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Thursday, May 28, 2009

Precious Metals or Cash ?

Rangerman's recent post got me thinking. Every time someone talks about keeping cash around on their blog someone will comment that they keep precious metals on hand instead of cash. I got to thinking about the benefits of both and since enough of my time got wasted (and I need to fill up 2 weeks of field time) it is going to be a post.

I was recently introduced to a new phrase at work, critical assumption. Basically a critical assumption is: something you are considering to be truth (assumption) that is essential to success in your venture. EX: If you are bringing non-twist top beer to a BBQ and don't bother to bring a bottle opener because your friend Bob has one on his key chain that would be a critical assumption.


The first camp is the cash crowd. These people keep cash on hand usually in mixed bills. They keep this cash for emergencies, blackouts and natural disasters.
Here are their critical assumptions:
1. People will want to take their cash in exchange for goods. These people think the system may slip a little bit but it will not fall entirely. Cash will still be good.
2. Something bad might happen where they will need this cash to purchase things they need.

The second camp keeps precious metals on hand exclusively. They keep it on hand for barter or to sell if they need to raise a bit of cash.
Here is there critical assumption.
1. They will not need to purchase anything right away. You can't take one ounce silver rounds to the local Publix or Safeway and leave with food.

I keep cash and precious metals on hand. To me cash is for fairly mild emergencies including but not limited to: my fucking card not working, power outages, natural disasters, hurricanes and bank failures. I figure one months worth of cash expenses is a reasonable figure to keep at home on hand. To me cash expenses is stuff like food, fuel, etc. People who get checks now would get checks then so I don't include rent, insurance, cell phone bill, etc. This drops the number considerably from my total monthly expenditures. The rest of my emergency fund is in the bank.

As for precious metals. I look at these as having a couple roles. First they are the emergency fund for if things are completely fucked. They could be traded for food, fuel and other things I need. If a job is lost or something they could be sold to help you survive. Even if things went completely to hell people would accept cash for awhile then it would be barter time and precious metals have intrinsic value. The second role precious metals have is as a hedge against inflation. If people no longer trusted money (or far more likely its value changed on a daily basis in a hyper inflationary scenario) I would be able to sell/ trade a coin here and there to get what I needed.

As for how much in precious metals to own. I don't think you can own too much gold and silver but I do think you can put too much of your limited resources towards them.

Now comes the question of what to get first. Odds are at least one person reading this has no cash (except what is in their wallet) on hand and owns not even a solitary silver dime. Since they read my words and were inspired by their genius this person now wants to store cash and precious metals. I suggest getting your cash emergency fund squared away first. The odds that you will need this are far higher then that you will need precious metals. You might need some groceries when the power is out (and ATM/Debit cards don't work) or there could be a natural disaster. Maybe something real weird happens and you need $500 cash on a Saturday. After that months worth of cash expenses is safely stashed somewhere in your home start working on your treasure (precious metals stash). Depending on your thoughts and worst case scenario there might be a desire to have a bigger emergency fund (in the bank). If this is the case I suggest splitting fundage between precious metals and the bank emergency fund.


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