Forecasting the Economic Future
Precious metals are an alternative to investing
A lot of news coverage has been generated and advertising dollars spent trying to forecast what the economy will do. There are daily reports on what the current inflation rate is, the price of an ounce of gold and the closing numbers on Wall Street. Your email box may be bombarded by messages touting this investment or that gold deal. It seems like every time you turn on the radio, you hear about how precious metals are the answer to Armageddon. It’s all very confusing.
So, 318 Forum talked with some local folks who work in the investment and precious metals businesses to try to get some clarity on the issues.
JT McDaniel runs McDaniel Financial, and we asked him what’s going on in the world of money. “Now, that’s a big question,” he said. So, we asked what he says when someone who’s heard all the hype about stocks, bonds and precious metals comes into his office. “My first question is, usually, what’s your purpose? What are you trying to accomplish? Once you figure that out, you can go from there.”
He admitted that people often come in fresh from hearing news coverage of the economy that has them concerned about what the future holds. “’Currency is going away; the only currency that’s stood the test of time is gold. The U.S. dollar is about to be taken away as the world standard. What’s going to happen when it’s the Chinese currency? Well, if you’ve got gold, that transcends all nations. It’s people being terrified.”
The first step, he explained, is to get them calmed down because making any decision when you are scared to death is a bad decision.
“Usually, they’re just wanting to have a way to support themselves and their families, assuming everything does go south. That’s a different thing.
“Gold might be a tool to accomplish that purpose, but it’s almost certainly not the only one.
“If you’re really worried about currency going away or Armageddon-type situations and the grid goes down and how do we pay for goods and services?
“The short answer to that is you probably don’t. It becomes a barter economy. People can’t use gold. If you’ve got seeds or clean water, well, maybe we can trade.”
McDaniel said obtaining precious metals is a safeguard to prepare for those predicted worstcase scenarios.
“But it just scratches the itch; it doesn’t actually solve the problem.
“Cash is the tool that we have. The U.S. dollar is the tool that we have. The investments that have been around for decades are usually the best tools that we have to build a secure financial future. That’s the stock market, that’s insurance, and annuities, and real estate – buy dirt,” he recommended.
Dave Evans of Evans Financial Group said precious metals are not necessarily investments. “It’s a hedge against inflation, a diversification of your assets, something other than the traditional stocks and bonds, and it’s a hard asset that you can actually hold onto.
“It’s an alternative term of investing. It’s still subject to fluctuations, but it’s a hard asset that you’re holding onto. If you do any research, you see that China is buying a large amount of it.”
That concerns some investors, he said.
“We are not backed; our dollar is not backed by gold because Nixon took us off the gold standard years ago. It used to be backed by all the gold in Fort Knox. They did anyway with even Silver Certificates. Even your coins aren’t silver anymore.”
Still, gold or any of the precious metals are not a panacea for your family’s nest egg. “It doesn’t have any cash flow. It may be rising in its price, but it doesn’t have any dividends. The rate of return is just basically based on did the price rise from the time that I bought it.”
On the other side of the coin, so to speak, are the commodity sellers like Louisiana Coin and Jewelry. Tom Erwin is part-owner of the local family-run business and said that business has been brisk.
“We had a really big spike during Covid.
People are very news reactionary. Most of the big buyers are pretty steady-Eddie. They’re pretty immune to the news. Most of my buyers are concerned, and rightfully so. Look, you put trillions of dollars into the economy, print them out of nowhere, you just know that that has to lower the value of the dollar.
“We get a lot of people who are just trying to take care of themselves or their families.
We’ve got guys that just come in and buy one or two ounces of silver every week. That will run you about $50 or $60. And we’ve got folks that will spend a million dollars at a time. It does run the gamut.
“But the one thing they have in common is that they’re trying to protect their savings,” Erwin said.
So, the opinions are different, but there seem to be some common threads about what a person should do to take care of their financial future.
McDaniel said he doesn’t think the potential for the U.S. dollar to disappear is very high. “If all of a sudden the U.S. dollar was not the world currency or that there was just no physical thing that was a commonly held item that people could exchange for value, that would upset the applecart very severely.”
Evans said there are several ways to get into the precious metals market if that’s what you decide to do, but buying any of them in physical form is what he would recommend. “I don’t advise people to buy where the gold is in some big safe in New York, and you have a certificate. I would prefer to physically hold it.
“Some people will buy, for lack of a better term, gold mutual funds or exchange traded funds that invest in gold and they’re easily tradeable.”
Evans noted that China has been reportedly buying large quantities of precious metals, but that is not necessarily a reason to jump in. “[Gold] doesn’t have any cash flow. It may be rising in its price, but it doesn’t have any dividends. The rate of return is just basically based on did the price rise from the time that I bought it.”
Erwin said the negative aspect of physical gold, silver and the like is storage and security. “That’s where digital has an advantage, as long as you never lose power. Storage is tricky. And if you only bought gold and you want a loaf of bread, if you have an ounce of gold you’ve got to buy a whole lot of bread to get your money’s worth. Silver is a smaller bite but takes up a lot more space.”
Even a precious metal dealer has advice.
“I would always advise people to talk to their financial adviser first.”
So, what can someone do to cover all the bases? McDaniel has some advice. “How do we take the things that might happen and make sure that we’re OK either way? To put it simply, you carry a [credit] card, you carry a debit card, and you carry cash. You have a little bit of gold.
“[Gold] is an OK way to hold wealth, but it’s not a way to grow wealth. It’s also speculative. Who knows what gold’s going to do?”
Still confused? The best advice seems to be to do research, consult a financial advisor, and take the old advice to heart: Don’t put all your eggs in one basket.