With the peg of the Swiss franc to the euro came the death of national non-fiat currencies, as the franc was partly backed by gold. Though lawmakers and politicians are considering creating a wholly gold-backed franc, for the time being, all major national currencies are fiat money. Nothing more than paper assets that can be manipulated at will. The U.S. is one of the worst culprits of printing money and manipulating currency as our quantitative easing programs and bailouts have left us with a massive debt pile [for more news on fiat currencies subscribe to our free newsletter].
Many investors have a hard time investing in fiat currencies given the fact that on any given day a government can completely change its value with little to no warning. That being said, a number of traders and investors have adopted non-fiat currencies into their portfolios to help protect them from the movements and dangers of paper money. Below we outline four ways for commodity investors to invest in non-fiat currencies and protect themselves from the pitfalls of national monies.
Let’s get the obvious out of the way. Gold is already one of the most popular commodities in the world, so its appearance on this list should come as no surprise. People have been investing in physical gold for centuries as it has long been one of the most important safe havens in existence. Gold’s price has soared on a historical basis and anyone who bought the metal even ten years ago has been handsomely rewarded.
One of the biggest advantages of owning physical gold is the fact that you have access to your holdings. As opposed to a stock or financial instrument that can be stopped out during market turmoil, your physical gold can always be within reach no matter what is going on. Owning the metal outright is also a much safer way to invest, as it allows you to personally ensure the security of your precious bullion [see also Three Reasons Why Gold Is Overvalued].
The downsides to physical gold start with storage, as one must take care to ensure that the metal is both properly hidden as well as safely secured. Improper storage can lead to theft or destruction of the hard asset, leaving all of your money to waste. Another issue stems from gold itself, not necessarily physical exposure. Because it is such a popular speculative instrument, gold prices are often heavily influenced by big traders which invariably impacts the value of your physical holding, and let’s not forget that gold is an alleged culprit of manipulation along with LIBOR.
Another clear-cut choice, investors with less capital to spare or those who simply want a greater quantity of metal for their dollar have long turned to silver. This white metal has a more practical use in the industrial world, but it still maintains a safe haven appeal to those seeking to hedge against uncertain market environments. Silver’s price has not followed the same path as gold’s though there are many who feel that it too will only appreciate with time.
The advantages of owning physical silver are nearly identical to those of owning physical gold, but the downsides are a bit different. Unlike gold, silver does not see the same ultra-high volumes, allowing its price to stay more separate from traders behavior [see also The Most Profitable Months to Trade Gold].
Along with the same drawbacks as owning gold (including the LIBOR scandal) silver is a bit more difficult in that its cheaper price allows investors to purchase more of it. That will mean finding more places to store the metal, which can be a tall and expensive order. Also note that like gold, selling physical bullion is not exactly the most liquid option out there, as it will take time and efforts to properly unload precious metals.
There are a number of websites out there that offer non-fiat currencies, but one of your best bets is going to come from Pecunix, which is one of the few sites that is backed by a bullion audit, a major sticking point for investors. Pecunix is a gold-backed currency that allows investors and traders to purchase/sell goods and services with the currency and it can easily be converted to national currencies and vice versa. It is a great option for those who feel that fiat money is simply too risky and want a currency with a bit more substance to it [see also Commodity Plays For the End of Fiat Currency].
As far as advantages are concerned, Pecunix obviously can never be printed by the Fed or anyone else who wants more of it; the only for the supply of Pecunix to grow is if the company acquires more gold in order to issue more currency. The currency is also maintained on the internet, so it travels with you wherever you go. The website also promises a speedy and hassle-free process for establishing an account of your very own.
The biggest disadvantage to this unique currency is the fact that you can never physically hold it; it is maintained on the web and it will stay there. That may be a trust issue for a number of investors who already have enough trouble putting their faith in big name funds like GLD and SLV which have tens of billions in combined assets.
Disclosure: No positions at time of writing.