Typical personal gold vault of blog reader

The price of an ounce of gold hovered around the $1,000 US mark this week. It will advance.

I made that point clear in my last financial book, published in January, and also suggested most sane people might want to have some. How much depends on your view of the world. The tinfoil crowd ardently believes the future of paper money is dark, as governments crank out endless bonds and new trillions in currency. For them, love is a root cellar full of nuggets.

Of course, there’s some merit to being prepared for the unpleasant. It’s why I have a house with a generator. But gold’s unlikely in our lifetimes to be tradable for goods and services on the streets of Kelowna or Moncton, so it’s not a medium of exchange. In other words, it’s not money, and won’t be. However, odds are it’ll continue to be a storehouse of value while, of course, providing a hedge against inflation – the relentless degrading of paper money.

Oil does the same, but unlike gold it actually has a use. Unlike gold, it’s finite. And unlike gold, it will cause a global crisis which poses immense danger and unbridled investment opportunity. However, it makes one hell of a mess in the root cellar.

So, how to invest in gold if our current social experiment in unending debt makes you nervous? In my book, I look at the various forms – although it seems every bullion bunny coming on this site is married to the idea of a personal own rock collection. That always confounds me, since any commodity has to be converted to money before it becomes useful wealth.

So, here’s my fav gold play in the current environment of rustling inflation, currency unrest and hot metals: Derivatives. Why? Simple: Leverage.

You buy a contract for gold bullion for pennies on the dollar, set a price in the future at which you want to buy or sell, exercise the option or let it expire, and sell the contract for a far greater financial gain than if you’d owned the underlying asset. Plus, no storage fees. No worries about desperados breaking into your house. No yellow rivulets into the drain if your house burns.

Next fav: Precious metals ETFs. There are exchange-trade funds which hold gold assets directly in their vaults so you don’t have to, and others than trade in the kinds of futures contracts I mentioned above. Both physical ETFs and Futures ETFs are hot these days, and no wonder. They give gold nuts excellent exposure to a commodity which is both an inflation and currency hedge play, while posing temporary shelter for equity nuts fearing an October Armageddon. And that sure wouldn’t surprise me much.

In short, I’d make these things clear to anyone who asked:

• Our future includes more inflation, higher interest rates, more taxes and a diminished standard of living.

• People investing in commodities will do well. Gold is certainly one of them.

• Governments will be on the ropes for years to come, paying for the decisions they’ve made in past months. Vote for the guys who promise you less.

• Real estate won’t pace inflation. Just the opposite. Demand will be squished by the rising cost of money and stagnating family incomes, thanks to increases in sales and other taxes.

• As far as I can see ahead, cash will be king.

• And liquidity the god.

For Garth's latest podcast go here.