Consider gold as a strategic part of your investment plan.
Yet, still only a small percentage of investors own gold. And, when I mention gold I don't mean gold shares or gold exchange traded funds; I mean physical gold…gold bullion or gold bullion coins.
According to Financial Research Corp., a Boston firm, total net investment in gold from the beginning of the year through to the end of July was $2.7 billion. Yet, during the same period, investors poured $22 billion into emerging markets mutual funds, and some $155 billion into bond funds. Compared to these figures, the amount invested into gold is minimal. According to GFMS, Ltd., the London-based consultancy, U.S. investors bought about 45 metric tons of gold bars and coins in the first half of this year. This is less than they bought last year.
I find it amazing that most investors continue to ignore gold as part of their investment portfolio, but then on the other hand I am not surprised especially when I see what the majority of analysts on the main stream media in particular those in South Africa have to say about gold. Most of them are clueless when it comes to gold and silver, and practically all them have denigrated gold as an investment ever since it was around $300 an ounce! The fact that gold has been one of the best performing assets of the decade seems to escape their attention. And, you cannot measure the performance of physical gold by looking at the performance of gold shares. The South African gold shares have performed miserably over the last few years which makes me believe that there is something seriously wrong with these companies or that they are very much undervalued. Yet, recently the price of the Krugerrands tested the previous all-time highs in spite of an exceptionally strong Rand.
For months I have warned investors of an impending currency devaluation in particular with regards to the majors- especially the US dollar and the euro. In the case of the US dollar, and because it is the reserve currency of the world, as the US Fed continues to depreciate the dollar by printing so much more of it, investors have shied away from the greenback in favor of other currencies, including the euro, yen, franc, Aussie dollar, Canadian dollar, etc. Now the Canadian and Australian dollars are essentially at parity with the USD, and the Swiss franc actually surpassed the US dollar. Meanwhile, the Japanese yen is at a 15-year high, and the euro has enjoyed a 17% surge since its low in May. Obviously in countries where the national currency has appreciated against the dollar, the performance of gold in those respective currencies is not as impressive as it is in US dollars, but it is still prudent to diversify some assets into gold no matter where you live.
A weaker dollar is great for US exporters, but not great for countries such as Japan, Korea, China, Brazil etc., whose economies depend mainly on exports. This will ultimately force policymakers to devalue their national currencies and before you know it, and despite of government rhetoric, there will be a race to see who can debase their currency faster, and this has implications for us all.
As the dollar continues to weaken, it is likely to see other major currencies, like the euro, pound, and yen devalue. As such, investors will be forced to choose gold as a safe store of value. Gold and silver are probably the only safe haven investment because they are not like the fiat currencies of the current monetary system. As James Turk recently said, "Back in the 1970s, when there were problems with the dollar, you could go to the Deutschemark or the Swiss franc. The Deutschemark doesn't exist any more, the euro has its own problems, and the Swiss franc is being tied to the euro. The only safe-haven currency today is gold."
As currencies lose value, gold and silver will continue to fulfil their traditional role as hedges against the declining values of these currencies and will therefore increase in price. Gold has also proved to be a long-term store of value simply meaning that in years to come it will be worth more than it is worth now. When you have gold in your hand you are not merely holding a piece of jewellery, you are holding a highly valuable asset, as well as a global currency. Try to sell your holdings in global equities to someone who lives in another country and see what happens. But, you will have no problem in finding a buyer for your gold in practically any country. Gold is easily recognizable and acceptable as a form of payment all around the world.
No matter your investment approach, the yellow metal can play a vital role in diversifying your portfolio. Typically, investors select stocks and bonds and ignore physical metals. Yet, by holding physical metals such as gold bullion you can be sure that your investment won't disappear in some accounting scandal or default.
Even though we have seen record high gold prices in recent weeks, this upward trend is far from over as countries such as the USA as well as those in the Eurozone struggle to get out of the recession and as the confidence in fiat currencies wanes.
Right now, the price of gold is looking a tad overbought, and I bet that the usual suspects who have continually knocked gold as an investment will then interpret it as a reversal and no doubt predict that prices of the yellow metal will head back down to $1100 an ounce. I recall when gold last pulled back to $1155 and when I recommend buying at that level, I received countless e-mails from some of these "geniuses" who insisted that the price was headed much lower. One of these "super-stars" was the Chief Investment Strategist of some investment company who was adamant that the price was headed to $1035/$935! While everyone is entitled to their opinion, my point is, I believe that these analysts do not really understand the fundamentals of gold nor do they understand the potential dangers inherent in a faltering fiat currency system.
Jim Rogers recently said that "Gold is going to go a lot higher over the next decade. It may slow down for a while because it's run up so dramatically here in the last few weeks. But gold's going to be much higher," Rogers said. "Adjusted for inflation it should be well over $2,000 now. When I say something like it's going to 2,000 in 10 years it's not a very dramatic statement given the state of the world. I'm sure it's a given." Rogers said one reason gold will continue to gain is because of what he called the failed policies of the Federal Reserve, its Chairman Ben Bernanke, as well as Treasury Secretary Geithner and other government officials. He said their efforts to prop up the economy have made things worse, not better.
"They've all been dead wrong, totally unadulterated wrong," he said. "Unemployment is higher now than it was before. Everything is worse instead of better. Let people go bankrupt. Let the system clean out and start over."
If you have not included gold in your investment portfolio, now is the time to consider doing it.
While the primary uptrend for gold remains very much intact, a short-term correction and a period of consolidation is possible.
About the author
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.
His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.
David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.