How much gold does the average U.S. household own? It is a deceptively simple question that has a very complicated answer. For one thing, there are no reliable statistics surrounding private gold ownership in the U.S. And people certainly aren't going to willingly volunteer this very personal information either. However, I believe this question will become increasingly important as our global monetary system is inevitably reordered in the decades to come.
Before we make an attempt to answer this question of private American gold ownership, let's talk for a moment about the official U.S. government gold reserves. According to the U.S. Treasury Department, the United States currently holds over 8,133 metric tonnes, or 261,498,926 troy ounces, of fine gold at secure facilities around the nation. Over 50% of this stash, approximately 4,583 metric tonnes, is stored at the world famous United States Bullion Depository at Fort Knox, Kentucky, where it is guarded by an active U.S. Army camp.
If these official U.S. gold reserves were distributed evenly across the estimated 125.8 million American households, it would total about 2.08 troy ounces (64.7 grams) of gold per household. Of course, this analysis ignores the rumors that have persistently circulated for many decades that some (or even most) of these official U.S. gold reserves have been leased or sold without public knowledge. These rumors have been stoked, in part, because the U.S. gold reserves at Fort Knox have not been audited since 1953.
Regardless, these really aren't the numbers we're looking for. Instead, we want the average private gold ownership per U.S. household. Or, more specifically, we want the median level of gold ownership per U.S. household.
Conspiracy theories about Fort Knox aside, it is obvious that official government statistics are not going to provide us the information we want in regard to average private U.S. household gold ownership. So I am going to try a different approach here. I am going to use my experience with gold scrapping and cleaning out elderly relatives' homes to make an educated guesstimate about the amount of gold owned by the average U.S. household.
In order to attempt to derive a more meaningful number, I am going to explicitly exclude very wealthy households from my estimate. This demographic is much more likely to own an abnormally large amount of very expensive gold jewelry and gold coins. I will also ignore precious metal stackers and gold-bugs in this analysis; these people will obviously have more gold than the average middle class household. In addition, I will exclude extremely poor households that are likely to possess no precious metals at all, other than perhaps a pair of wedding bands.
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The primary source of U.S. household gold is undoubtedly held in the form of solid karat gold jewelry. Most solid karat gold jewelry ranges from 9 karat gold (37.5% fine) up to 18 karat gold (75% fine). However, most people own a lot less solid karat gold jewelry than you might think.
Most karat gold jewelry is very lightweight; hollow pieces are not uncommon. This is done to keep the weight, and therefore the cost, of the gold jewelry down. So, for example, your average solid karat gold women's ring or wedding band might only weigh between 2 and 5 grams, and contain 1/40 to 1/8 of a troy ounce of fine gold. As you can see, it takes quite a bit of solid karat gold jewelry before you can even accumulate one troy ounce of pure gold.
It is far more common to encounter costume jewelry in the average U.S. household, which I loosely define as gold-filled and gold-plated jewelry. Gold-filled jewelry has a thick layer of karat gold that is mechanically fused to a copper-alloy base. In contrast, gold-plated jewelry is made by electro-depositing a very thin layer of gold directly onto base-metal.
Gold-filled jewelry can often be economically recycled for its gold content, provided it is judiciously mixed with solid karat gold jewelry before being sent to the refinery. However, gold-filled jewelry's fine gold content by weight is between 2.1% and 7.5% - substantially less than even the lowest solid carat gold alloys. Because it is so diluted, it takes a huge amount of gold-filled jewelry to accumulate a significant amount of pure gold.
Gold-plated jewelry is even worse. The thickness of gold electro-plate is typically measured in microns, or 1/1000s of a millimeter. Most gold-plating on jewelry is between 0.1 and 5 microns in thickness. As a result, electro-plated gold jewelry is impossible to economically recycle, rendering it, to the best of my knowledge, the leading cause of permanent gold loss in the world today.
Another major source of gold found in the average U.S. household is gold coins. These are fairly uncommon, but some people have a random gold coin or two tucked away, even if they aren't collectors. These coins usually come in two forms: old circulated gold coins and modern bullion coins.
