When Fat Wads of Cash Mean More than Chunky Blocks of Precious Metals

When it comes to precious metals, most people only think to buy gold.

The thinking is that gold the better investment, because it’s worth more. Silver tends to follow gold’s price movements. So when gold goes up, so does silver and vice versa.

However, silver coins and cast bars have their place. Silver may be more effective as ‘emergency money’ than gold. If the world goes to pit overnight — and suddenly paper currencies are worthless — you’re not exactly going to hand over a full ounce of gold for some food are you? However, a few silver ounce coins would do the trick.

Remember not to over-allocate yourself to silver. Try to keep silver to 5–10% of the value of your gold bullion holdings.

I mention this today, as I recently took a friend to visit a bullion dealer. I won’t give his real name…you’ll see why in a moment.

For today, we’ll just call him Paul.

Paul was new to precious metals, and wanted to tag along with me to see what the process was like.

On this particular day, I was after topping up my silver holdings.

There we were at the dealer, and Paul starts eyeing off a 10 ounce pure silver cast bar, worth about $259 each. After looking at the shiny blocks of silver, Paul turns to me and says,

Wow, four of those would cost over $1,000 bucks. You don’t really get much silver for your money do you? I mean, when you compare it to what $1,000 actually looks like, you sort of feel jibbed.

See why I didn’t want to mention his real name? I nearly ended the friendship there.

Even though I’m supporter — and possibly enabler — of precious metals, I get that they don’t look like much. A 10 ounce silver cast bar is roughly the length of a cigarette lighter, and twice to three times as thick. Four of them would comfortably fit in your hand. A one hundred dollar note is roughly the size of an iPhone. Simply put, it looks like it’s worth more. But it’s not.

The value of any currency is completely at the whim of governments and central banks.

The biggest issue with what my friend Paul said, is that a fat wad of notes makes him feel richer than four 10 ounce pure silver bars.

Somewhere in the past two generations, we’ve lost the ability to know what money looks like. Too many of us assume money is simply cash, or a bunch of zeroes in the bank account.

More to the point, during this time we’ve become conditioned to thinking more notes in our wallet equals more wealth.

Not understanding the true value of money is exactly the place the government wants you to be.

Australia leads the way

Australia is considered to have a high financial literacy rate, with 99% of us over the age of 15 having a bank account. To boot, Australia is fast becoming a world leader when it comes to a cashless society.

The payments map below shoes that Australia is only second Sweden when it comes electronic payments.

McKinsey global payments map

Source: McKinsey Global Payments and Australian Payments Council

Click to enlarge

Three years ago Global Payments Study showed Australia has the highest rate of contactless payment usage in the world. At least 43% of us used contactless cards regularly, and on average 7.3 times per month. Come January 2015, Visa said that 60% of all face to face payments were contactless.

In addition, the Reserve Bank of Australia says that ATM withdrawals peaked in 2009–2010, and are falling each year at a rate of 6–7%.

We are using cash less and less. My own shopping habits confirm this. I would say I use the tap & go facility on my card at least twice a day.

However, something I’ve noticed over the past few months is how much harder it has become to get cash out from a supermarket.

Every time I complete a weekly food shop, I ask to take cash out. It’s generally not much more than $100. Whenever I ask to take out cash, I’m constantly getting the same answer ‘sorry, I don’t have any fifties or hundreds in my till’.

We are willingly skipping along towards a cashless society, most of us without even realising it.

Sure, it’s super convenient. But few people realise the consequences of gleefully eradicating cash.

Right now, we are giving all the power over to politicians to make the case that physical money has no place in our economy.

Most mainstream news outlets are in on convincing you. It’s hard to see past it, because their arguments are so convincing.

It starts off with politicians pointing out that the good people of Australia are being robbed by the bad people.

Take it from Kelly O’Dwyer, the Minister for revenue and financial services last year, who warned:

While there is no single, internationally-agreed definition, typically the black economy refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax (and superannuation) obligations. The black economy can also include those engaged in organised crime, including those who engage in the production and sale of prohibited goods.

Did you catch that? The bad people operate outside the ‘tax system’. But of course, for good measure so you know that any political crackdown is about your safety, O’Dwyer points out that the black economy ‘could’ also include people engaged in illegal activities.

Not long after this, ABC News estimated that the black economy robs Australians of at least 2–15% of gross domestic product (GDP) from the economy. Jeez, that’s a wide range. But like any good-lining-toeing-news-rag, it reminds you, the taxpayer, that you should feel like you’re being jibbed.

Then over at The Conversation, they point out that it’s not just about illegal activity. But a cash free economy would also save you time and keep you safe, writing:

For small businesses, the benefits are mostly in the time saved in not having to handle cash, deposit it at the bank and also in the security of not having cash on the premises.

Those are difficult arguments to beat. After all, what small business owner wouldn’t want to save time and get home early? Of course they also want to be safer, so if having no cash makes them less likely to be a target to criminals, then it’s a no brainer.

The transition to a cashless society is happening quicker than we realise.

The Reserve Bank of Australia (RBA) is speeding up the process by introducing its New Payment Platform later in this year. The new system will mean banks and their customers can make almost instant money transfers. In some instances we will only need to use a phone or email rather than pesky and time consuming bank account details.

The problem, though, is what happens to our wealth once we are forced into an entirely digital system.

Once inside, there’s no getting cash out. Switching to a complete cashless society, while terribly convenient, hands control of your money to the last people who should have it; banks and governments.

Your only choices with your wealth simply become which bank, rather than where or how.

Furthermore, it takes us way back to what my friend Paul said.

Only having money in binary code, means we will lose the concept of what money looks like.

Kind regards,

Shae Russell,
Editor, Strategic Intelligence

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Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia