Who’s afraid of gold and silver?

December 9, 2016

Pat Heller

Only a tiny percentage of American adults own physical gold or silver for investment. The estimates I have seen range from one to three percent. From my more than 50 years of personally owning such items or trading them as a dealer I have identified several mental challenges that people need to overcome before they will consider purchasing bullion-priced precious metals coins or ingots. Among them are:

Fear of risk of loss: As with pretty much all investments, there is always a risk of loss. Even if it is not an outright loss as measured in currency, it is still possible to suffer an economic loss when you factor in the inflation of the money supply and rise in consumer prices.

Fear of making a smaller profit compared to another potential investment: “Precious metals don’t pay interest or dividends” is a former argument for not owning physical gold and silver. Today, with a significant and growing percentage of all debt bearing negative interest rates and almost all the rest paying virtually zero interest, this attack against holding precious metals is not significant.

Fear of not following the crowd: There is sense that if so few people own physical gold and silver, there must be a reason for that situation. Whatever the reason, it may indicate that the “smart money” stays away from such assets. Therefore, many people will only consider investment options that are among the most popular at the time, without regard for potential gain or loss. Many people feel safer being part of a crowd rather than standing on their own judgment if it goes in a different direction.

Fear of failure: If someone purchases a popular investment that performs poorly, there is less of a personal feeling of failure. In contrast, if an investor goes for something that has few owners and ends up being a loser, that could create more of a feeling of personal responsibility for not making a profit.

Fear of rejection: Even if an investor makes a respectable profit owning physical precious metals, there is a risk of being ridiculed by others for having such unusual holdings.

Fear of the hassle of storage: Don’t laugh at this one. Owning physical gold and silver means that these assets occupy space. They need to be handled and stored somewhere. Issues of storage costs, the risk of theft or damage, and simply keeping track of such assets take more work and worry compared to just looking at paper statements of investments.

Fear of being perceived as unpatriotic or anti-government: Although others rarely discuss this issue, I think there is a lot to this fear. Think about it. The U.S. government officially considers gold to be a “barbarous relic” that is no longer necessary for modern-day commerce. Therefore, owning gold or silver could be somehow construed as a sign of lack of faith in the U.S. economy, government, or monetary system (actually many who do own precious metals as wealth insurance do have these very worries about America). Worse, it may even be seen as somehow acting counter to the interests of the American government.

There are other fears, but this list probably covers most of them.

The good news is that just about every one of these fears can be turned around. For example, people who have held assets denominated in U.S. dollars or other currencies have seen almost all of them lose value versus an ounce of gold or silver.

The fear of making a lesser profit can be offset by considering the prudence of asset diversification. When diversifying, you are guaranteed that some investments will lag the results of others, but you also tend to smooth out the overall performance of the combined portfolio.

People who follow the crowd will tend to achieve average investment results. That may be just fine with many people. However, for those who seek better results, you almost always need to accept greater risk in order to achieve higher gains.

There is not a single person who has ever lived who can truthfully claim that they made the best decision every single time and were always successful at whatever they tried. Failure is a natural part of life, which hopefully can serve as lessons to make better future decisions. Investors will never possess full knowledge about the alternative investment choices they might make. It is inevitable that some decisions about what to do or not do will later prove to be the wrong choice. If people want to consider themselves seasoned investors, they need to accept the fact that not everything will turn out wonderful. Should they be uncomfortable with that fact of life, they might best avoid becoming investors. People who go to extremes at avoiding a risk of any loss often end up achieving the poorest investment track records.

Realize that anyone who might ridicule people for owning physical precious metals actually shows they probably are less familiar with the benefits of asset diversification. With prudent diversification, there is no reason to take to heart any teasing or ridicule.

As for the idea that owning physical gold and silver may be considered anti-government or unpatriotic – possessing precious metals is actually pro-people. Those who hold gold and silver are more likely to be good neighbors and friends to have on your side in time of trouble. Loving the concept of America and the people who live here is not automatically the same as liking your government or what it does. In my mind, it is far more important for people to support each other rather than exercise blind acquiescence and obedience to the government.

Once people can identify why they fear owning precious metals and study the other side of these points, I am confident that more will end up choosing gold and silver as wealth insurance.