Why You Should Have Some Gold in Your Portfolio 19 comments
J.D. Steinhilber
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The price of gold has suddenly caught a bid, jumping over $40/ounce in the past week. Gold appears to be breaking to the upside of a consolidation range that hs been in place since February of this year. Gold had been lagging behind the 2009 performance of commodities such as oil and copper, which are more correlated to global economic growth. However, concerns about U.S. monetary and fiscal debauchery appear to be heating up, and gold is now in a seasonally strong period that runs through the end of the year. It remains to be seen whether the current move will carry gold decisively through the $1000 barrier, which was last tested at the height of the financial and banking crisis in February.
The short-term bullish outlook for gold would be negated if it were to reverse and close below $945/ounce. For several key reasons, we continue to be of the opinion that in the current environment every investment portfolio ought to have an allocation to gold: (i) there is a major risk of government-sponsored monetary debasement inflation over time as a means of dealing with the debt overhang in the U.S. economy; (ii) the allocations to gold in U.S. investors’ portfolios is still relatively small and there is plenty of room for investment demand in this country to increase; (iii) gold is a highly valued investment in key developing countries such as China and India, so global demand for gold will remain very strong as wealth accumulates in such countries; and (iv) as a result of its monetary (anti-fiat currency characteristics), gold provides diversification benefits unlike any other commodity.
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This article has 19 comments:
"(iv) as a result of its monetary (anti-fiat currency characteristics), gold provides diversification benefits unlike any other commodity."
True, but emphasis should be put on "U.S. Dollar" diversification benefits. A dollar/gold chart clearly shows this.
The other thing that needs to be watched is this latest run up in gold is not because of a dollar decline. IMO, it's more traders doing what they do best in riding momentum. If indeed this is the case, it could break to new highs, but only lead to a reversal of fortune for the longs.
This doesn't take away from the fact that gold "should" be priced much higher in U.S. dollar terms because of the financial/banking turmoil of the last year.
I am impressed with your recommendations and observation: "(ii) the allocations to gold in U.S. investors’ portfolios is still relatively small and there is plenty of room for investment demand in this country to increase."
Gold is still in its second and longest stage. No euphoria yet...
Just curious what percentage you recommend. Dennis Gartman, the guy who says "you can't eat gold," says 2%-3% (maybe 5%), but also views gold as something "you can't eat." He doesn't understand the reasoning for gold and he's also a CNBC shill who readily admits he's wrong 80% of the time (but makes a nice living off of charging $5,000 a year for such advice).
Hey Dennis....you can't eat paper dollars either!
I think these are just people who own physical, and are pumping their own books.
But let's not forget, physical has many risks as well:
1) counterfeit (most people can't tell the quality)
2) storage (better hope no thieves find out you're keeping your net worth in your house!
3) liquidity (last time I checked, not a single retail outlet would except my Golden Eagles)
These are all problems that are easily solved by using GLD instead of buying physical.
On Sep 06 05:38 PM Donald Ingram wrote:
> DO NOT hold gold ETF certificates. No matter which way you cut it,
> its still just owning paper. Your better off just stuffing your mattress
> with paper cash! Don't be fooled into owning paper gold. Hold the
> physical. Time is running out to purchase gold at under $1,000 per
> oz. Gold will never be worth less than this for a very long time
> to come.
Gold ETFs have vastly oversold their stock of the physical. Make no mistake - what would you rather own when the 'run' is on - physical gold? Or paper gold?
What concerns me is the momentum move. I realize that the major banks and countries have been accumulating, stockpiling gold, and the US dollar is a goner. Banks, Goldman, and other forces have held gold in the $900 range for far too long, but if the run continues, expect a pullback. This is oil at $145 a barrel. This could be the fertilizer run that took POT, and MOS to levels that will never be seen for some time.
I believe that gold will price in at $1,500 by year's end, but I do not discount the MM's ability to take profits out the the pockets of the little guy. Might not be a bad idea to wait short term for a pull back.
I'm always more comfortable seeing gold increase $5 a day than $50. Things that rise quickly can also fall just a quick, but make no mistake, unless they pull another FDR and make gold ownership illegal, I'd rather have a Maple Leaf, than the illusion of Paper.
"...do not discount the MM's ability to take profits out the the pockets of the little guy. Might not be a bad idea to wait short term for a pull back."
Great comment. We haven't seen the big play by the central banks and MMs to keep gold below $1000 yet. When the floodgates are opened we can expect gold to tumble to...??? That's the trigger for loading up more stock in miners and hard bullion. The demand for PMs will push them high by the end of the year, likely too high for the manipulators to stop.
