The Proper Gold Strategy
Written by David Schectman
Gold bottomed at $252 an ounce in August of 1999. By May of 2001 it hit $295. In May of 2002 gold topped $320. Gold is in a PRIMARY bull market. There is no question that every portfolio should have a position in gold, but in what form? Should you buy gold stocks or should you take delivery of gold coins? Is there a difference? Isn’t gold in either form the same thing? The answer to that question in a word is no!
Gold shares are stock. Physical gold is money. Gold shares are highly speculative and suffer through huge up and down swings. Physical gold is the most conservative thing you can own. It should be viewed as your best and most stable asset. It is the one thing you can own that has a glorious four-thousand-year history behind it. It will never be worthless. It is the only asset you can bequeath to your great grandchildren with the confidence that it will be worth at least as much (in purchasing power) as it was the day you purchased it. Don’t try that with a share of stock or a hundred dollar bill.
Perhaps you should think of your investments in terms of a giant pyramid. The base of the pyramid gives it its stability. We believe that the base of your investment pyramid should also offer stability. It should hold up in any emergency or market surprise. Your base should be made up of some cash, some physical gold and maybe even some Swiss francs. Nothing I know of offers more safety and stability.
Mining shares come into play well up on the pyramid, at or near the very top. They can be a financial “home run” or they can be the dog of your portfolio. Should you own any? Sure, but purchase the stocks with your “speculation” funds. Allocate 5% or 10% of your portfolio if you can live with volatility and risk. Purchase at least five different stocks and do some serious research before you purchase. Once you have the stock, do not trade it – put it away, forget about it and ride it up for the duration of this primary bull market.
You should have at least 20% - probably more - in physical gold (and silver) by now. Three reasons I feel this is prudent are (1) the US dollar is in the early stages of a PRIMARY bear market, having lost over 15% against a basket of major world currencies in the last 12 months; (2) Gold is in a PRIMARY bull market and I expect the trend to continue for several years; (3) Interest rates are at historic lows, less than inflation, and the stock market is in a PRIMARY long-term bear market decline, so there really aren’t any good alternative investments.
A “PRIMARY” trend is a major, long-lasting trend. It’s a concept I have written about often, and in detail in my newsletter. When you understand the PRIMARY trend “concept,” you will most likely increase the percentage of gold and drastically decrease the percentage of stocks you allocate to your portfolio.
I am often asked “What is the best type of physical gold to own?” My personal preference is that bullion coins like the American Eagle are fine, but I still prefer the pre-1933 twenty dollar Double Eagles. Compared to the new bullion coins, such as American Eagles and Canadian Maple Leafs, they offer a greater profit potential, more privacy, and protection against government confiscation. (For a detailed discussion on why we like the double eagles and on the topic of confiscation, see our reports: BULLETPROOFING YOUR GOLD PORTFOLIO: THE CASE FOR DOUBLE EAGLES, and THE WHITE PAPER ON GOLD.
We recommend that when you buy uncirculated gold coins, make sure that they are third-party graded, sealed and certified by either PCGS or NGC. In the uncirculated grades, we prefer the MS/60, MS/61, MS/62 grades. They have much smaller premiums than the higher grade coins. We also sell numerous circulated gold coins in the grades of XF and AU. All of coins we recommend have one thing in common: Most of their value is derived from the amount of gold they contain, not on their scarcity or condition. In our current “recessionary” or “deflationary” economy, we frown on the higher grades, like MS/64, MS/65 that our competition promotes. In “hard times” people will be better off if they own lots of lower graded coins rather than a few “pretty” or “scarce” dates. In hard times, it’s quantity over quality.
We can help you obtain a “collection” composed of different dates, mint marks and denominations. We are especially fond of the $20 Saint Gaudens, the $20 and $10 Liberty coins. Of all the gold coins, they alone offer the most gold for your dollar. We always do our best to diversify the dates and mint marks for you because it’s the best way to avoid confiscation in the future. The 1933 law that legalized the confiscation of gold, exempted coin collectors from the recall. This is a very good reason for you to build a “collection.” We will use only the most “common” dates so you will not have to pay a high and unnecessary premium for the diversification. Of course, at some point, you will have to duplicate dates and/or purchase more costly dates if you wish to expand your “collection.”
We are very experienced in how to help you with your portfolio. Our prices are very, very competitive and our philosophy of helping you build a “core position” – the base of your investment pyramid – is designed to help YOU.
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