I read two articles over the weekend that between them showed the very differing views people have about investing in precious metals such as gold and silver.

The first article by lovemoney.com points out some reasons why gold is not such a good investment and in fact seems to question whether it is an investment at all.

The second article in moneyweek.com [1] explains why it thinks that when world fiat (by decree) currencies are being devalued it is important to have some yardstick to measure the devaluation by and that yardstick is the price gold, which means gold makes a great place to 'store' your wealth in troubled times.

For me Neil Faulkner in lovemoney takes the rather traditional view on investing, talking about precious metals not providing income, how hard it is to value and trading costs eating into the capital invested.

He also says that the great icon of investing Warren Buffet doesn't like gold using his quote about the fact that all the gold in the world would fit inside a 67ft cube: “For what that's worth at current gold prices, you could buy all – not some – all of the farmland in the United States. Plus you could buy 10 Exxon Mobils [the company is currently worth about $400bn], plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

His last negative point that 'gold loses to inflation' though would be challenged by most gold bugs.

Dominic Frisbee in Moneyweek takes the 'proof is in the pudding' approach and shows that if you had sold an average priced house in 2004 and invested the money in silver, you could buy 5.5 average houses today. If that's losing out to inflation then give me some of that!

But the main point they make is that whilst it looks like the price of assets is going up, that has more to do with the currency losing its value through debasement 'The problem is that, for all the 'bond vigilantes', and for all the regulation and whatever other means there are of imposing discipline, governments and central banks, however well intentioned, find ways of debasing the currency. There are so many ways of doing so, from deficit spending and inflation to artificially compressed interest rates to quantitative easing. It's just too tempting, as it's usually the easiest way out of a bind.'

For example, consider a couple of points made in recent years:

Since the US Federal Reserve Bank started in 1913 the dollar has lost 97% of its purchasing power according to congressman Ron Paul.

Between 1971 and 2009 the dollar lost 97% of its gold value.

So is it any wonder that investments seem to do so well in fiat currency terms?

One of the graphs Moneyweek shows is that of the amount of gold required to buy a UK house over the years.

The less gold that is required to buy the house obviously shows the higher the value of the gold with respect to the house.

And the same for silver.

Even though house prices saw rises over the years and no real drop off the amount of gold or silver needed to buy a house has dropped off markedly in recent years. Possibly pointing to a currency debasement.

But whatever your view an investment is not an all or nothing. Take good advice and spread your risks. Just bear in mind that not many advisers encourage investment in precious metals, no commission in it. Also be very wary of 'paper' gold and silver such as some exchange traded funds (ETF), if they don't guarantee delivery of physical metal then they are just bits of paper.

There is also the VAT to be paid if you take delivery of physical silver (gold is exempt) so buy it using a vaulting service from a company like BullionVault.

[1] http://www.moneyweek.com/investments/property/gold-price-and-uk-house-prices-04909.aspx

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