Thats what silver's for. Actually, it would make sense to keep some what is, I believe, known as "junk silver" for one's "walking around money".
On Sep 07 02:25 AM Paul H. M. wrote:
> It's funny: in EVERY SINGLE SA article that mentions gold, somebody
> is desperately trying to convince you not to use gold ETFs.
>
> I think these are just people who own physical, and are pumping their
> own books.
>
> But let's not forget, physical has many risks as well:
> 1) counterfeit (most people can't tell the quality)
> 2) storage (better hope no thieves find out you're keeping your net
> worth in your house!
> 3) liquidity (last time I checked, not a single retail outlet would
> except my Golden Eagles)
>
> These are all problems that are easily solved by using GLD instead
> of buying physical.
Think about it: if things got that bad, there would be no gold dealer!
If the economy is in shambles, nobody will want your gold. They will want guns, ammo, water, food. Gold is only worth something if there is a productive economy producing stuff to buy with that gold. And as long as we have productive economy, stocks are will probably outperform gold, just as it has for the last most of our lives (gold was worth $800/ounce back in the late 70's, and many stocks my mom owned were worth about 1% of what they are worth now).
On Sep 07 02:57 AM Donald Ingram wrote:
> Paul H.M. - Your points about owning and holding the physical are
> valid. However if you do business with a reputable precious metals
> dealer you need not fear counterfeiting. Storage is strictly left
> up to the owner. If you are stupid enough to 'blab' around about
> the gold you have in your house, then you are stupid enough to have
> it stolen from you. Some things are just best kept to yourself. As
> far as liquidity goes, there will be no trouble in that sense when
> paper money is just worthless paper. Or run away deflation with very
> hard to come by cash, just take a gold coin to the dealer you purchased
> it from and walk away with a pocket full of cash.
> Gold ETFs have vastly oversold their stock of the physical. Make
> no mistake - what would you rather own when the 'run' is on - physical
> gold? Or paper gold?
With physical, you have to rely on a good dealer, or you're pretty much stuck with it (since my grocery store, IRS, and the bank holding my mortgage still do NOT accept Golden Eagles).
On Sep 07 08:02 PM Gardener wrote:
> I can't exactly take my shares of GLD to the store to make a purchase
> either. Poor argument.
My physical gold, on the other hand, has never earned my a cent of income. The only way I can make a profit is by selling it. I prefer assets that can earn me money day-in and day-out.
On Sep 07 10:06 PM Paul H. M. wrote:
> True. But in a split second, I can convert GLD to cash. Then write
> a check from my brokerage account to pay for anything.
>
> With physical, you have to rely on a good dealer, or you're pretty
> much stuck with it (since my grocery store, IRS, and the bank holding
> my mortgage still do NOT accept Golden Eagles).
CNBC did a piece a bit back... basically they offer you 1/4th of the spot price or less. If you want it back, they say it has already been melted, but they'll send you a molten lump of metal.
Having a little (paper) cash on hand for small purchases (at least until it becomes worthless), some type of physical hoard of food and water, a safe place to live, perhaps a supply of gasolline, and perhaps some form of protection (?gun/ammo/??barbwire), a generator, etc, is always intelligent. But gold/silver will always be money.
The money you can get "in a split second" might be losing value by the second, too, if we're actually in a situation where you'd have to sell them. And in that case, gold and silver's value will be skyrocketing in what ever currency you're getting paid in...jt
However, the rest of what you wrote doesn't hold a candle with how gold has been utilized as a medium of exchange throughout history.
Even recent history shows the value of gold if you look at the Argentine example:
fedupbook.com/blog/hyp.../
Also, since the year of 2000, the dollar (which is why you hold gold as insurance to counteract the fall of), has decoupled from gold and has even more competition with the intro of the EURO at that time:
fedupbook.com/blog/inf.../
Dollar index broke the 78 range and down today.... Gold up over $1,000 again.
Buy Gold!
On Sep 07 10:03 PM Paul H. M. wrote:
> I'm not going to base my financial strategy around a doom and gloom
> scenario.
>
> Think about it: if things got that bad, there would be no gold dealer!
>
>
> If the economy is in shambles, nobody will want your gold. They will
> want guns, ammo, water, food. Gold is only worth something if there
> is a productive economy producing stuff to buy with that gold. And
> as long as we have productive economy, stocks are will probably outperform
> gold, just as it has for the last most of our lives (gold was worth
> $800/ounce back in the late 70's, and many stocks my mom owned were
> worth about 1% of what they are worth now).
>
> On Sep 07 02:57 AM Donald Ingram wrote: