Why I keep buying Silver and Gold

published 20 December 2010

Yesterday I had to go up to town on a bit of business. I got to the station with time to spare... man, I must be getting old' I lamented to myself - yesteryear I would barely have had the time to buy a newspaper and dash onto the train.

Anyway, now that I'm officially old, I can at least amuse myself with the occasional time-wasting dalliance... And as I wandered yesterday I discovered a coin dealer tucked away under the arches of the train station. I had no idea he was there.

Now, you know how much of an interest I have in coins. So I reckoned a five-minute diversion with a local trader couldn't do any harm...

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As two trains passed by...

Dealer: "Sir, how can I help?"

Me: "Do you have any British silver 1oz coins?"

Dealer: "errm, er, well, I'm sorry, but I don't"

I could see the embarrassment written all over his face... what sort of a coin dealer am I?... a dealer without stock! Useless...

"But I have some US" he continued presenting around thirty 1922 and 1923 silver eagles... "£20 a piece on those sir".

Me: "anything else?"

Dealer: "errm, not really"

I said "I'll take them" and his smile evaporated... "What all of them?... But I've got a chap that comes regularly for those. Oh well, I suppose he can't have them now!"

I paid the dealer, tucked them away in the inside pocket of my mac and made for the London-bound platform.

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Isn't this hopeless?

By the time I got to the platform, all the freebie newspapers had gone. And I had time to myself to think about why I keep doing this.

I mean, what's the point? Why do I keep buying gold and silver? I buy it on spread-bets, in ETFs, in mining stocks... and yes... in coins... But what for?

Some of the guys I read online think these old coins will become the currency of tomorrow. But I just can't see it. There just aren't enough of these old beauties around. I mean, I've just wiped out my local dealer with a paltry six hundred quid!

Let's face it, the likelihood of going back to a gold, silver, or even copper standard is unlikely.

But as the train erratically edged into Charing Cross, I remembered why I became so fond of precious metals in the first place...

Why history is on your side

I don't know what's going to happen to the financial system - I don't know how sick she is and I wouldn't know the cure even if I did. But I do know a bit of history. And history tells me that our financial system is in serious trouble. If not today, then tomorrow... after all, every paper-based currency system that's ever existed has come undone.

And coming undone' arrives in different guises. Most simply the authorities say today, we're issuing one new pound for every 100 you currently hold.' Those sorts of revaluations were common in the past - especially in what we like to call the banana republics'.

Okay, so the UK isn't quite a banana republic. But there are other routes to currency devaluation. They can just print a load more of it for example - and then let inflation re-base' the currency until it's unrecognisable. That's exactly what's been going on since 1971. Sure we've still got the same new pound', but according to gold, it's been hammered down to about a fortieth of its value!

Remember too that history is on our side... paper currencies have a 100% record. They always fail.

And the old metal currencies have a 100% record too. They always maintain purchasing power.

Print more paper, revalue your paper, or even take away your paper... go back to a barter economy if you want. It doesn't matter... gold and silver always performs its function. The coins I picked up yesterday will always be worth what it costs to create them.

But I thought you told me things were getting deflationary!

I know, I know... everything I've just said points to inflation. How can I say that when I've been banging the deflationary drum for so long?

Look, I don't know the timings here - I don't have any inside info on currency collapse. I can no more tell you when the pound will fail than I can tell you whether to bet on black or red. All I can tell you is that the pound must fall (again).

In fact as regular readers know, I'm actually betting on the pound becoming worth a whole lot more before it becomes worthless. I fear that debtors will suffer before the currency god forgives their pecuniary deficit.

But none of us knows when the master cometh to judge us. Whether he comes in inflationary times, or deflationary, it doesn't matter to me. I'm sticking to some precious metals. They seem so cheap and they seem right...

Why not find your local coin dealer. Have a chat with him. See if he's still got some gold or silver left. If he's anything like my newfound friend, the chances are he's running out of stock. I'd pick up whatever you can while there's still availability.

This is a simple question of demand and supply. Buy now. I'm bound to be right at some point!!

This article was first published in the free investment email The Right side. Sign up to TheRightSide here.

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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.

He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.

Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.