In a recent thread shared on social media platform X, renowned financial analyst Lyn Alden provided an in-depth look into the nuances of purchasing gold, highlighting the trade-offs between cost, verification, and size.
Alden is well-known in the financial sector for her expertise in investment strategies and economic analysis. She runs Lyn Alden Investment Strategy, where she provides research focusing on macroeconomic trends, individual stock analysis, and personal finance. Alden’s approach blends engineering expertise with a deep understanding of financial markets, making her insights valuable for investors interested in both traditional assets and cryptocurrencies. Her analysis often covers topics like monetary policy, currency markets, and global economic shifts, offering a comprehensive view of the broader financial landscape.
Alden is the author of the book “Broken Money: Why Our Financial System Is Failing Us and How We Can Make It Better”, which was published last year. “Broken Money” delves into the historical evolution of money, examining its trajectory through the advancements in technology. While politics may influence monetary systems on a local and temporary basis, it is technology that propels these systems forward on a global and enduring scale.
The aim of the book is to equip readers with a comprehensive understanding of both the theoretical and practical aspects of money and its history. Lyn Alden guides readers from the use of primitive currency forms like shells and gold through the development of papyrus bills of exchange and the establishment of central banks to the advent of transformative technologies such as the telegraph and the creation of Bitcoin. Moreover, Alden investigates the fundamental nature of money itself, providing readers with the analytical tools needed to evaluate various monetary technologies and theories.
According to Alden, as of 20 April 2024, gold prices hover around $2,400 per ounce, yet the actual cost to purchase a typical gold coin includes a premium of 3-5%, equating to an additional $100.
Alden explains that smaller items, like gold coins, which have a higher surface area relative to their mass, generally entail higher production costs. This design, however, aids in verification processes, making it difficult to counterfeit such items by substituting denser metals like tungsten. Conversely, larger gold bars, while cheaper per ounce with premiums of about 1%, present significant verification challenges—known as “tail risks”—due to the difficulty of validating their purity all the way through.
Furthermore, she elaborates on the economics of various sizes of gold coins. A gold coin weighing one ounce strikes a balance between cost and ease of verification, making it an economical choice among investors. On the other end of the spectrum, very small coins, such as those weighing one-tenth of an ounce, come with disproportionately high premiums. These can be as much as 37%, turning a theoretical $240 coin into a $331 purchase. Although these smaller units are less likely to be tampered with, the premium is considered steep relative to their value.
Alden concludes her analysis by reminding investors that the verification of bearer assets like gold coins is a real expense that must be accounted for. She also notes the additional costs associated with the secure transportation of gold, including insurance and potential complications when crossing international borders.
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