Your Questions About Invest In Gold Or Silver

Charles asks…

will the prices of gold rise in nearer future probably ?

What will be proper to invest ingold or silver to gain more profit ? plz.

Justin answers:

I think the prices of Silver will be more in the future and the chances of gold looking that it will be stable.But hike will be in silver more than gold.

Paul asks…

Should I Invest in a bond portfolio or a mixed bonds stock and shares portfolio?

with no upfront cost ….

Or should I invest in gold and silver?

Or what should I invest in to protect my money against inflation??


Justin answers:

Gold and silver are bubbles in the making. I can’t tell you when the bubble will burst, but it will happen. Bonds have very low yield, but you will want to keep some money in bonds to dampen volatility of your portfolio. For a simple portfolio, I would suggest 60% in the Vanguard Total World Stock ETF (ticker=VT). The other 40% in Vanguard Mortgage-Backed Securities ETF (ticker VMBS).

VT is the ultimate in diversification, investing in the global stock market. A global stock portfolio is a decent inflation hedge, and better than the current alternatives. VMBS has a relatively good yield at 2.9% but low duration (meaning not much exposure to rising rates / inflation).

If you have a lot of money to invest, get professional help by finding a NAPFA advisor.

James asks…

i am think of investing in gold and silver. the first company i am going to look into is scottsdale silver.?

are there any other companies out there ( In the U.S. or outside it doesn’t matter) that are as good or better than scottsdale because so far i have heard they are the best.

Justin answers:

Not real familiar with the metals sector…but getting interested because some pretty good investors I know are ” talking up ” CEF…… An ETF I’m going to look into….give it some thought.

John asks…

Are my childhood comic books a good financial investment?

I’ve been reading alot about investing in gold, silver, business ventures, and shares of stock. I know that comic books, like baseball cards, can change (usually increase) in monetary value. I have over 2,000 comic books from my childhood and most are in mint or close to mint condition. Are these comic books a worthy investment?

Justin answers:

If you’re studying investments, the very first thing you should learn is that collectibles such as comics and cards and what not are NOT the same as investing in silver and gold or stocks or properties. I believe they are called “soft investments”, and trying to treat them the same way as you would investing in stocks and the like is fool hardy.

Some of the people answering have no idea what they’re talking about. People think that just because some comics have gone up in value, all comics will, and that’s simply not the case.

The exact value of your comics will require you to research what exactly it is you have. As a rule of thumb, comics from the 80s and 90s are virtually worthless, and almost certainly worth significantly less than you probably paid for them originally. If the comics are from the 1960s and earlier, you’ll almost certainly be looking at a decent sum of money. Most comics from the 70s are also worth a fair amount, but significantly less than most of the ones from the 60s, depending on which specific comics you’re dealing with.

If you’re dealing with a collection from the 80s and 90s, find someone who knows a thing or two about comics just to check to see if you have one of the 2 dozen or so comics from that time period that gained value (Amazing Spider-Man #298-300 is the most likely). The best thing to do with the rest, which will more or less be worthless, is simply call a local comic store and see what they think. Most likely, you’ll only be seeing a couple of cents apiece if this is an 80s/90s collection.

In the 1940s, 50s and 60s, comics were seen as disposable pieces of entertainment. Kids would read them, maybe pass them around amongst their friends, handle them roughly, fold the pages, cut out pictures they liked, and eventually throw them away (or their mothers would). They were the same as a newspaper or a magazine, they were not collectors items. Well, in the 1970s, the first comic book conventions started up, as the comic book readers had grown from kids into adults and hadn’t given up the hobby. At these comic conventions, people began to sell their old collections, and seek out comics they’d heard of but never read, or read when they were younger but had been thrown out. All of a sudden, there began to be a demand for comics which had been printed 10, 20, 30 years before, and very few copies were left. Hundreds of thousands of issues might have been originally printed, but since they were seen as disposable, only a few hundred copies were left, with thousands of collectors looking for them. (Action Comics #1, the first appearance of Superman, has only 75 remaining copies left known to exist, for example, and most of them are beat up).

Well, you know what happens next, basic supply and demand. Someone was a Fantastic Four fan and wanted issue #1, which had a ten cent price stamp. They found a dealer selling a copy for a dollar. Then someone else offers to pay $5, then someone buys it from them for $20, and so on and so forth, until the rarity and desirability has been established and today that comic sells for tens of thousands of dollars. Because there are only a handful of remain copies and thousands of fans who’d like to have it.

Then people started to get into the mentality of “Hey, if those older comics are worth a lot of money now, maybe today’s comics will be worth a lot some day too!” They began holding onto their comics, keeping them in good shape. More and more people started doing this. Some people started buying multiple copies of the same comic. This whole situation peaked in the early 90s, when comics like Spawn #1 and X-Men #1 sold MILLIONS of copies, even though only a few thousand people were actually buying them. They were treating comics like stocks, which they are not. They completely eliminated the possibility of those comics ever being rare.

Comics from the 80s and 90s are extremely common and far outnumber the number of people who actually read comics these days. Therefore, they will never be worth money. Not in 10 years, not in 20 or 30. Comic readership declined, and hundreds of stores across the country went out of business. The only ones who stayed in business were the ones who were well managed and didn’t buy into this whole process. My local store has done very well for itself because the owner was a business major and knew to avoid these traps. Over the years, as other stores in the region have gone out of business, their stocks have come to my store. I’ve been in their basement, and have seen the close to a million comics they have down there – all virtually worthless. The best they can do is put in the discount bin for a few cents and hope that some of them will sell so at least some money is made off of them.

Also, your books are not in mint condition. “Mint” refers to an impossibly high and rare standard that you have to have years of experience grading comics to assess. I’ve been collecting comics for 20 years and I wouldn’t call a single one I own “mint”. At most, many mat be in “Near Mint” condition, but many are probably in the next tier down “Very Fine.” It’s usually a pretty tell tale sign that someone doesn’t know what they’re talking about when they call their comics “mint”. It’d almost be like a bowler bragging about the time he scored 310. Just FYI.

Robert asks…

Should I buy gold or silver for and investment?

Should I buy gold or silver for and investment?

At this time or in the future would Gold or Silver be a good investment against inflation? Or should I invest in Oil?

If all of those are not good options at this time, where should I invest my money to protect myself against inflation?

Justin answers:

Gold, silver and oil are risky right now because of their price.Plus they pay no interest.

Cash deposits (CDs) are insured to 100k at most banks. They pay more interest than the inflation rate, so they fit your request. Check for best rates.

Another idea are ibonds. These will increase in value if inflation increases. You can buy these from fed directly.
If you prefer you can buy TIPS from Vanguard. The Vanguard TIPS fund has a yield of 2.40%, plus inflation protection.

Also, if you want10-15% in stocks (which will rise over time), you can buy Vanguard’s total stock market index fund . All stocks in us market (5000+) are in the fund. So, the fund is very diversified. That means if a single stock goes down it will not hurt you.

Here’s what i would do
10-50% stocks (vanguard total market index)
10-20% Int’l stock fund (vanguard int’l market index fund)
10-30% TIPS or ibonds (from vanguard or treasury direct)
10-50% CD’s (from a bank)

Mark asks…

Should I buy gold or silver for and investment?

Should I buy gold or silver for and investment?

At this time or in the future would Gold or Silver be a good investment against inflation? Or should I invest in Oil?

If all of those are not good options at this time, where should I invest my money to protect myself against inflation?

Justin answers:

Stay in cash – even at zero percent interest.

The market’s going to tank Monday and, when the Federal Reserve announces support measures Tuesday it’ll rise Tuesday. But this’ll be short-lived. The underlying problem is that there’s too much debt and too much of it is underpinned by real estate which is falling in value.

So, don’t buy Monday. Sell Tuesday….early. And wait.

Ken asks…

when you buy a gold coin what is the appropriate increase on the point where it is?

when I bought my coin gold was at 670 aprocamatly they charged me 10 dollars so I paid 680. Now when I retured gold what still again at 670 so I expected to pay a 10 dollar fee, this @#%C$% said Ill give you 540 for it , he then said how am I supposed to make a profit , I had to bargain with him like I was in tijuana. he gave me 630 . he is the only gold dealer in town is he useing his monoply or what when I lived in salt lake whether you bought or sold they would charge the same sellers finders fee , which is fine but 540! what s the point of even investing in gold or silver. I think he is just a crook or am I wrong?

Justin answers:

Your local dealer was definitely trying to scam you.

Dealers make their money, not on the price of the metal, but from a premium they charge at time of purchase or sale. They make money on both sides of the transaction, which is very typical and acceptable. Normally you can expect to pay an extra 2-2.5% at time of purchase, and a little less when you sell it back to the dealer. This really depends on the type of metal (gold, silver, platinum, palladium). I would definitely look for another dealer.

You should consider going to local coin shows, or give eBay a try. Lots of precious metals are bought and sold each day on eBay with great success. Keep in mind that between eBay and PayPal fees you could lose about 10% of the sale price.

My suggestion would be to check the yellow pages for another dealer, or check out online brokers such as American Precious Metals Exchange (apmex) both buys and sells gold and silver. Another source is Bullion Direct at Both sites will list the current spot (market) prices for the metals. I’m not affiliated with any of these companies, but know several people that use them. They’ve been around for quite a while, and are very reputable.

Good luck to you!


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Investing in Africa 'The Savage Way'

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In an interview with AllAfrica he talks about meeting African leaders who were fighting against colonialism, his first business experience on the continent and how those experiences helped guide him in his future endeavors there, including recent
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Junk Bonds Nearing Peak Again as Yields Slip Below 7%

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Investing in shorter-maturity bullet bonds, for example, or investing a lower notional in average-maturity bonds (and holding more cash) makes more sense, in our view. On the other hand, investors looking for further upside in cash should rotate out of
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Cincinnati CEOs holding off on investing in their companies

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Your Questions About Advantages And Disadvantages Of Gold Investment

George asks…

what are the advantages and disadvantages of American’s investment in Canada?

financi4 answers:

Advantages: Canada is on the border, so great for trade.
Canada has many world resources (fresh water, gold, oil, lumber), investment in those resources is a fairly safe investment

Disadvantages: Population is relatively low compared to a lot of countrise world wide.
China and India are rising economically much faster, and investing in those places can be cheaper when they have workers working for $1 a day.

Donald asks…

Which is the best metal to invest this time?

financi4 answers:

Gold Coins

Gold coins have a value that is not necessarily related to their amount in gold. Their value depends more on its rarity for collectors. Gold coins can be a good investment over long periods. It should be noted that the costs associated with buying, storing and resale can be up to 10-15% of the total. Few obvious advantages and disadvantages of investment in gold coins are as listed below:

* The gold coins are a relatively liquid as they are so easy to sell and buy.
* Low initial investment compared to buying a gold bar.
* People invest in gold coins considering them as safe haven.
* However, we usually can not buy anything in life every day with gold coins.
* There are a number of fake gold coins in circulation that are difficult to identify by non-professionals.
* The difference between the purchase price and the selling price (“spread”) is important – about 7%.

John asks…

What is the “gold standard?”?

Can someone please explain the philosophy of a “gold standard?” What does it even mean? Is the U.S. still on the gold standard?

Please assume as little knowledge as possible on my part in crafting your response 🙂
Thanks for your responses. Can anyone recommend a good book that will educate me on the ins and outs of currency valuation?

financi4 answers:

The gold standard ties the value of a country’s currency to the value of gold.

The US is not on the gold standard any more. The US and pretty much all countries have what are called ‘fiat’ currency. We have as many dollars as we say we have, not the number of dollars that our national reserves of gold can buy.

The advantage of the gold standard is that you can never have more dollars than you have gold to back them up. Therefore, your currency is resistant to inflation. If you just print a bunch more dollars and dump them on the market, then you have too many dollars chasing too few items, and that is called inflation. As prices increase, the value of investments in anything other than ‘real’ goods decreases, holding money in your pocket or in the bank will be decreasing the value of your money. When you convert real assets (e.g., gold, land, goods) into currency, you have to spend it quickly in order to not lose the value in the currency.

The disadvantage is that your money supply is dependent on the supply of gold, and if you need more money, you need more gold.

Joseph asks…

What are the options of Gold Investment?

Regarding investment in gold,I have the following questions:
1.How good is gold as an investment commodity?Is it good for short term or long term investment?
2.If I want to purchase for investment purpose only,which one is better:Gold Coins or Ornaments?What is the advantage and disadvantage of purchasing gold coin against Gold Ornaments?
3.In case of Gold Coins,where to purchase it from,Bank(which one you suggest) or any Jewellery shop so that it will be more pure in terms of quality?[hallmark,carat etc.]
4.How will I sell them? in Bank or is there any other way?
5.Can I sell one banks gold coin to another bank?
6.While selling will the buyer deduct some tax?
7.Can I take loan against gold coins?

