Should you pick gold as your alternative currency?

Gold Bar on WhiteThere are a lot of alternative currencies right now. Sustainable Personal Finance has mentioned a couple of ones in the past including the Canadian Tire Money and the Salt Spring Island’s local currency. Using alterative currency helps boost your purchasing power especially when your country’s official currency is weak. While purchasing alternative currencies that are specific to a certain nation is good, it’s better if you have something that most countries around the world consider as legal tender.

Gold’s remains as the most popular alternative currency because it’s finite, can be accepted as payment in most countries, and is backed by real value. Bitcoin, the newer alt currency, was the hype several years ago but lost most of its shine because of one thing: it isn’t backed by anything. Bitcoin is just computer generated and once it loses its demand over the years, it can’t be melted and used for other things unlike the precious yellow metal. Gold, apart from being a currency, can be used in making medicine, aerospace components, and electronics.

What’s great about gold is that it can be purchased in many forms. If you can’t afford a bar, you can always buy coins that differ in content. Some have 1/4, 1/2, and sometimes 1/10 gold content to accommodate investors on a budget. Although jewelries don’t cost as much as gold in the form of bars or coins, they can still make neat investments that you can liquidate in case of an emergency. If you don’t want to store gold in your own home, you can always open an account in your bank and let them keep your gold reserves.

Investing in gold for the short term is good but the yellow metal’s true purpose lie in the long term. Most people invest in it, forget about it, and just remember it in case markets go bad. In other words, investors don’t sell gold even if its prices reach all-time lows and only liquidate it in case of an emergency.

Germany is the best example when it comes to investing in gold for the long run. Thanks to its vast precious metal reserves, it was able to keep its stability during the great inflation in 1970s. Today, the precious yellow metal costs around $1,200 an ounce and if Germany decides to sell all of its gold, it would be able to support its own economy for years without the help of any other country.

Remember, holding an alternative currency can help in times of emergency. If you’re going to invest in one, make sure to pick something that is accepted in many countries.

photo by:

Will Most Of Canada’s Oil Ever Be Extracted?

tar sands, AlbertaThe folks in charge here at Sustainable Personal Finance are pretty staunch environmentalists. If you need confirmation, just look at the name of their site. There are hundreds of articles in the archives that look at the environmentally friendly way to do some of the things we take for granted.

But what about investing? On the surface, it looks to be an easy decision. People who are conscious about the environment can choose to avoid the energy sector completely, since it is the main contributor to greenhouse gases. Especially in Alberta’s oil sands, even the act of producing energy creates greenhouse gases, since natural gas is used to loosen up the tar-like bitumen.

This creates a new problem. Since energy makes up a large part of Canada’s stock market, it’s pretty much impossible for an investor to build a simple ETF portfolio and exclude energy from the list. Even if they do, Canada’s banks are heavily invested in energy companies, and our insurers will be holders of energy bonds.

A sustainable investor just can’t win. Which is why most don’t bother, choosing to have some oil in their portfolios.

But what if that wasn’t a prudent move? If you believe a recent report by environmental scientists, investing in Canada’s oil companies might even be a sucker’s move.

Essentially, the thesis goes like this. Almost 200 countries got together and signed a pledge that we all wouldn’t allow more than 2,000 gigatonnes of CO2 to enter into the atmosphere. If that happens, the world will heat up another 2 degrees, and we’ll be in trouble. Polar ice caps would melt, which would lead to flooding of coastal areas. That’s not good.

It turns out we’re getting close to surpassing that 2,000 gigatonnes target. We’ve put approximately 1,000 gigatonnes of CO2 into the atmosphere already, and it won’t take us that long to add the next 1,000. Even if we stop adding bad stuff to the atmosphere today, the global temperature will still likely rise half a degree.

So what’s the solution? Alternative energy is the specific one, but let’s talk about the big potential loser in this scenario — the oil sands.

According to the report, if the world is to meet the conditions of the pledge, a full 99% of Canada’s oil sands would never be extracted from the ground. In fact, we can only extract another 7 billion barrels worth of oil from the area. That seems like a lot, until I tell you that the region currently produces more than 700 million barrels of oil per year. At current production, the oil sands would shut down after about a decade.

Astute readers have already picked up what the problem with this doomsday scenario is. Currently, the planet uses about 94 million barrels of oil each day. While demand in the United States and Europe is slowly declining due to advances in fuel economy, it’s more than being replaced by growth in the developing world. There were 62 million registered cars in China in 2009. By 2020, that number is expected to more than triple to 200 million. Oil isn’t about to go away anytime soon.

Unless electric technology gets much better in a very short amount of time, we’re still looking at decades of potential demand for internal combustion engines. Even if electric does become big, it’ll still take decades for the world’s auto supply to make the change. There just isn’t the capacity to make such a big change over a short period of time.

Although I don’t see much risk in the oil sands suddenly shutting down production after a decade, that doesn’t mean you should blindly invest in the sector. After all, it’s down quite a bit from recent highs, and the outlook for crude isn’t great.

Instead, maybe spend some time looking at some investments in things that contribute to sustainable energy sources. Silver is a big part of solar power, where it’s used as a conductor in panels. There’s at least one power company (TransAlta Renewables in Canada) which is 100% invested in solar, wind, and hydroelectric energy. There are hundreds of additional examples. If you feel strongly enough about this, feel free to dedicate 5-10% of your portfolio to investing in the companies that will displace oil and gas.

Betting on the decline of oil and gas will likely not be profitable. Investing in the success of environmentally friendly industries has a far greater chance of working out. That’s the route you should take.

photo by: