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<p>[QUOTE=&quot;John the Jute, post: 556617, member: 17740&quot;]Hi Bill,</p><p>&nbsp;</p><p>In my chequered career, I&#039;ve fraternized with quite a few gold bugs--and am probably one myself--and have observed four different scenarios that worry them ... resulting in activities which range from relatively orthodox modern portfolio theory to out-and-out survivalism.</p><p>&nbsp;</p><p>The first is the danger of stock or bond market collapse. This happens at least once a decade, and the appropriate response is diversification. If Wall Street collapses, then gold is more likely to rise than fall. In statistician&#039;s jargon, the gold price is uncorrelated with the markets. By an amazing piece of mathematical luck, even though the gold price is far more volatile than the stock market, adding a modest percentage of gold to your portfolio actually reduces its volatility. A journalist for the New York Times some years ago crunched the numbers and claimed that the optimum amount of gold was about 6%.</p><p>&nbsp;</p><p>The other three scenarios are varying degrees of rainy day, against which you wish to hedge, ie insure, your savings. Every 20 or 30 years the financial markets, aided by the politicians, collectively lose their minds. I know you won&#039;t believe me but it can happen! In the pain that follows, people a long way removed from finance all too often suffer ... and at exactly the wrong time their savings lose their value. In my own family in the relatively recent past, the early 1930s and the late 1940s were very bad; the mid 1970s were bad. A holding of precious metals, either silver or gold, can ease the pain substantially. Typically, this sort of gold bug owns one-ounce gold coins and hundred-ounce silver bars.</p><p>&nbsp;</p><p>The third case is much worse. This is when you have no option but to flee where you are which what you can carry. The last time this happened to large numbers of people in the US was during the War Between the States; in Great Britain it was during the Highland Clearances of the 18th century. So we don&#039;t worry about it that much. But every couple of hundred years or so, the cycle goes around and the quiet areas of the World become the Vietnam of the 1970s, the Yugoslavia of the 1990s, or the Somalia of to-day. To hedge against this level of disaster, you need gold: a hundred ounces of gold is quite a weight, but a family could carry it between them ... the equivalent fifth of a ton of silver would be impossible.</p><p>&nbsp;</p><p>The fourth, and least likely, case is the complete breakdown of the country, when there is nowhere to run to. Some who are not themselves survivalists criticise this view by regarding it as a World gone back to the Stone Age. But at any time, there is usually one country in the World which has failed so badly that there is no working money there: at present I think that Zimbabwe is the prime tragic example. They can use the US dollar as hard currency. But what happens if it is the US dollar that has failed completely? Quis custodiet ipsos custodes?</p><p>&nbsp;</p><p>Probable: no. Possible: yes. Is it worth buying insurance against this possibility? That&#039;s up to you. For this purpose, one-ounce gold coins and hundred-ounce silver bars are too large. Even a tenth-ounce gold coin is worth about as much as a hundred-dollar bill. Survivalists seem to go for tenth-ounce and quarter-ounce Eagles, one-ounce silver rounds, and bags of junk silver ... and then let this holding act as their hedge against the first three scenarios.</p><p>&nbsp;</p><p>Later,</p><p>&nbsp;</p><p>John[/QUOTE]</p><p><br /></p>

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