Thanks in advance.
I would appreciate if I get response from Indian Market perspective,since am here.

financi4 answers:

1:it is a safe securty as a commodity it is a long term investment
2: for investment purpose gold coins are best in ornament making charges loss, loss in manufacturing and loss of purity and many factors are different between gold coins and ornments
3: no doubt banks are safe pure secure guaranteed
4: some banks are doung gold business some nbfcs also doing gold business city urban branches are now a days directly transacting gold coins
5: yes there is no diff. In coins for on bank to other
6:tax will be deducted based upon transaction value it is 10 percent with pan card or 20 percent
for non pan card holder it is per annum basis
7:yes certainly u can get gold loans without much difficulty

Robert asks…

Is silver a good investment.?

I am thinking about investing in silver because everything around us is getting more and more technological. Silver is a great conductor and is used in almost every home, commercial, and industrial electronic devices. I have never invested before so I would like some opinions on wether this would be a good investment or not? I’m pretty sure that the higher the demand of silver is the more it will be worth.
It’s not about being a lazy investor. I have no experience, and research alone is not enough. Feedback from real people is just as important as research.

financi4 answers:

It’s ok, but look at the advantages and disadvantages:

1) Good hedge against inflation
2) Good hedge against a weakening dollar from stimulus (and not just United States stimulus…that includes EVERYBODY)
3) It has, like you said, emerging applications in
-electronics (silver is the absolute best conductor of electricity PERIOD. The other poster claiming that gold was a good conductor of electricity is correct, but only in special situations. You would not want to wire your house with gold or silver wire as it’s totally uneconomical…and likely to get your house broken into and torn apart by theives! ,
-photography (although that’s on it’s way out. Silver Nitrate was once used as a chemical to develop prints, but now everybody is sticking to digital. That’s not saying it will completely go away, but the usage of silver nitrate as probably peaked).
-Medical Instruments (the main use here is in surgical equipment because bacteria and germs are less likely to live on highly reflective and shiny surfaces…silver fits the bill perfectly here.
And there’s many many more applications, but again, it’s all being developed as we speak

The only real disadvantage is a bar of silver does not throw off any cash flows. It just sits there, but it’s a precious metal and does not corrode like say copper or nickel. Thus you are essentially at the mercy of the market unless you buy a large amount and hedge the price action in the commodity.

If you gonna go the silver route I would suggest 2 options:
1) Buy silver coins pre 1964 or Silver Eagle Bullion coins. The pre 1964 coins will cost a little more than the typical ounce of silver, but the reason is that there is some numismatic value in there also. The silver eagles don’t have an enormous amount of numismatic value (in fact, only certain dates carry those values i.e. 1994, 1995, 1996, and the reverse proofs of 2006 and 2011, and the 1995-w proof coin), so you should be able to negotiate a good price for the regular silver eagle coins. Don’t expect to walk into a coin store or bullion dealer asking to buy the coins @ the current price either. You will have to pay a slight premium over the current spot price ( I like to use spot + 10% as my absolute maximum top price). A silver bar doesn’t do much for you, but you’ll end up paying a surcharge on that as well. I just like coins better in the form of American Silver Eagles because I know who made them (the United States Government) and the silver content is assured.

2) The best exchange traded fund out there is the iShares silver Trust (SLV). It tracks the spot price of silver and holds actual physical silver in a vault at an undisclosed location.

Hope this helps.

David asks…

Do First Nations want to be “Status Indians”?

I was told that all first nations people who are candidates for being status Indians are given the option to opt out. Can anyone think of a reason why one would not refuse the option?

financi4 answers:

Being a status Indian in Canada has many benefits, especially if you live on a reserve, although some of the disadvantages outweigh the advantages.

Depending on your Band, and whether or not it has access to goverment funding, lands, a Band can become self-sustaining primarily from selling or leasing land or allowing mining or whatever the land offers to outsiders. Sometimes property owned by a particular Band has gold or silver or natural resources that others will pay to discover, or it employs band members long term.

Certain bands with funds and investments provide allowances and tuition and book expenses for college and university.

If you live and work on a reserve you don’t pay many of the taxes that most others working off reserve pay. Gas, some foods, tobacco, alcohol, housing is all lower cost than outside of it.

Health Canada pays for medication, dental, glasses, anything related to medical care, all free of charge for status indians.

Status Indians are given priority in government job applications when they qualify.

William asks…

WHY Titanium? and powder metallurgy?

1. WHY is Titanium used for orthopedic and prosthetic implants??? If possible, list down all of the properties of Titanium.

2. What is the requirements for a material to be used as hip-joint material ??? Next, match the properties of Titanium with the requirements.

3.What would be the advantages and disadvantages of powder metallurgy?

4. Cite the best method for the production of
a). Gold ear-rings (investment casting?)
b). Pipe Connection (sand casting?)
c). train rail (continuous casting?)
d). large engine block for a truck (die casting?)

financi4 answers:

I think if you want a course in metallurgy you should go and pay for one.

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Your Questions About Disadvantages Of Gold Investment

David asks…

What is balance of payments? and why balance of payments be always in equillibrium?

Hey guys pls help me out. wid what balance of payments exactly is? and why should we have balance of payments in equillibrium? i mean its lucrative for ny country if there BOP is in surplus

financi4 answers:


Balance of payments can be difficult/confusing

What does it mean?
The balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country’s exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country’s status in international trade, with net capital outflow.

A very good article explaining this can be found in the Consise Encyclopedia of Ecconomics. It can be read

and starts

Few subjects in economics have caused so much confusion—and so much groundless fear—in the past four hundred years as the thought that a country might have a deficit in its balance of payments. This fear is groundless for two reasons: (1) there never is a deficit, and (2) it wouldn’t necessarily hurt if there were.

The balance of payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if Americans buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding dollars, which they may hold in the form of bank deposits in the United States or in some other U.S. Investment. The payments of Americans to Japan for automobiles are balanced by the payments of Japanese to U.S. Individuals and institutions, including banks, for the acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the United States sold Japan dollars or dollar-denominated assets such as Treasury bills and New York office buildings.

Although the totals of payments and receipts are necessarily equal, there will be inequalities—excesses of payments or receipts, called deficits or surpluses—in particular kinds of transactions. Thus, there can be a deficit or surplus in any of the following: merchandise trade (goods), services trade, foreign investment income, unilateral transfers (foreign aid), private investment, the flow of gold and money between central banks and treasuries, or any combination of these or other international transactions. The statement that a country has a deficit or surplus in its “balance of payments” must refer to some particular class of transactions. In 1991 the United States had a deficit in goods of $73.4 billion but a surplus in services of $45.3 billion.

This article goes on to explain the concept of advantage/disadvantage of surplus and deficit.

I hope this helps

George asks…

what is the financial formula to measure risk (standard deviation) of gold investment?

i want to make some risk and return analysis, and compare gold and other financial asset such as bond, stock, reits commodities and etc.

financi4 answers:

First off, the formula for standard deviation is available on 1.2 billion websites. Doing a research project and not being able to find the formula for standard deviation on the web does not bode well for your research project.

Second off. You have some problems with this approach. Gold is inherently undiversified. Stocks are diversified. That means gold starts out at a disadvantage. “Bonds” can mean anything from short-term AAA debt to defaulted pennies on the dollar crap.

Third off, the risk/return analysis suggests that perhaps you can come up with a return. If you knew returns, then we have an optimality theory for portfolios invented by Markowitz in the 50’s (he won the Nobel prize for it). You may have noticed that almost nobody talks about their Markowitz optimizer. The problem is that the inherent return in equity is not known to say nothing of the inherent return in gold (although I’ll bet if I got liquored up I could argue eloquently that the inherent return in gold is the inflation rate).

Fourth, if you are looking at volatility going forward for a wildly traded commodity like gold, you shouldn’t be using standard deviation at all, you should be using implied volatilities from option data which is something like teh marekt’s estimate of forward vol. It’s like 40% for gold and less for all other assets you have listed.

Steven asks…

How to invest in gold?

Do i just buy gold and put it in my safe? how do i sell it later? is it really a very good idea? anyone have details on investing in gold? have you done it? did it work out good?

financi4 answers:

As others have said you can own paper gold or physical gold. Paper gold is like an ETF, gold stock, or other some sort of paper product which has a claim on gold. That claim may or may not be convertible to you in real physical gold. You can not buy gold from any bank in the US. If you live in Canada then you can acquire it from some banks directly.

I always take physical possession of my gold and in fact I just got back from the post office where I had delivered to me 6 ounces of gold. You want physical gold in your hands before moving into paper gold in any form. The best way to own gold in in the form of coins minted by government. In the US you want American Eagles or pre 1933 US $20 gold pieces in raw ungraded condition see examples here.


