Gold: The King Of 'Real' Assets

Includes: DBB, GLD, PPLT, SLV, VNQ
by: The Financial Lexicon

In the recently published article, "Should You Buy Real Asset ETFs On The 'Real' Pullback?" the author provided details on how far off their 52-week highs many ETFs tracking the prices of "real" assets are and stated that it is "sensible to add Real Asset ETFs to a portfolio."

It has certainly been a popular theme to add so-called real assets to a portfolio in light of quantitative easing and bailouts galore in the U.S. and Europe. But before throwing money across the real-assets spectrum, it is important to distinguish why it is that many real assets are well off their 52-week highs while gold is not.

Given a world mired in slow growth and money printing, should investors focus their buying on funds such as the PowerShares DB Base Metals Fund (NYSEARCA:DBB), which holds futures contracts on aluminum, copper, and zinc? Or, given that the reason behind the widespread push for real assets has to do with money printing and currency debasement, should investors instead focus on historical forms of money that cannot be debased; i.e. gold and silver? What about real estate? As the aforementioned article noted, if you are looking for income among real assets, real-estate-related investments are worth considering. One such option is the Vanguard REIT ETF (NYSEARCA:VNQ). Indeed, there are all sorts of investment possibilities when it comes to real assets. But all real assets are not created equal.

Before purchasing real assets, investors should first ask themselves why it is that so many professional investors are recommending such purchases. The answer to that question will help you determine which real assets you should purchase and which you should ignore. Prior to the 2008 financial crisis, the obsession with commodity-related investments stemmed from a belief in strong emerging market growth that would inevitably cause supply-demand imbalances across commodities. Today, however, the price action of many commodities tells us that things have changed.

Instead, the push for real assets stems from currency debasement. Central banks and governments around the world have shown us that money printing and deficit spending is the route they will take in an attempt to solve the world's economic woes. Given the historical role that precious metals have played as money, it is not surprising that investors wanting to protect their wealth are buying every dip in gold.

Although King Louis XV of France declared platinum the "only metal fit for a king," I think it is safe to say that gold has become the King of real assets. That is not to say that silver and platinum should not play a role in a diversified real assets portfolio. I think they should. My preference is to allocate funds to each according to their historical roles as money, with gold leading the way, followed by silver and then platinum.

Finally, I would like to address the question asked in the title of the aforementioned article. Yes, you should strongly consider buying real assets. Whether you gain exposure to those assets through ETFs will be a personal preference. But most importantly, before purchasing real assets, think about your reasons for wanting to, in the context of today's economic realities. I have a hunch that after doing so, many investors will discover that gold is the King of real assets and the one to definitely own.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long gold, silver, and platinum.