The first type of gold coin commonly seen in American households is pre-1933 semi-numismatic U.S. gold coins. These were issued by the U.S. government before 1933, when the United States was still on the gold standard. These coins come in denominations from the diminutive $1 gold piece to the gigantic $20 double eagle. Although these coins were fully exchangeable with paper currency before the Great Depression, they tended to see little circulation because they represented such large sums of purchasing power. Apart from collectors, most households that have these coins today inherited them.
Modern gold bullion coins are another type of gold coin frequently encountered. The Canadian, U.S., Mexican, Australian and British mints (among others) began producing these coins in the 1980s. The smaller fractional sizes - 1/4, 1/10 and 1/20 troy ounce coins - have been popular gifts for graduations, holidays and birthdays. As a result, even average people with no interest in gold bullion have sometimes accumulated one or two of these coins.
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The final type of gold commonly found in households is rather unexpected - electronics scrap. Many people don't realize it, but gold is a vital component in almost every high-tech gadget out there! In particular, heavily gold-plated contacts are used in CPUs, RAM sticks and other vital electrical contact points where corrosion resistance is a necessity. Cell phones, desktop and laptop computers, tablets and set-top TV boxes are just some of the electronics that contain gold.
Of course, the only problem is that electronics don't contain very much gold at all. As the price of gold has steadily risen over the last 15 years, hardware manufacturers have gone to great lengths to reduce the amount of gold used in electronics. This makes recovering the gold from computer scrap very difficult. In spite of this, there is a thriving market for electronics scrap on platforms like eBay. The average U.S. household might have, in aggregate, a single gram of gold stored in electronic equipment and computers.
So now it is time for the big reveal. How much gold does the average U.S. household own? In my opinion, a good guess is between 1 and 1 1/2 troy ounces (31 to 47 grams) of pure gold, plus or minus 1/2 troy ounce (16 grams). Almost all of this gold will be in the form of solid karat gold jewelry and gold coins, with a smattering from gold-filled jewelry and electronics scrap. With gold currently trading at $1,300 per troy ounce, this translates into anywhere from $650 to $2,600 of gold, give or take, per household.
There are a few conclusions we can draw from our estimate of average U.S. household gold ownership. First, it is safe to assume that these private gold holdings do not represent a significant addition to most peoples' net worth. Second, we can infer that the silver holdings of most American households are also proportionately low; applying a traditional 15x multiplier to gold holdings probably gives a reasonable estimate of household silver holdings. Third, we can presume that the median U.S. household value of all other tangible assets, like gemstones, antiques and fine art, is also rather small.
These are important findings. A massive dislocation is coming in the paper asset markets, where most Americans currently have the bulk of their (non house) net worth. Hard assets, like precious metals, gemstones, fine art and antiques, can serve as a buffer during this future period of financial chaos. But it doesn't work if you don't own any. Invest accordingly.
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As 2017 departs and 2018 arrives, it makes sense for those interested in alternative assets to reassess their financial situation and make these smart moves. So here is the Antique Sage's 2018 to do list for alternative asset investors:
Rebalance your portfolio from conventional assets to alternative assets
The paper asset markets have had a tremendous bull market run over the past 9 years. So there is every probability that the stocks, bonds and mutual funds in your retirement or brokerage account are worth far more than they were just a few short years ago.
So now is the perfect time for you to take a little of your winnings off the table. Sell some of your stocks and bonds and reallocate the proceeds into an asset class that hasn't performed as well. Of course, there are very few asset classes that haven't performed well recently.
But there is one asset class that was completely overlooked in 2017: bullion, fine art and antiques have lagged substantially behind. In my opinion, this makes them perfect for alternative asset investors in 2018. Their prices are low and their valuations are reasonable. A move from traditional paper assets like stocks and bonds into fine art and antiques would simultaneously de-risk your portfolio while improving future return potential.
Don't buy into the crypto-currency hype
Alternative asset investors may be sorely tempting to throw their money at those alternative asset niches that have done the best in 2017. In this case, I'm referring to the crypto-currency complex.