WARNING!!!! If in the US DO NOT BUY FOREIGN GOLD. The only exception to this is fractional gold such as 1/10th 1/4 ounce, 1/2 ounce Canadian Maples, Krugerrands, fractional gold from Australia, China, and European Union Philharmonics. Stay away from British sovereigns, swiss gold francs and other older foreign gold. Only buy American gold eagles and US $20 raw gold when ever possible There are many advantages to owning US material that would take time to explain. There are many disadvantages to foreign gold. Also stay away from Goldline because they push the foreign gold on people who are uneducated in gold buying.

I buy gold from only 2 companies and will consider using a third. They are American Gold Exchange Patroit Trading Group and the third is APMEX Selling gold back is as simple as reversing the buying process. Just call the coin dealer and sell it back to who you bought it from or call some other dealer, broker or coin shop. The dealers work with bullion banks and will buy gold on the spot.

First off you need to understand that gold is not an investment. Gold is and acts more like an insurance policy. You are insuring that something in your portfolio can never go to $0.00. All paper assets have the ability to go to $0.00. This is what you are insuring against. Silver is also in the gold realm as well, so when talking about gold, silver is included.

Gold is money and a store of value. It is the “Currency of last resort” as Greenspan has stated many times through the years. Gold doesnt pay interest, dividends, doesnt restate earnings, has no lawyers, accountants, CEOs or CFOs lying to you on television. Gold doesnt ask for bailouts, doesnt go BK and cannot cook its books. Gold cant be debased or printed at the will of a company or governmetnt and holds its purchasing power.

Gold sits there as a store of value, is labor intensive, and a one ounce coin will not split into a bunch of half ounce coins at the direction of the pin stripped bandits on Wall Street. Also Gold is the ONLY asset class in the last ten years to increase in value and retain every dollar of its purchasing power.
The NASDAQ is up 1700% since it was created in 1971. Gold has outperformed all assets since we went off the gold standard in 1971. Gold would be even with the NASDAQ if it fell to $630 an ounce. Gold would be even with the DOW and the S&P 500 if it were to fall to $420 an ounce.

Gold has outperformed ALL asset classes since we went off the gold standard. No exceptions. However silver since 1928 has outperformed them all.

Investing in gold and silver for the short term is gambling. Dont do it. Putting cash into gold and silver for long term savings is the only way to go. History has shown that to be the best way to perserve wealth for 6000 years.

Alan Greenspan said before he became chairman of the Federal Reserve, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold (from 1933 to 1975). If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” Alan Greenspan 1967

Paul asks…

What are the problems of full-reserve banking?

I have heard several arguments for this system since it is supposed to provide economic stability and eliminates many of the dangers of the banking system that we have today. But what are the issues with this system and are there advantages to keeping the fractional reserve system that we have today?

financi4 answers:

This is a rather nasty subject.

Those who object to fractional reserve banking do so primarily on the grounds that it allows the easy creation of money and so increases inflation. Many are people who believe that any price inflation is evil (not economically bad policy, but morally evil)

So, what would you have to give up in order to achieve the combination of full reserve banking and 0% inflation rate?

1. Economic growth.

If you have fiat money and full reserve banking and are willing to have an inflation rate greater than 0%, then this is not a valid objection. (The government can create the extra money you need for a small amount of inflation) But if you want to eliminate any inflation, if you want a gold-back currency, etc. Then it is the bigest cost.

2. Major government regulations. Without government regulation and close inspection, you can’t prevent the creation of money by lenders. (Historically, banking started with various institutions offering “promises to pay” to be used by travelers, etc. Without some way of checking that each and every “promise to pay” is backed by full reserve, you allow the creation of money – i.e. Factional reserve banking)

Again, not an issue if you don’t object to government regulations – though full reserve regulations would have to be much tighter than today’s financial regulation. Today there is a whole “shadow banking system” that is completely unregulated but still creates money by fractional reserve lending.

Some proponents of full-reserve seem to think the market will take care of this problem,
but that seems more than a little optimistic to me.

3. One of the primary (some would argue the single primary) functions of a bank is to convert short-term debt into long-term investments: the bank takes the money in checking accounts (which are short term because they can be withdrawn any time) and created mortgages (long term investments) with it.

