WHY DAVE RAMSEY IS WRONG ABOUT PRECIOUS METALS
In a recent article, Dave Ramsey laid out a case for Why Investing in Precious Metals Is a Bad Idea. While the discussion may have convinced some people, such as those with limited knowledge of the subject, experienced precious metals investors and advisors recognize the flaws in Ramsey’s presentation. Here are the real facts and why an investment in precious metals is worth your consideration.
Where Dave Ramsey Went Wrong Regarding Precious Metals
Dave Ramsey has built an amazing career for himself as a leading personality on radio, podcasts, and books, reaching millions of Americans. His radio show is heard by over a million listeners each week in the United States alone. His specialty is personal finance, and much of his work revolves around helping people get out of debt.
However, Ramsey is not a specialist in precious metals. So, when he offers advice on this subject, it comes not from special expertise but from general impressions and assumptions. When you look at his argument carefully, you can see that it consists mainly of claiming that the consensus among precious metals experts say, is wrong.
Gold Is Worth What You Think It Is – If You Do Your Homework
Ramsey comes out of the gate with a simple declaration that “Gold isn’t worth what you think it is.”
This is an odd statement. After all, how does he know what the reader thinks gold is worth? If you are concerned that you don’t know what gold is worth, you can find out by looking at the spot price. Studying the spot price and historical charts gives you a good idea of the current and expected prices of precious metals.
Beyond that, you can talk to a precious metals expert like those at Atlanta Gold & Coin Buyers to get further insight. Dig deep enough and you will realize that gold has been valuable since ancient times, with no end in sight. Why else would people invest in precious metals for hundreds, even thousands of years?
The End of Dollar-to-Gold Conversion Did Not Destroy Gold’s Value
Perhaps to give historical proof, Ramsey goes on to discuss how Nixon ended the government’s practice of exchanging gold for dollars. Coincidentally, 2021 marks the 50th anniversary of the closing of the gold window. He suggests that because you can’t take your dollars to the government and get gold in return, that gold will not help you in times of inflation.
What Ramsey failed to mention are the reasons why Nixon did this. The president and others in the government were concerned there would be a run on gold. This was due to massive debts from the war and high inflation rates caused by the Federal Reserve’s loose monetary policies. Essentially, foreign central banks began to realize that the dollar wasn’t as good as gold.
There wasn’t enough gold to cover all the paper currency if foreign central banks requested to exchange their dollars for gold. Meanwhile, the European currency was dipping, and their banks started converting dollars to gold to protect their interests. In other words, they viewed gold as significantly more valuable than paper money.
Furthermore, if the dollar tanks, why would non-convertibility through the government mean that having gold would be a bad idea? Since gold and the dollar are no longer linked, devaluation of the dollar would have no impact on the country’s gold reserves. In fact, a drop in the strength of the dollar is likely to increase the demand for gold. According to Jean Folger’s article, What Drives the Price of Gold, gold tends to go up when the dollar goes down.
You can read a more complete explanation of this historical time in Sandra Kollen Ghizoni’s 1971 article, Nixon Ends Convertibility of U.S. Dollars to Gold and Announces Wage/Price Controls.
Gold and Silver Could Be Used in an Economic Crisis
Several times in his article, Ramsey claims that gold would not be useful in an economic crisis. He insists that people would not barter using gold and silver.
However, Scott Burns, another personal finance expert, reported in The Seattle Times that throughout history, when currency’s value goes down, barter increases. Also, Burns mentions that silver and gold may be used in bartering or as currency.
As many have recently seen, gold and silver are currently being used for barter purposes in Venezuela, where hyperinflation is running rampant. Precious metals are being used for daily errands and needs, such as meals and haircuts!
While the higher value of silver and especially gold might make it difficult to complete small transactions with it, the same is true for other things people use as a medium of exchange for bartering. In the end, if currency isn’t a viable option, people would likely use precious metals for at least some of their exchanges.
One thing that makes gold and silver a logical choice for use in purchasing goods and services in a crisis is that it has just the right balance between abundance and scarcity. There is enough of it to use for investment, trading and industrial purposes, but not so much that its supply outweighs its demand.
Lastly, besides collector or numismatic value, there has to be a reason you’ll find a denomination on the back of a minted coin, right?
Physical Precious Metals Are a Hedge Against Inflation
Twice, Ramsey suggests that the idea of precious metals as a hedge against inflation is a myth.
Yet, most experts agree that the opposite is true, and in fact, have evidence to support this position. While inflation in the US has been relatively tame over the years, we experienced a bout of inflation of 8.8% from 1973 – 1979. During this same time period, gold returned 35% annually, making it one of the best inflation-hedge investments during most of the decade.
You can look back in recent history and look at the different metal prices in relation to inflation or inflation fears. There is a very clear correlation that shows the trust and increased demand for commodities like gold bullion, silver coins, and other rare metal bullion coins.
Forbes senior contributor Clem Chambers, in his article on The Crash of 2020, explains why inflation is also likely inevitable in the near future. Furthermore, he goes on to say that the best places to put your money during such times is in safe-havens such as precious metals and bitcoin. Interestingly, Chambers suggests investing in platinum due to its extreme scarcity, potential industrial uses, and recent popularity.
At the time of this writing, the most recent monthly consumer price index (CPI) figure clocked in at .9%, which pushed the year over year inflation rate to 6.2%. This is the highest reported inflation rate in 31 years, and not surprisingly, the public has taken notice. In response, investors are beginning to move their wealth into inflation-protected assets, such as gold and silver. This in turn has caused precious metals prices to steadily rise.
People Trust That Gold Has Value
Later in his article, when Ramsey mentions that paying for goods using dollars is an exchange based on trust. Ramsey seems to be suggesting that people don’t trust the value of gold. This statement by Ramsey also leads us to believe that if transactions in dollars are backed by “trust”, what guarantee do we have that value is included in that transaction?
Who, when presented the choice between a lump of gravel and the same size lump of gold, would choose the gravel? It’s generally accepted around the world, not to mention throughout history, that gold does have significant value. This is evident by the fact that a large part of the population invest in precious metals in some form or another.
In fact, in an Investopedia article by Carla Tardi, Why Has Gold Always Been Valuable? Tardi states that the value of gold is based on the social construct that people agree it is and always will be valuable.
Precious Metals Are Different From Other Commodities
In addition, Ramsey makes it clear he sees no difference between gold and other commodities. Would it be just as good to buy a silo full of wheat as invest in precious metals?
Gold should be viewed differently from other commodities, as it’s an investment and consumer good. It has also historically had higher returns and lower volatility than most other commodities and is a proven store of value. In fact, central banks currently have 35,000 tons of physical gold in reserves, which is roughly one-fifth of all the gold ever mined. If central banks put such a high emphasis on holding gold, we should probably take note.
Additionally, unlike other commodities, there are a number of uses for gold due to its unique properties. Not only is it used as an investment in the form of gold coins and bars, but is also used in jewelry, dental work, computer chips and various other medical treatments, just to name a few.
To put it simply, gold isn’t just any commodity or at least we can’t remember the last time we saw someone store grain or oil in their home safe or Safe Deposit box…
All Types of Investment Fluctuate In Price
Listen to almost any broadcast on the Dave Ramsey radio show and you’ll hear how he complains about the ups and downs or volatility of the precious metals markets. He recommends putting your money in real estate or your 401k. While this may be sound advice, there are many other types of worthwhile investments. The problem comes when you assume that other investments are always better than precious metals.
The reality is that all investments fluctuate in price, and some more than others. For example, the stock market plunged nearly 30% in March of 2020 during the Covid crisis. Comparatively speaking, the price of gold remained relatively stable during the month. While this is just one example of extreme volatility in the stock market, in general, the volatility of stocks and gold have been comparable over the years.
Volatility is expected with all investments. The only way to avoid volatility is to keep all your holdings in cash. However, even then you’re losing money to inflation, which at the time of this writing is in the 6% range. Without risk, you could not expect to grow your holdings over time.
From an investment perspective, as of late, gold has been rising while stocks have remained relatively flat. At the same time, the stock market has increased in volatility. Using the “Buffet Indicator,” which measures the total market cap of the stock market over GDP, the stock market is at its highest valuation ever, which increases the chances of a large correction and higher volatility in the future.
As for real estate, while it historically has been a solid long-term investment, housing prices are currently also near record highs. This doesn’t mean that prices can’t continue to go up, but it does point to a highly valued market with a greater chance of a correction.
Like any other type of investment, the best way to prepare yourself for changes in the prices of precious metals is not to abandon them but to study the trends and confer with an expert. Our precious metals advisors at Atlanta Gold & Coin Buyers can help you navigate the ups and downs of the gold, silver, and platinum markets.
What Ramsey Got Right
Ramsey did get some things right in his article, mainly those having to do with investing in general. The Dave Ramsey Show stays consistent with their advice on investing whether it be on the radio station, Ramsey’s book, Financial Peace, or Dave Ramsey’s: Total Money Makeover.
For one thing, it certainly is not good to make any important decisions based on emotional feelings like fear and greed. Second, you do need to consider the history of an investment type before you plunge in headfirst. Also, it’s true that the nation’s emotional climate will have a bearing on the prices of precious metals. And finally, it’s always better to invest in something you understand well.
Yet, even though these arguments hold water, they are not relevant to the question of whether you should invest in precious metals or not. You can still make wise decisions, learn and consider the history of the investment, factor in the emotional climate, and learn as much as possible about precious metals.
How can you do that? Get in touch with the precious metals experts at Atlanta Gold & Coin Buyers for a safe, secure, and discreet experience when investing in gold and silver. We can provide resources, instructions, insight, and recommendations customized to your specific investment needs. When we are not buying and selling precious metals, we are churning out useful, up-to-date and relevant blog posts as well.