Jeff Clark: So How Many Ounces of Gold (or Silver) Should You Own?

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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):

This is a companion discussion topic for the original entry at https://peakprosperity.com/jeff-clark-so-how-many-ounces-of-gold-or-silver-should-you-own/

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Allow me to help you consider cutting down the number of ounces you’ll need to hold.
If you have a long-term lease or a mortgage or other contract denominated in dollars, it is a legal contract. Even if dollars become “worthless”, you likely will still be able to pay your rent on lease or mortgage in those “worthless” dollars.
So if your mortgage expense is $1,000 per month you can think about that. Even if the dollars of your income are not worth much, that’s still all you have to pay the bank.
Also, in times of economic hardships, people go delinquent on rent, they live in homes while not paying mortgage, and they move in with family (sounds like what millions have done recently, right?). That can have a negative impact on rent prices. In such an environment, landlords worry more while those who still have steady jobs worry less.
The main problem in terms of both severe deflation or inflation is jobs and affordability of necessities. In times of economic uncertainty, people naturally hunker down. In hyperinflation times, people can’t afford to buy as much, so jobs are scarcer even as prices keep rising. In deflationary times, things are cheaper, but people expect prices to decline further, and the economic climate is uncertain, so demand decreases, businesses can’t sell, so they lay off people which causes more people to tighten their belts and not spend.
Yes, you should have some gold and silver. But make sure you have (not in any order) a good job, good skills, assets, supplies, resiliency, no debt.
Poet

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I agree with Poet that it is really important to assess the monthly expenses that will be most prone to inflation - the basics like food, fuel and personal expenses. At the minimum own enough PM to give yourself some inflation protection on these particular items.
In addition to hedging your bets with PM, I believe there is no better time than now to think about making adjustments to your day-to-day living, with a focus on reducing your exposure to the inflation prone aspects of your life e.g. figuring out how to reduce gas and food expenditures. There are lots of simple changes that can be made that can cumulatively add up to a significant amount of $$$. Doing this will take the pressure off to own a lot of PM just to cover inflation on your (perhaps too high) basic living expenses.

This was a great article and I got a lot out of it!

Jan

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This is a little film about a man who after he lost all his money in the stock market when he was around 50, whent on to experience the best years of his very long life. And I believe that at one time he was the oldest living man on record at something like 110 years. He lived a very simple life and he always stayed physically active and he did what he loved to do.
http://www.nfb.ca/film/jack_rabbit

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Good interview Chris,

     Let's not forget that we can focus on reducing our expenses rather than acquiring more precious metals.  For many people, that will be the more practical route.

      I also believe that the financialization of the economy that we have seen these last few decades will swing to favor productive activity.  That is why I am trying to develop a productive capacity.  Raising livestock on pasture, large plot of forest to provide firewood, timber, wildlife, wild plants to enjoy or sell at whatever the current value may be.  The enjoyment of it is just a bonus.  I just wish I could forget the markets and focus on building this new path completely.  Still working to break that old habit. 

                                                          Kevin

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It is good to have hard numbers to work with. 

·         Secure job, 0.5

·         Shelter, 0.9

·         Food, 0.4

·         Water, 0.95

·         Medicine 0.2

·         Escape and evasion, 0.8

·         Education 0.3,

where 1 is a perfect score.

I have not included my PM’s in this list as they assist in in the transition to the new reality, a buffer, if you will. They also act as a honeypot for desperadoes. “Where you store your treasure is where your mind will be.”

Perhaps I am a bit too severe on food as the yacht provides access to land that will become inaccessible to people who rely on fuel for their boats.

First look after No1. You are no use to anyone if you are.  .  . (how should I put this delicately?).  .  dead.

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Nice Adam-Chris. I enjoyed this, I like the charting that was done for people to plan that was valuable for those just starting.
Have a Great weekend Folks

BOB

 

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On Thursday a friend at work asked what I was going to do in retirement.  Since I live 1 hour from gold country in California I told him I was planning on panning for gold.  He smiled and told me a coworker pans for gold and had his best weekend yet.  So how much gold did he find?  33 ounces.  Where?  Won't say, but he guesses the American River. 
In California Coiners and Assayers (Dan Owen) they estimate gold from the American River at 0.900 fineness.  Doing the math, 0.900 X 33 ounces X ~$1700/ounce = ~$50,000. 

