if any of them ever become more widely used as money, their value will explode.

Bear in mind, these are all medium-long term ideas, gold fluctuates a lot and is not the best short term investment out there, or indeed the best investment, at all. It will definitely gain in value if it becomes money, and in that case it has high speculative value, but I view it as a means of value preservation more than anything else.

The government has tried so very hard to limit investment advice to the wealthy, that us little people have to rely on our own wits, as many financial planners will no longer touch people of a lower net worth.

As for real estate, REITs can provide exposure to that market, especially if you want to avoid incurring mortgage debt (and interest-only mortgages, the usual means for leveraging such purchases, is coming under a lot of fire), though obviously they are vulnerable to the vicissitudes of the stock market.

9

In the short term, yes, the central banks can short gold in purpeturity because these banks can always cover their positions with more worthless currency. Furthermore from their government friendly position they don’t neet to report short positions or have their shorts expire. To be on the long side of gold, the central banks can simply raise the curren price of gold through the purchase gold off of the market like it does with grouped mortages today (They would rarely do this as they don’t want waste their ability to manipulate markets of other stuff on a yellow metal.)

In the longer term, no. Gold will trend towards an equilibrum with all other stuff regardless of what the central banks do. As the currency drops in purchasing power with other stuff the ability to buy or short gold will deplete accordingly and people in the gold markets will get much more savvy on arbitriaging the central banks as well thus stealing their seniorage, mobsters call it skim, on their ability to manipulate markets with their counterfeiting. Also, Understand that in this process has huge risk and the central banks are risking huge losses, but what do they care, it isn’t their money?