Now is the time to seek the security of gold
I am often asked: Is now a good time to own gold?
I am often asked: Is now a good time to own gold? These days, with the U.S. and global economies in troubled waters, the answer is an unqualified yes.
No one knows what the future holds for the economy and for our personal savings and investments. But one thing is sure: Gold has been a reliable anchor and store of value for smart people in the worst of times.
Veteran gold investors already know the metal’s benefits, but for those who aren’t sure where to start, here is the issue to think about: security, security, security.
To be sure, with gold selling at historical highs, the precious metal is overbought and perhaps due for a correction. Even so, for investors flying without a “golden parachute,” it is never too soon to establish a core position of 5%, 10% or even 15% of a portfolio in physical gold as an insurance policy and hedge against unforeseen financial risks.
After all, our economy is showing signs of life only because of massive injections of liquidity from the Federal Reserve and the various bailouts by the Department of the Treasury. With all this monetary creation and government spending, we continue to undermine the U.S. dollar.
In fact, former Fed Chairman Alan Greenspan said recently that if we don’t right this path, we are headed for inflation.
With the U.S. economy and the U.S. dollar struggling, there is a worldwide realization that the only smart play to keep investments safe is gold. After years of selling gold, central banks are becoming acquirers of it. Individual and institutional investors are also buying more gold than ever before.
Even if the price of gold rises substantially in the next few years and there is a rush of exploration and mine development, projects large enough to affect the market take at least five years to reach full-scale production.
Factor in increasingly stringent environmental regulation, unfriendly government attitudes toward mining and sluggish financing, and it is doubtful that gold production will keep pace with demand.
Like any investment, gold is subject to risk.
Prices fluctuate. But when we take a comprehensive look at the market trends and forces that determine the price of gold, they point to an investment that is likely to grow in value.
Indeed, the evolving supply/demand situation, a more positive attitude toward gold by central banks and greater investor interest all point to a doubling or even trip-ling of the metal’s price over the next few years.
So how does Main Street get into the game?
One way is through gold-mining stocks or mutual funds — but these don’t always track the price of gold and are subject to the fluctuations of the Dow Jones Industrial Average. Another is with gold exchange-traded funds.
But though gold ETFs hold actual bullion bars, the downside is that retail investors can’t take physical possession of that gold. As someone who has tracked it for over 30 years, I tell those interested in gold that the easiest way to invest is to own physical gold — preferably in legal-tender bullion coins or pre-1933 U.S. or European circulating coinage, held by the investor.
These coins are minted in standardized units of weight, purity and face value — all of which make them easier to convert into cash and more difficult to counterfeit, compared with bullion bars. Bars, however, face complications when one is selling, since most dealers require an assay to authenticate purity and gold content.
Individuals can be reluctant to buy for the same reason.
Governments have a history of proscribing private gold ownership during times of extreme monetary and economic duress. Ownership and physical possession of gold legal-tender bullion coins and pre-1933 gold legal-tender U.S. and European circulating coins are the only forms of gold ownership that may offer some protection from government confiscation — as they did in 1933 when President Roosevelt restricted gold ownership.
Does this mean that all investors should hold all their gold and gold-related investments in this form? No.
But investors who are bullish on gold or fearful about the country’s economic outlook should recognize the metal’s benefits, and structure their portfolios to maximize their security and protect their investments with physical gold that they can hold in their hand. Investors without a core position in physical gold should begin accumulating it.
Jeffrey Nichols, managing director of American Precious Metals Advisors, is the senior economic adviser to Rosland Capital LLC, a precious-metals sales firm that provides advice on precious-metals asset management.
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