Guest Post: So How Many Ounces Of Gold (Or Silver) Should You Own?

Tyler Durden's picture

Submitted by Adam Taggart of Peak Prosperity,

This week, Chris talks with Jeff Clark, Senior Precious Metals Analyst at Casey Research, where he serves as editor of their Big Gold newsletter.

They tackle head-on many of the questions weary precious metals investors are wondering after enduing the volatile yet range-bound price action of gold and silver over the past year:

  • Have the fundamentals for owning gold & silver changed over the past year? No
  • What are they? currency devaluation/crisis, supply-chain risk, ore grade depletion
  • How should retail investors own gold? Mostly physical metal, some quality mining majors (avoid the indices), and ETFs only for trading
  • Is gold in a bubble? No
  • Could gold get re-monetized? Quite possibly
  • Where is gold flowing? From the West to the East. At some point, capital controls will be put in place

What the politicians are doing is the exact opposite of what they need to be doing. We continue adding to our debt, we continue raising the debt ceiling, we continue deficit spending, we continue borrowing money, and, of course, we continue printing money. We are doing the exact opposite of all the things that would lead us away from inflation. So yes, I think that is an important point.

 

I will add that inflation has occurred very quickly, very rapidly, very suddenly many times in the past, just in recent history. If you look back at the high inflationary times, just in the past 100 years here in the U.S., many of those that hit 12%, 14%, 15% -- two years prior to then, the CPI was completely benign. It was 1%, 2% – I think at one point it was 4% – and then all of a sudden within 24 months, it was 12%, 14%. So it can happen very suddenly, and my fear is that is what is going to happen this time. People are in a lull; no one is expecting it: the CPI is low; nothing is really happening with all this money printing; there has been no fallout. But I think that is the critical point. You cannot do these kinds of things we are doing forever and not experience any consequences. Sooner or later there are going to be consequences to what we are doing, and my fear is that it is going to be nasty, catch a lot of people off guard, and really hurt our society. The bottom line for me is, that is why I am buying gold and silver, still, to this day.

For these reasons and others, Jeff strongly believes everyone should have exposure to gold and silver as a defense for preserving the purchasing power of their weath. The key question is: how much exposure?

You want to focus on how many ounces you own, not necessarily looking at whether the price is $5 higher today than it was yesterday. How many ounces do you own? That is really the question you want to ask yourself, so you can focus on how much you are really going to need, and the amount really comes down to this.

 

For me, I am probably going to use some of this gold if we get high inflation. How are you going to protect your standard of living if we get some kind of runaway inflation? And let’s say it's not runaway hyperinflation; let’s just say it's high inflation, 10%, 15%. Remember it was 14% in 1980, so the odds of us getting high inflation are realistic. So if I am going to use that gold to cover my standard of living, you are going to need about two thirds of an ounce of gold for every thousand dollars of monthly expenses. If you want to protect your standard of living and not have your house be ravaged by inflation, so to speak, so that is a good guideline to follow.

 

So if inflation lasts a couple years, well, you are going to need 15 ounces of gold for every thousand dollars of monthly expenses. That is a good guideline to think about. And if your expenses are more per month, you are going to need more gold than that. If inflation lasts longer than two years, you are going to need more than that, but you can actually use the sales of gold and silver to protect your standard of living. You sell some gold and silver, you are going to get U.S. dollars or Canadian dollars with it and you can use the increase in the gold and silver price to offset the increase in the goods and services you are buying.

 

So I think that is the way to view it, to look at how you are going to use it. And so the focus again comes back to how many ounces do you own? So if you do not have any, you need to obviously start buying. 

Here are two tables -- one for gold and the other for silver -- Jeff offers in his newsletter to help investors calculate the requisite ounces needed to protect against rising inflation over time:

The point here is that you're probably going to need more ounces than you think. Look at your bank statement and assess how much you spend each month – and do it honestly.

 

The other part of the equation is how long we'll need to use gold and silver to cover those expenses. The potential duration of high inflation will dictate how much physical bullion we need stashed away. This is also probably longer than you think; in Weimar Germany, high inflation lasted two years – and then hyperinflation hit and lasted another two. Four years of high inflation. That's not kindling – that's a wildfire roaring through your back yard.

 

So here's how much gold you'll need, depending on your monthly expenses and how long high inflation lasts.

 

Ounces of Gold Needed to Meet Expenses During High Inflation
Monthly expenses in US dollars Monthly expenses in gold, oz* Inflation Duration
6 months  1 year  18 months 2 years 3 years 4 years 5 years 
$500
0.31
1.9
3.7
5.6
7.5
11.2
15.0
18.7
$1,000
0.63
3.8
7.5
11.3
15.0
22.5
30.0
37.5
$2,000
1.25
7.5
15.0
22.5
30.0
45.0
60.0
75.0
$3,000
1.88
11.3
22.5
33.8
45.0
67.5
90.0
112.5
$4,000
2.50
15.0
30.0
45.0
60.0
90.0
120.0
150.0
$5,000
3.13
18.8
37.5
56.3
75.0
112.5
150.0
187.5
$10,000
6.25
37.5
75.0
112.5
150.0
225.0
300.0
375.0
$20,000
12.50
75.0
150.0
225.0
300.0
450.0
600.0
750.0
*Based on $1,600 gold price

 

If my monthly expenses are about $3,000/month, I need 45 ounces to cover two years of high inflation, and 90 if it lasts four years. Those already well off should use the bottom rows of the table. How much will you need?

 

Of course many of us own silver, too. Here's how many ounces we'd need, if we saved in silver.

 

Ounces of Silver Needed to Meet Expenses During High Inflation
Monthly expenses in US dollars Monthly expenses in silver, oz* Inflation Duration
6 months  1 year  18 months 2 years 3 years 4 years 5 years 
$500
17.9
107.1
214.2
321.3
428.4
642.6
856.8
1,071.0
$1,000
35.7
214.3
428.5
642.8
857.0
1,285.6
1,714.1
2,142.6
$2,000
71.4
428.5
857.0
1,285.6
1,714.1
2,571.1
3,428.2
4,285.2
$3,000
107.1
642.8
1,285.7
1,928.5
2,571.4
3,857.0
5,142.7
6,428.4
$4,000
142.9
857.1
1,714.2
2,571.3
3,428.4
5,142.6
6,856.8
8,571.0
$5,000
178.6
1,071.4
2,142.8
3,214.3
4,285.7
6,428.5
8,571.4
10,714.2
$10,000
357.1
2,142.6
4,285.0
6,427.8
8,570.4
1,2855.6
17,140.8
21,426.0
$20,000
714.3
4,285.7
8,571.4
12,857.0
17,142.7
25,714.1
34,285.4
42,856.8
*Based on $28 silver price

 

A $3,000 monthly budget needs 1,285 ounces to get through one year, or 3,857 ounces for three years.

 

I know these amounts probably sound like a lot. But here's the thing: if you don't save now in gold and silver, you're going to spend a whole lot more later. What I've outlined here is exactly what gold and silver are for: to protect your purchasing power, your standard of living. 

Jeff discusses the Hard Assets Alliance as a solution worth considering when purchasing bullion. For more information on the HAA can be found here. 

Click the play button below to listen to Chris' interview with Jeff Clark (46m:01s):

 

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Tango in the Blight's picture

Many people who ended up in Hoovervilles had carpenter skills so they built sturdy wooden houses. Look up old photo's of Hoovervilles, they looked like orderly little towns. Not as chaotic as the tent cities of today. Nearly no-one can build a house themselves these days so that's why they live in tents.

ciscokid's picture

I would think you need to have 35% of your savings in physical gold or silver.

A Lunatic's picture

A half ounce then.......

FoeHammer's picture

Haa. I'm in the same boat...or ocean for that matter.

DosZap's picture

I would think you need to have 35% of your savings in physical gold or silver

All those #'s are just a rule of thumb, 35% of YOUR savings, for a TON of folks is less than $25k..............Ain't gonna cut it, but if your talking 3yrs, it's a WAD.(depending on what it costs you to live. Owned homes will be waled away from, trailer hitches, and small 16-24" mobile homes would make a lot more sense.............

Personally I do not plan on just meeting my expenses,better have enough to cover 100% of your total NET worth...................how many ounces u talking THEN?,sure would not be silver.........take a damn dump truck to haul it.

PLUS, the charts are based on $1,600.00 Gld,$28.00 Silvr,IF inflation is 20%+,those prices will/SHOULD  be easily double/triple that.

moondog's picture

16-24" mobile homes...they have internet access in Lilliput?  ;-)

Seriously though, I do like the idea of a trailer, if you have the fuel available to tow it (think biodiesel or wood gasification in worse case scenario).

Quarky Gluon's picture

Or is he begging the question: Should you own any gold or silver at all?

fonzannoon's picture

That is a great way of thinking about it.

fockewulf190's picture

I think Occam's Razor applies here.

Uber Vandal's picture

If one is unable to purchase silver or gold, saving one's pocket change would be a step in the right direction, and if one is fortunate, a silver coin may be in the change.

During the Weimar and Zimbabwe hyperinflation, people were not pushing wheelbarrows full of coins, and it would be a good idea to use up clad coinage before using silver or gold..

 

CunnyFunt's picture

The last time I found a silver quarter in my change was in the mid-'80s, and I still always check. But you're right about saving change. Copper cents are each worth $0.0227 melt value and are commonly found.

AL_SWEARENGEN's picture

In the past two years I've been handed three Silver quarters as change (that I can remember).  It's rare, and another reason to pay in cash.  Just listen to the jingle every time you receive change.  A Silver coin against the rest will sound different.  Noticeable enough to hear if you remember to pay attention.  Nice name by the way.

funthea's picture

Retarded...

In a high inflationary environment, let alone a hyperinflationary one, no one is going to be having the same monthly expenses as they did before. And gold and silver, in that environment, would go up until the paper reflection of it defaulted, thus redering it super nova. Toilet paper then becomes worth more per sheet than $100 bills, as it is easier on the keaster for wiping than the FRN's. In the end people just burn the FRN's to keep warm.

A Lunatic's picture

This whole country would be a war zone and gold/silver would be the last thing anyone but the ubergreedystupid would be worried about. Far too many people treat the possibility of this scenario like a 'Little House on the Prairie' episode. It will be anything but, and what is considered a priority today will be utterly fucking laughable should all of this unfold..............

chubbar's picture

I believe you are correct, but only to a point. A mad max scenario will only play out for so long. Eventually the survivors will have found a way to acquire food and shelter long term and the nation will settle into a new "normal" Of course there will be a lot of death and destruction along the way, which is why some folks on this blog say to store food, guns and ammo. The gold/silver is for AFTER this plays out and there is some sort of semblance of society that reorganizes along with a mechanism to store wealth. IMO.

funthea's picture

In hyperinflationary events throughout history, gold and silver have done quite well. Priorities may in fact change, along with the funds allowcated to them, but gold and silver will most assuradly find favor in such an environment, just as in times past.

bunnyswanson's picture

http://www.youtube.com/watch?v=5FPAYqU5Pj0 -

Vid 1 of 4 Inside Bank of America DOES NOT accept U.S. DOLLARS as payment on mortgages in AMERICA?!? Feb 3 2012 Bank of America Lakeport, Ca. I attempted to make a cash payment on our mortgage, the manager refused to take the cash saying it was against bank policy.

 

 

I was shocked, had no idea this would happen, since when does a bank not accept cash… Right! When I protested, the manager called the Lakeport poilce dept. After being detained for about 1/2 hour and nearly arrested for shooting video inside the bank the cops decided to let me go.

The BofA manager made a complaint against me and had the cops inform me that I am "no longer welcome inside the Lakeport branch of Bank of America." Also that if I "ever attempted to enter the branch again I WILL be arrested!"
So apparently Bank of America DOES NOT accept American cash dollars as a form of payment on mortgages in AMERICA!

PROTEST & YOU WILL BE ARRESTED!

 

http://www.morningliberty.com/2012/02/10/top-30-debt-facts-bank-of-america-refuses-to-take-dollars/

 

 

DosZap's picture

bunnyswanson

Then the BOA, just committed a Federal Crime, it is legal tender, for ALL Debts,you should contact the Feds.

Their POLICY cannot allow them to not accept USD's for any payment.

UP Forester's picture

Try postage stamps at a different branch.

When they refuse, have them sign a refusal to accept payment form you wrote up, have it notarized on the spot, and under the Uniform Commercial Code they have just discharged your debt.

Although they already have by refusing your FRNs.

AGuy's picture

Ideally one would continue to horde PM's during high\hyper inflation and spend the paper currency as fast as it comes in. PMs are about preserving wealth. No point is using your hard earn currency when you can still trade paper for goods and services. Its when the Paper become worthless, then you turn to your hard currency. Its seems unlikely that the period between when paper currency fails and when something else takes over would last years.

The biggest concern is as when currencies start losing value fast, that gov't will enact laws regulating or banning the use of PMs. I think initially they will raise the capital gains tax on PMS to 90% to 95%. After that fails they will make private ownership illegal and enact Confiscation laws to denied value to the common folks. When it comes to gov't policies always consider the policies which have the least resistance for the gov't to implement (aka money printing) and which policies to keep the current leaders in power for the longest possible time.