Many argue that with full-reserve banking, this function of banks would be impossible.
If so, it would make the cost in economic growth still greater.

So, you pay these costs and what do you get in return?

The claim is that you get “greater stability”
But how?

1. Yes, it is true that private banks can no longer create money, but modern central banks already limit how much money the banks they regulate can create. Most of the instability problems have come from institutions and activities that aren’t regulated.

2. For stable prices, the supply of money has to match the supply of goods. So if private banks are not going to create money as needed, the central bank or the government will just have to do it on its own. And it is (they are?) perfectly capable of doing so.

So why do you trust the government to create the right amount of money but not control the amount of money the private banks create?

3. Of course, you can distrust the central banks and the governments to the point where you insist on currency backed by a commodity such as gold rather than have fiat money.

Now you no longer have price stability – a find of gold causes inflation
A long period with no new gold causes deflation and depression;
as does people choosing to hold more cash:

4. Then there is the question of bank runs. Full reserve banking is supposed to make them impossible. That may be true if the bank has a single building and all the money is right there. But what if the bank has several branches? Do you have to go to the branch where you opened your account? Are we going to give up electronic banking completely?

If the answer is that there will be central vault with reserves, then how is that different from the current system with the FDIC and Federal reserve guaranteeing deposits?

Mark asks…

A little help with Economics Application Questions?

1. What are some disadvantages to having a money system backed by a precious commodity, such as gold or silver?

2. What would happen if the market interest rate on loans were 12% and the government, feeling the rate too high, passed laws making it illegal for banks and other institutions to lend at a rate higher than 6%? How would it effect households, business firms and the government?

financi4 answers:

1. It puts a restraint on economic growth. For example, if the government wants to finance a greenhouse project that is expensive, the government can either use taxpayer’s money or deduct expenses from other public investments. But a money system that is not backed by precious commodities (known as the fiat system) can easily just print up a bunch of money and finance the greenhouse project without having to resort to either of the two options (which is a big hassle BTW).

However, being on the gold standard as its called, restricts growth as the government has to carefully make sure that any money spent is backed by the precious commodities.

2. Aggregate spending would increase at the new 6% high. Of course, since the 6% interest rate serves as the maximum now, aggregate spending can further be increased as in this case, the 6% is now considered to be relatively high. Therefore, if it is to be changed, the only other direction in which the interest rate can move is down – thus increasing overall spending in the economy even more.

Chris asks…

What is the best way to buy Gold, for example, how about eGold?

financi4 answers:

In my opinion there are two avenues open to you.

The index gold funds of which one is GLD. One share is the equivelent of 1/10 oz. Of gold. You buy it just like a stock. There is one disadvantage that you need to be aware of. There is an annual management fee on the fund.

The other avenue open to you that you may wish to consider is a gold mining stock. ABX is the most profitable. There are others. Buying shares in a less profitable company may prove a better investment if gold goes up another $100 an ounce because it will mean a more significan increase in earning for the less profitable company. Along those same lines there are mutual funds that invest in gold mining companies. You might wish to investigate those.

Those are the two investments that I believe other you the most potential.

Donald asks…

In what form is it best to own Gold?

As an investment, other then stocks? Bullion, coins, some other form?

financi4 answers:

Mostly depends how paranoid you are.

You may find this interesting reading:

You could buy gold coins at a local coin shop, or online.
Bars are harder to buy locally, but they can be purchased online.

Storing your gold at home has a big advantage and a big disadvantage: No matter what happens, you can lay your hands on it. However, you have to worry about someone breaking in and stealing it.

If you store your gold somewhere else, you may have to pay to store it, and you can only get it out when they are open for business.

Look at the Kitco “pool” accounts. They basically store your gold for free, but if you want the gold, you may have to pay fabrication fees, shipping, handling, and insurance.


Ken asks…

Is property a better investment than a mutual fund or gold?

financi4 answers:

It can be. It can also not be. It depends on the property. All three have advantages and disadvantages. It comes down to knowing everything you can know about an investment before you invest.

Michael asks…

Please explain the Advantages and Disadvantages of Common Stocks?

Please explain the Advantages and Disadvantages of Common Stocks


financi4 answers:

Advantage: Best investment vehicle over time. Outperforms gold, real estate. Average rate of return about 10% a year over the history of the stock market.

Disadvantage: Risk. You are putting your money into a company or companies that may make bad decisions or have bad earnings, causing the stock to go down.

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