Most crypto-currencies, including such illustrious participants as Bitcoin, Ethereum, Litecoin and Ripple, absolutely skyrocketed during 2017. Bitcoin went from about $1,000 to $14,300 for an astounding 1,330% one year return. However, Bitcoin was far from the best crypto-currency performer of 2017. Ethereum rose by 7,470%, Litecoin increased by 5,775% and Ripple soared by an unbelievable 33,186%.
Now, I like the idea of crypto-currencies. The world very much needs a form of money that is beyond the self-serving manipulations of corrupt central banks. But Bitcoin, along with nearly every other crypto-currency currently in existence, has some pretty glaring flaws.
In short, it might be tempting for alternative asset investors to shift the entirety of their alternative asset allocation into crypto-currencies, especially in light of their recent outperformance. But they should resist that urge. Investment returns come in cycles. Assets that perform well for an extended period of time inevitably underperform at some point in the future - usually when you can least afford it.
Buy yourself a wonderful piece of fine art
Life always seems to move faster than we would like it to. There are always appointments to make, chores to finish and bills to pay. But it is vitally important to step back and appreciate the world every once in a while.
A perfect way to do this is to buy a piece of beautiful art. It could be a colorful print to display over your couch, or an avant-garde sculpture for your coffee table. It could even be a fine piece of antique jewelry for you (or your spouse). Almost anything that has been crafted by human hands with the primary intention of being aesthetically pleasing can qualify as art.
The only rule is that it should be a piece of art that appeals to you. This might seem self-evident, but a surprising number of alternative asset investors get caught up in the idea of appreciation potential above all else.
Don't fall into this trap. Instead, buy a stunning piece of art just because it speaks to you. If you are lucky, that artwork will not only give you countless hours of viewing enjoyment, but also a reasonable investment return as well.
Make sure you have enough cash or other short-term investments on hand
With the stellar run that both the stock and bond markets have experienced over the last several years, it is easy to believe that the good times will last forever. And it is true that securities markets may continue to rise at a rapid clip for a while to come. But the fortunes of the stock market can change with shocking abruptness.
Therefore, it is wise to reassess your financial position and make sure that you have sufficient cash on hand to weather an unexpected market disruption. It is even more imperative for alternative asset investors - those who collect notoriously illiquid assets like fine art and antiques - to have a healthy cash buffer.
Having a large pile of cash or other short-term investments will help you fight the urge to sell less liquid investments at inopportune times. This might not seem terribly important right now, when every asset known to man is rising without pause. But having sufficient cash holdings will become vital if there is ever a market downturn. It is good to be able to sleep soundly at night without having to worry about financial Armageddon.
Read on as the Antique Sage debunks the top 6 art investment myths! So if you are interested in investing in fine art and antiques, but are confused by all the misinformation, untruths and outright lies circulating on the topic, you've come to the right place.
1) Only millionaires can afford to invest in fine art and antiques
The idea that art is only for the wealthy is one of the ugliest, most persistent art investment myths out there. It has been repeated so many times, by so many different people, that it has simply been accepted as being true without much thought. This is understandable considering that films, books, magazines and newspaper have, intentionally or unintentionally, equated art investing with the ultra-rich.
And yet it is profoundly untrue, provided we are willing to entertain an open mind concerning what constitutes art. Vintage mechanical wristwatches, antique sterling silverware, ancient coins and vintage fountain pens are all examples of antiques that are both moderately priced and investment-oriented. In fact, I believe the greatest investment potential in the art market exists in the under $2,500 segment, with some investment grade artwork available for as little as $100.
2) Only paintings and full-sized sculptures count as art
This is one of those art investment myths born out of ignorance. We are surrounded by a culture that lionizes the major arts - primarily painting and monumental sculpture - to the exclusion of all other art. The rest of the visual arts, collectively known as the minor arts, have traditionally been treated as the red-headed step-children of the art world. They are, at best, tolerated, but usually ignored. This is a pity, because the minor arts boast some of the best workmanship and most alluring designs from hundreds of different cultures and time periods. Yet, they receive almost no recognition in the art collecting community.
For example, traditional Japanese lacquerware is one of the most demanding, time-intensive crafts known to man. It can take months for a skilled craftsman with decades of experience to prepare and apply the 25, 30 or even 40 layers of lacquer necessary to finish a single, high quality piece. Yet, many Westerners have no idea fine lacquerware even exists, much less the skill and effort needed to create even a simple example.
So while paintings and large sculptures certainly qualify as art, I think that they are among the least interesting parts of today's art market. The minor arts, with their combination of reasonable pricing and phenomenal workmanship, are really the up and coming market segment.
3) Art is a poor investment compared to traditional assets like stocks and bonds
One of the today's most popular art investment myths is that the traditional asset classes have decisively outperformed art since the mid 20th century. According to this argument, broad stock market indices have tended to return around 10% per annum, give or take, over long periods of time. But this assumes that an index investor immediately and unfailingly reinvests those dividends back into stocks - something that wasn't even possible before the arrival of the first index funds in the mid 1970s.
In reality, the growth in nominal GDP in a national economy (or global economy, if you are investing overseas as well) tends to cap long-term returns for all asset classes in that economy. We can prove this by looking at some annualized, long-term, U.S. asset class returns from 1947 through 2016:
- U.S. Treasury Bills - 4.10%
- U.S. Treasury Bonds - 5.36%
- U.S. Nominal GDP Growth - 6.43%
- S&P 500 (without dividends) - 7.38%
- S&P 500 (with dividends) - 11.11%
Notice how all the returns generally cluster around the nominal long-term annual growth in the economy? That is because the growth in the economy is how these returns are "paid" or transformed into the real purchasing power of goods and services. The only true outlier, the S&P 500 with dividends reinvested, is a theoretical number that almost nobody actually got, because almost nobody systematically reinvested dividends between 1947 and 2016.
Now that passive ETFs and index mutual funds are everywhere, it is a pretty good bet that stock returns with dividends reinvested will tend to be no higher than nominal GDP growth over the long-term. It is a bit like Heisenberg's Uncertainty Principle applied to finance. As long nobody knows about an investment trick, it works great. Once everybody is aware of its existence, it doesn't work anymore.
Right now, fine art and antiques are the investment trick that nobody knows about. But these alternative assets have just as strong a claim to future GDP as stocks or bonds. As an added bonus, because so few people have invested in art to date, there will almost certainly be a period of elevated returns as art prices "catch up" to fair value.
4) Only artworks from famous artists are investable
Another one of those enduring art investment myths is the unyielding belief that it is the artist that makes the artwork. We have all read or heard stories of paintings by Vincent Van Gogh, Pablo Picasso, Gustav Klimt or some other renowned artist selling for eye-popping, 8-figure prices. It is easy to assume that these works are famous because they were made by these influential artists. And there is a certain element of truth to this assertion; a famous maker undoubtedly boosts the value of a work of art.
But, like most art investment myths, this fallacy overlooks a very important fact. Artists become famous because their art is widely recognized as having great merit. In the end, it is the visual impact of the art that is important, not who created it. To put it another way, I would much rather buy a great work by a completely unknown artist, than a poor work by a famous artist. And make no mistake; there are some world famous artists who have produced some really bad art.
This rule of buying the individual artwork rather than the artist goes double if you hope to make money by investing in art. The quality of the work you are considering purchasing must always be your primary investment criteria.
5) Fine art and antiques are too illiquid to be good investments
One of the things that everybody loves about traditional assets, like stocks and bonds, is that they are tremendously liquid. You can generally log into your online brokerage account and execute a trade in just a few minutes (or even seconds). In contrast, art is not nearly as easy to buy or sell for fair value. You usually have to consign a piece to an auction house, or sell via eBay or another online outlet. And because the market is so thin, there is no guarantee that you will walk away with the amount you originally hoped to realize.
And yet, the illiquidity of the art market isn't all bad. Illiquidity restrains speculation and rapid turnover, meaning that the price you pay when investing in art is more likely to be a fair price, rather than an over-inflated, bubble price. The U.S. stock market, on the other hand, has been plagued by recurring bubbles during the past 20 years which have whip-sawed weary investors with roller-coaster performance. One of the reasons for these serial bubbles is undoubtedly the ease of trading in the stock market, which invites frenzied speculation.
6) Art investing is for insiders who can flip works for a quick profit
This is one of those insidious art investment myths - the idea that only "insiders", like art gallery owners, art critics and obsessive connoisseurs, can really profit from art. The second part of this misconception is that these insiders scour hidden, back-channel sources for great art before anyone else even knows it's even there, and then turn around and almost immediately resell the works for big profits. The sky-high bubble prices of contemporary artwork just a few years ago certainly adds to this perception.
But the reality is that most money in art is made by dedicated, but otherwise average investors who purchase good works at reasonable prices and then hold them for decades before selling. In fact, I think that the minimum investment holding period for fine art and antiques is realistically 7 to 10 years. Anyone looking to hold an artwork for less time should expect to take a loss on the sale.
When I was a child, my parents took me on a weekend trip to New York City. It was September, 1985 and I can distinctly remember singing along to Madonna on the radio as we drove across the George Washington Bridge into the city. I can recall the vibrancy and neon lights of Chinatown after dark. I can conjure up images of the grandeur of Manhattan as viewed from the observation deck of the Empire State Building.
I was only a child of 9 years old at the time and was completely unable to adequately articulate my sense of wonder at the things I saw. But I knew a cultural apogee when I saw one. New York City in the mid 1980s was the epicenter of a golden age that was no less impressive than that enjoyed by ancient Athens in the 5th century BC or renaissance Venice in the 15th century AD.
What I really experienced was the zeitgeist of the city as it washed over and engulfed me. The term "zeitgeist" was borrowed from the German language and refers to the spirit, energy or cultural milieu of an age. While every time and place has its own zeitgeist, movies, television and books tend to mythologize the most brilliant and romantic of these eras, leaving them indelibly branded on the popular imagination.
This concept of zeitgeist is incredibly important to both the fine art collector and the antique investor. When you purchase a late 19th century French Pointillist painting, what you are really buying, in part, is the zeitgeist of the era in which the work of art was created. And this is equally true whether you collect 17th century Indian Mughal silver rupees, Mid-Century vintage fountain pens or Gilded Age Edwardian jewelry.
Zeitgeist sits alongside portability, quality, durability and scarcity as one of the 5 critical factors that determine an antique's investment potential. Although it is insufficient to catapult an antique to investment grade status on its own, in many ways zeitgeist is the most important of the 5 elements. All else being equal, a work of art that hews closely to the popular aesthetic trends of an age will inevitably be more desirable and valuable than a similar work that inelegantly fuses two or more artistic movements together in an awkward transitional style.
In other words, art connoisseurs expect their 1920s Art Deco masterpiece to use streamlined linear elements and geometric motifs. And antique collectors want their late 18th century Georgian objet d'art to reflect staid Neo-Classicist rigidity and formality. Those works that most purely represent the stylistic era in which they were created are generally the most desirable.
Artists and craftsmen are always influenced by the cultural trends in which they live and work, even if they don't consciously realize it. These cultural influences inevitably find their way into artistic endeavors, subtly influencing an artist's personal style in a myriad of ways. As a result, even though an artist may not intentionally be trying to create art that reflects the current zeitgeist of an era, the prevailing cultural cross-currents will nearly always be visible in his works under close examination.
Zeitgeist also has a distinctly historical aspect as well. Sometimes an era is dominated by monumental geo-political events that overshadow everything else. World War II is a perfect example of this occurrence, where the entire world was pre-occupied with or embroiled in a truly global conflict. The most desirable antiques from this era, like World War II military insignia, will directly reference this world-shaping conflict.
For those interested in further exploring this topic, I highly recommend watching the superb BBC documentary titled "Bright Lights, Brilliant Minds: A Tale of Three Cities". Narrated by the engaging art historian James Fox, this three part mini-series examines the cultural milieu of 1908 Vienna, 1928 Paris and 1951 New York City. Specifically, it looks at how the rich cultural backdrop of these near-mythological 20th century golden ages allowed avant-garde art to flourish. Unfortunately, while this series used to be available to stream through Netflix (at least in the U.S.), it isn't as of the winter of 2017.