Precious Metals

Why Physical Gold?

Around the world, governments, institutions and households own physical gold as a form of savings. The specific form of that gold varies quite a bit — central bank gold ingots weigh in at 400 oz or 27.5 lbs each, far too expensive for most individuals to own. For individuals, coins and bars up to 1…

Around the world, governments, institutions and households own physical gold as a form of savings. The specific form of that gold varies quite a bit -- central bank gold ingots weigh in at 400 oz or 27.5 lbs each, far too expensive for most individuals to own. For individuals, coins and bars up to 1 oz are a standard unit of gold ownership.

Why own physical precious metals, though? Whether you ask a central banker or a Birch Gold Group customer, their answers are generally quite similar... Here's a complete list, along with a brief explanation of each benefit.

No default or counterparty risk

Most commercial transactions involve credit or debt – an asset for one party, balanced by a liability for the other. This includes “default risk” or “counterparty risk,” defined as the danger that one party will fail to honor the terms of the agreement.

You think of your checking and savings accounts as assets. To the bank, they are liabilities – and systemic financial risk is, at its most abstract level, a form of counterparty risk. That the bank balances you think of as assets won’t be available when you need them.

This could be due to a bank run or failure (as in 2023 and during the Great Financial Crisis). Or bank-imposed withdrawal limitations – or even federally-imposed limits (a modern version of Roosevelt’s four-day “national banking holiday”). Tangible, physical precious metals aren’t a bank liability. They essentially exist outside the global financial system once they’re bought or sold.

In a globally financialized world, physical precious metals are among the few assets that buck this trend. According to billionaire investing legend Ray Dalio's Principles for Dealing with the Changing World Order:

...money being “hard” is important because no trust – or credit – is required to carry out an exchange. Any transaction can be settled on the spot, even if the buyer and seller are strangers or enemies. There is an old saying that “gold is the only financial asset that isn’t someone else’s liability.”

Effective diversification asset (especially during times of crisis)

Effective diversification can be hard to find. Most assets rise in price during times of economic growth and general prosperity. And during bad times, well, there’s an old saying every trader knows:

In times of crisis, all correlations go to 1.

That means, during a crisis when there’s a panicked rush for the exits, nearly all assets are sold off equally and indiscriminately. “Sell first, ask questions later.” As a result, many so-called diversification assets fail to protect your savings when you need them most.

Gold has typically operated differently. Its diverse sources of demand (as an investment, for jewelry and for manufacturing applications) give gold a particular resilience and the potential to deliver solid returns across the entire economic cycle, boom or bust.

Gold has diverse sources of demand, offering potential for solid returns in any economic climate

Investment demand for gold tends to surge during “risk-off” economic environments or times of uncertainty.

Its solid track record across the spectrum of economic environments makes gold a virtually unique asset. Its negative correlation to other asset classes tends to increase as these assets sell off. This  can be especially advantageous during times of crisis.

Long-term store of value / inflation protection

Gold has long been considered an antidote to inflation. The data confirms this perspective.

Since 1971, gold’s price outpaced the U.S. consumer price index (CPI), the most common measurement of inflation. In years when inflation was between 2%-5%, gold’s price increased 8% per year on average – during times of extreme inflation, gold’s price historically rose even faster.

Gold historically rallies during inflationary periods, based on data from 1971-2022

Over the long term, therefore, gold has not just preserved capital but also helped it grow.

Geopolitical diversifier

Gold isn’t a bet on the economic wellbeing of any one nation, or the fiscal policies of any one government. Money that’s defined and created by governments can also be redefined, or even destroyed by governments.

In this regard, gold is one of the few universally-recognized (and valued) forms of money.

Valuable collateral

To be good collateral, an asset must be “liquid” – easy to price and to sell.

Physical precious metals are more liquid than you might think. Physical gold holdings are estimated at $4.8 trillion and daily trading volume is comparable to some of the world’s most active markets.

Online marketplaces allow gold and silver coins to be bought or sold instantly around the world, often without prior inspection. If the coins are in pristine condition and certified by industry experts, there is always a market for them – and if they aren’t, they retain the value of their intrinsic precious metal content.

Lack of political risk

Aside from inflation, political risk takes many forms. Here are a few examples:

  • 2022: Canada invoked emergency powers to freeze the personal bank accounts of citizens engaged in a political protest.
  • 2016: India withdrew its two largest-denomination bills from circulation “to expose and penalize people who held huge amounts of money that could not be accounted for.” They introduced a new, larger note – then withdrew that one seven years later.
  • 2014: The IRS seized an American citizen's bank account on suspicion of illicit activity, leaving the impoverished account-holder to prove his innocence. (This is just one of 2,500 similar cases involving over $240 million in confiscated funds between 2005-2012.)
  • 2013: Citizens of Cyprus awoke one morning to find their bank accounts had been raided by the government to bail out – guess who? The government. Depositors lost between 6.75%-9.9% of their money.

Essentially, physical gold and silver are not government-sanctioned forms of money. They’re immune to financial cancelation.

Privacy

Purchases made for home delivery are completely private. In other words, your decision to purchase gold and silver is your business, no one else’s. Your assets aren’t on record at any institution or bank.

Furthermore, you can store your gold and silver as you see fit and ensure they’re accessible to you at all times. Our customers enjoy this peace of mind of knowing that they hold absolute control over their precious metals.

"The timeless and universal alternative currency”

In another part of Principles for Dealing with the Changing World Order, Dalio claims “gold is the timeless and universal alternative currency.”

“Timeless” because it’s always been in demand, always been worth something. As Ben Shapiro said,

It’s foolish not to have some assets in the one area of human activity that has never been worth zero.

“Universal” because gold is valued everywhere on earth.

“Alternative” because, while gold isn’t often used as currency anymore, it always can be.

For all these reasons, tens of thousands of American families are diversifying their savings with tangible, physical precious metals.


Further reading

No default or counterparty risk

Effective diversification asset (especially during times of crisis)

Valuable collateral

Lack of political risk

"The timeless and universal alternative currency”

  • Examples of the "universal" demand/perceived value of gold include the British use of gold sovereigns for pilots shot down behind enemy lines to bribe civilians for assistance. This practice goes back as far as World War II; see, for example, Two Gold Coins and a Prayer: The Epic Journey of a World War II Bomber Pilot, Evader, and POW by James H. Keeffe III, Appell Publishing; 2010.
  • One modern example of gold's use as currency from Venezuela
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