Dateline: Davao, Philippines
Today, Butuan – located on the other side of the island of Mindanao – is just another third-tier city in the Philippines. However, long before the Philippines or even southeast Asia as we know it existed, Butuan was the center of a very powerful civilization.
The ancient kingdom of Butuan has been described in Chinese history as a small country ruled by a Hindu rajah and active in trading with kingdoms as far away as Japan and India.
And the kingdom of Butuan was flush with unimaginable amounts of gold.
In ancient times, the king could control the price of gold. He used it to fund wars, build palaces, and fund his kingdom.
Today, however, the gold market is much more liquid, and gold investors should take greater precautions in the type of metals they acquire when buying gold.
How to buy gold is an important question among investors looking to flee the crumbling fiat currencies of the west and the economies of countries that believe a little funny money tapering will lead to a flurry of economic stability.
Just the other day, I spoke to a friend of mine who was planning on purchasing a large amount of gold bullion. In addition to the real money benefits of gold, he sees this year’s gold crash as a resistance level to buy in and wait.
However, when he told me he was planning on buying gold American Eagles, I couldn’t help but object.
Like many things in The Land of the Free, demand is built from within. The United States hasn’t been a production-driven economy in ages.
And with its relatively isolated position on the map, it’s not hard for Americans to get the idea that their country is the only game in town. That, I believe, is why the vast majority of Americans who buy gold are buying American Eagles and, to a lesser extent, gold Buffaloes.
It’s not that American gold bullion is better. It’s simply what they know.
However, such an insular mentality won’t come in handy if and when you decide to flee the country with your savings in the form of gold bullion.
That’s because the rest of the world doesn’t believe that all things American are superior. In some places on earth, American gold bullion is extremely hard to come by. There’s no reason for them to keep the stuff in stock – or buy it from you – with so many other options available.
Why shouldn’t I buy gold American Eagles?
Take Hong Kong. The Chinese are absolutely ga-ga for gold. They love the stuff; always have.
You can literally buy gold coins at several Hong Kong banks over the counter. However, in addition to traditional Chinese gold products such as gold grams and Chinese Gold Pandas, other options typically include Australian or Canadian gold coins.
No gold American Eagles.
I’m a firm believer in reducing as much counterparty risk as possible. Physical gold allows you to hold tangible assets that are harder to confiscate and harder to manipulate than gold ETFs or other paper products.
However, I believe many gold investors are passing up the ultimate form of counterparty risk protection by storing their gold coins in a safe in their bedroom when they could be storing them out of the country, away from the prying hands of their local government.
But let’s just say you want to keep your gold and silver close at hand. Let’s even say that countries like the United States don’t get really desperate and start outright forbidding their citizens from taking gold bullion out of the country.
If things hit the fan in the United States, will you be able to pawn off your American gold coins in Hong Kong, or Singapore, or Zurich, or Sydney?
I believe the answer is “no”. Or at least “not very easily”.
Consider that Canadian Maple Leafs are perhaps the world’s most universally desired gold coin. They’re easy to find in far more places in the world than Gold Eagles.
In Europe, coins like the Austrian Philharmonic are popular among gold savvy investors in places like Austria, Switzerland, and elsewhere. Coins that are less popular globally – such as British Sovereigns or French Roosters – are held by investors in those countries.
Gold-rich Australia has plenty of gold to supply its own demand and has made a huge push into Asia (just as they have in any number of industries). And in China, coins like the Chinese Panda are accepted alongside other offerings.
The bottom line is that the places that love gold much more than westerners just aren’t familiar with American gold coins.
And if you buy your gold in the US, chances are you’re paying a higher premium for Gold Eagles than you would Maple Leafs, Philharmonics, or even – on occasion – Chinese gold Pandas.
Recently, I opined that American bullion coins are the fifth most internationalization-friendly type of gold, behind some of the mint coins mentioned above as well as the Krugerrand.
If you’re planning on using your gold coins to buy food and freshwater when the apocalypse hits, then buy any kind of gold you can in the smallest denominations and at the lowest premium above spot.
While I respect people who are awake to the coming collapse in the United States, I’m not a doomsayer. I’m just a guy trying to scratch out a living and hold onto my capital.
I believe the likelihood that the US government will get so out of control that you’ll beg to leave is far higher than the likelihood of a nuclear holocaust causing people to retreat to their bunkers.
In that situation, having gold that people in other parts of the world want would come in handy. You could also make an argument for the US government wanting to keep “their” mint’s coins in the country since they are legal tender in the United States. Under that scenario, it might be easier to get foreign gold coins out of the country.
If, by that point, you can get any of your assets out.