Still thinking about this.

 

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Nate -
If you can find a panning spot where we can find 33 ounces in a weekend, I've got the car loaded and am joining you!

(fyi, I have scant experience panning for gold, but that seems like an unbelievable amount to extract from river silt - especially in so short a time. Are you sure he didn't mean 33 grams?)

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There is an individual I know who goes to Alaska every summer and works a plot of land with excavation equipment.  He gets gold and also some platinum and does surprisingly well.  Let's put it this way … he's not poor. 

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Adam,
Our 33 ounce man is thinking about quiting his job and panning (or whatever he is doing) full time.  He is also considering setting up his own refining capacity.  The buyers for the raw metal only pay 60-70% of the bullion value.
Still thinking about this.

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Panning for gold isn't as crazy as it sounds. Many years ago, maybe twenty or so, I was finishing a concrete pour when the concrete truck driver commented that he still had plenty of time to go pan for some gold. I thought he was kidding. He explained that he has a couple of spots nearby (which would put him right on the edge of a fairly large city in Southern California) where he always gets something; the worst he ever did was still enough for beer money for the week. I was able to coax him into telling me where and he described a spot less than a mile from my house where a small seasonal creek passed under a highway. The creek ran through a pair of corrugated steel pipes that formed a sluice type action as the water passed through. He described how he regularly pulled gold dust out of that creek with houses nearby and cars whizzing by overhead. It's not that far-fetched. This area is downstream from Julian, California which has a history of gold mining. 
Now that the price of gold has climbed, I often ponder taking up a new hobby.

I might hafta think more seriously 'bout that. Naaaah.

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I see no acknowledgement or calculation to include the effects of capital gains taxes or inflation "taxes" effecting the amount of gold to hold.  If you buy at $1k sell at $2k your nominal profit is reduced by capital gains taxes and the purchasing power of your profit after taxes is reduced by the amount of inflation that has occured.  It is not what you make but what you keep in terms of purchasing power that matters. 
 

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Gold is taxed as a collectible at 28% unless its in an IRA which is taxed at your income tax rate upon distribution.

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You don't necessarily have to sell.  There are other ways of using PMs.

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Even if it's 33g, it still equals out to $1800+ for the weekend.  That's if you measure gold in dollars, which I don't.31.1g in ounce
$1700 ounce
$1700/31.1 = $54.66g
$54.66 X 33g = $1803.86
 
Not a bad haul for 2 days of work!

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The above calculations (for monthly/yearly expenses paid by gold/silver in the article, not the calcs on making money by panning for gold) do not take into account any supplies such as food, medicine, etc. set aside. And they do not account for any lifestyle changes due to such a situation as hyperinflation, either. You might stop paying utilities if you're ready to go off the grid for electricty or water until things stablize, for example (we're not - those are just examples.) You'd need that much less gold or silver.
Plus, it is important to remember that your expenses will be less: perhaps there will be no driving to and from your job, or certain regular expenses will fall by the wayside in a crisis situation. You will need that much less gold or silver due to austerity.

And due to austerity/lifestyle changes whatever gold or silver you do have will go a lot further.

Finally, I am suggesting that–for most things–it might be better to invest in the things the gold or silver can buy, now, when the prices are lower. This avoids  hefty taxes later on your precious metals investments. If the things you buy involve energy efficiency you might  even get a tax credit!

I'm not saying to avoid precious metals, but my personal philospophy is to become as energy and food resillient as possible and save precious metals for the things you cannot get any onther way in a crisis. We set aside PMs for our house taxes, for starters.

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Growing up in Montreal, I heard about him.  Thanks for that one John.  Cheers!

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The reason I have Gold and Silver, and may be lost here perhaps, is that these precious metals ARE MONEY. They will buy the same goods and services today as they did in the past, and I imagine in the future. This means for me that they hold the perfect risk free Dollar purchasing power. So whether you have enough of them or not I think logically it would be better to be looking at these coins than for them.
All other reason given have there merit too and are respected. I just want the physical so I know I can buy today what I could yesterday and tomorrow. Like having dollars but not having too worry about Inflation or Deflation. I just want to provide the essentials for my family.

Respectfully Given

BOB

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I'm really glad that someone out in PP land picked up on my Jack Rabbit post. He was truly an inspirational person. And I have great memories of those NFB films I watched while growing up in Ontario. J.