FWIW: I think beginning in 2013, there will be a gun grap, putting in a ban of Semi-automatic rifle sales and outlaw handguns. They probably will enable laws on ammo purchases (including purchase limits and a painful sales tax on ammo). Later will come restrictions on PM's.

Vooter's picture

There are currently restrictions on owning marijuana. Do you see people turning in their pot?

ParkAveFlasher's picture

+1 PussyCentaur

I love the "if your expenses are xxx you should have xxx ounces..." assumption that you won't be desperately searching for a crowbar to beat up your neighbor for the last potato in the bin, in a hyperinflation scenario.

RIIGHT you'll be browsing StubHub for $50,000 bleacher seats for Red Sox / Yankees and seeing if you have $8500 on the metrocard to make the trip to the stadium, or if you should take a cab ride for another $50,000.  I can see it now, the vendor throws a bag of peanuts across the row and you throw back a big wad of fifties. As the wad is in midair, the vendor receives word that the peanut growers just lobbied for a rate increase and you owe him more money, and as you throw him a brick of tens for the difference, he calls to you that his union just bartered for better pay and if you can spare a few thousand until a trainload of cash makes its way from the local Fed to the bank next to the union HQ.  Hey, keep the change, assuming you can fit it in the trunk of your nicely equipped Escalade.

 

BooMushroom's picture

Hard to wipe your butt, or to burn to keep warm, with ones and zeros!

01001111011011100110010100100000011100010111010101100001011001000111001001101001
01101100011011000110100101101111011011100010000001001111011000100110000101101101
0110000100100000010000100111010101100011011010110111001100100001

Pool Shark's picture

 

 

 

High inflation does not automatically mean higher gold prices: gold went down for 20 years between 1981 and 2000 with high inflation raging the whole way.

Gold actually does better during deflations and financial crises:

http://globaleconomicanalysis.blogspot.com/2007/02/is-gold-inflation-hedge.html

Am I stacking? Hell yes! but not because I fear inflation. Rather because I seek to preserve purchasing power in the coming debt default/currency crisis.

fonzannoon's picture

I thought gold went down in 1980(ish) and stayed down for 20 years for the one reason that cannot possibly happen today. Interest rates shot up.

Pool Shark's picture

 

 

Exactly.

Volcker raised the prime rate to 21.5% to fight inflation. This killed gold as the carrying costs (no interest) made gold a poor investment.

If we do get high inflation again; expect interest rates to go up and we'll see a repeat of the 80's and 90's (bad for gold).

Frankly, I don't think we'll see persistently high inflation accompanied by high interest rates in the near future simply because the days of "wage-push" inflation are over. But if interest rates start to back up; it will be time to liquidate your precious metals...

As mish points out: gold is money, and money always does well in times of deflation.

lunaticfringe's picture

That cannot possibly happen gents, so don't worry. Can you imagine the interest on Treasury debt? These fuckers have screwed the pooch. They can't jack up interest rates because they continually have to refi of all that 16 trillion worth of ass wipe they issued. How they gonna jack up rates and pay the interest on Treasury debt? Can't happen. Bernank buggered the poodle.

A Lunatic's picture

I think three things will happen; shock, denial, and wailing and gnashing of teeth when the Fed's solution to that problem become obvious. Sure it's nice to think they are ignorant buffoons that have painted themselves into a corner, but I do not seriously believe that. My guess is that deep down inside you don't either..........

Vooter's picture

"Sure it's nice to think they are ignorant buffoons that have painted themselves into a corner, but I do not seriously believe that. My guess is that deep down inside you don't either."

LOL...I fucking believe it. What are you talking about? These are all people that you and I went to grammar school, high school and college with--they bleed and shit their pants just like everyone else. They're only able to pull their bullshit because people like you and 99% of the rest of the U.S. population treat them like superpower-wielding wizards. THEY'RE NOT! They're just everyday assholes who have fucked up--and who will pay for their sins, just like assholes have been paying for their sins since the beginning of time...

steve from virginia's picture

 

The private sector has to continually roll over its own $40 trillion + in debt, high interest rates would bankrupt most businesses, too.

fonzannoon's picture

if rates go up again it won't be because the fed raised them (like volker) it will be because the world called bullshit on the US ability to ever pay anyone back. it's the complete opposite of the 80's and it is reasonable to think the complete opposite reaction in gold would happen compared to the 80's. You seem to be assuming higher interest rates with a strong dollar. true 30 years ago. not today.

Pool Shark's picture

 

 

Look at the period between 1985 and 1998 on this chart:

http://3.bp.blogspot.com/_nSTO-vZpSgc/Rdh85QBPcwI/AAAAAAAAAXg/f26Q-D_UcAc/s1600-h/US%24Index-vs-Gold-1970-2007.png

The US dollar depreciated significantly over this 13-year period, but gold was flat. As the article points out; there is not necessarily an inverse corelation between gold and the dollar.

fonzannoon's picture

i'm on mobile can't open the chart. the dollar in 1998 was much stronger against the CAD and AUD and almost anything i can think of. what is it measuring the dollar against? how do you account for the question regarding raising rates and funding the defecit?

saveandsound's picture

Looks like there is almost no correlation between "us-dollar index" and "gold spot price".

But the time between 1985 and 1998 was called "the great moderation" - prosperity, reasonable debt levels and so forth. We are more at the eve of the 70ties. Remeber there has been a bank and financial crisis in 1966 which was covered up with liquidity after all. Read Hyman Minsky's "Can it happen again?".

To say it in a few words: I hold equities and cash (swiss francs) besides Gold and Silver. Diversify, bitchez!

saveandsound's picture

Hi Pool Shark,

good to read someone's more differentiated point of view. The world isn't one-dimensional and Gold and Silver habe certainly become expensive.

However, central banks and goverments have their ways to keep interest rates low and might very well lie about consumer price inflation. For now there is no new Paul Volcker in sight. And, please do not forget, interest rates in the 70ties were high as well, but not high enough to crush inflation. If Gold is money, please keep in mind that Gold is a scarce kind of money.

As always, markets are no one way street. The question is: when will central banks change their policies? I beleive we have at least three more years to go. Probably much longer. So is it more like 1969 or more like 1973 now? What do you think?

Roark12's picture

I thought gold went down in that time period because of Treasury Inflation Protected Securities (TIPS)

I am Jobe's picture

How many Pussies for an oz of Silver?

funthea's picture

Now you're talkin.

I once figured that an ounce of silver should be equivalent to 320 blowjobs.

A blowjob, regardless of how pleasant, is still unskilled labor. Hell, I bet 99 out of 100 women attained fruition the very first attempt. How skilled does one need to be with a success rate like that? Even at 15 minutes to completion (I'm sure I'm overstating the average time it takes... I'm usually spent in the first minute or two.), that's four an hour. If we assume 1/10 oz per 8 hour day of work (I know others have stated 10 and 12 hour days). That's still in the realm of 320 blowjobs on the low side. Could be somewhere near 500 blowjobs if we consider longer days for the 1/10 oz.

Haole's picture

As I have enough "tangibles" to weather a scenario whereby hard assets will be the only acceptable method of exchange/commerce (~Mad Max?), the amount of premium ham wallet I could get with my "money" would likely be one of my interests.  A bit of silver they would most certainly deserve, I'm a nice a guy after all... ;)

kwality's picture

You are underestimating a lot of factors imo.  First, a person exchanging bjs for silver would presumably try to be making a living wage.   My personal estimate would be 1 bj to 1 ounce of silver.  Maybe for a college boy crowd a 10 to 1 ratio would be more appropriate... but an older dude takes a lot longer to blow.  It's more labor/skill intensive and the wrinkly-balls risk needs consideration.  BJs for the older gentlemen would be more like 1/1...  in hypothetical terms of course. 

Flakmeister's picture

5000 oz of each ought to do fine....

cossack55's picture

They forgot:

Can you eat gold?  Only the gluten free type.

lunaticfringe's picture

Wow. I have half the two year amount. I thought I had an adequate amount. I have 1/4 400 oz of silver...geez...

Essential Nexus's picture

The amount you need = the amount you can buy.  Simple.

wcvarones's picture

That's a little oversimplified.

First of all, this assumes not only that your income doesn't increase with inflation, but that you have no income at all.  Yes, it's possible that you lose all capability of producing anything of value to anyone else, but if that's the case, you've got bigger problems.

Then if your monthly expenses include a fixed-rate mortgage, you're not going to have to worry about that much anymore because the payments have been devalued.  And since we're assuming you lost your job, you can forget commuting and business clothing expenses.

And in this jobless hyperinflation world, I'm guessing you're not going to feel like theatre and fine dining much, so you can probably shave your entertainment budget.

Bottom line: you're going to be fine with a lot less gold and silver than this dude says.  In the land of the 0% allocation to gold, the 5% man is king.

Related: Gold: do you have your share?

saveandsound's picture

> That's a little oversimplified.

Of course, author is selling his book. Like all Guest Posts.