Gold – Cornerstone of the Baker’s Dozen

By Rich Checkan

Gold is up over 20% from 6-7 year lows touched in December 2015. Officially, by definition, gold has turned from bear to bull.

As a result, everyone is talking about the yellow metal. But, many of the articles hitting my inbox on a daily basis miss the entire point of holding gold in your portfolio. They are touting the recent appreciation as a signal of huge profits to be made. They claim the stock market’s run is over, and it is time to go all-in on gold.

What does that tell me? They don’t understand gold or gold’s role in your portfolio at all.

Take a look at the following 10-year chart of the Dow Jones Industrial Average…

 
Credit: Google Finance

Looking at this chart, two things should come as no surprise.

1. Investors are nervous in the short-term due to the Dow’s erratic behavior.
2. Considering the long-term performance, most portfolios are – and should be – heavily weighted to equities.

If you get nothing out of today’s article, understand this: Gold and stocks are not an either/or proposition for your portfolio. You need both. They do different things for you.

Stocks are where the majority of your growth occurs. And, while gold, given the right circumstances, can appreciate significantly, gold’s role in your portfolio is first and always as wealth insurance.

Take a look at gold’s 10-year performance…

Over the past 10 years, gold reached its all-time high around $1,900 per ounce and subsequently corrected (after a 10-year bull run starting at $250 per ounce) to test resistance several times at $1,050 per ounce. Through the ebbs and flows, I submit, gold did its job.

You see, as wealth insurance, gold’s role is this…

• It protects purchasing power,
• in a liquid form,
• for a potential financial crisis, you hope you never have.

Gold has done this for over 5,000 years.

Further, studies from the World Gold Council suggest the inclusion of roughly a 10% allocation of gold to a traditional stock and bond portfolio enhances portfolio performance and decreases risk in the long-term.

This is where that 10% allocation to gold in many model portfolios comes from. Its purpose is wealth insurance… not appreciation.

Don’t get me wrong. You can profit from gold as well. I’m not against profit. And, now might very well be a great time to consider buying an additional allocation for that purpose. After all, we’re currently $200 per ounce (20%) above recent lows, and we are $650 per ounce (34%) below all-time highs.

To me, this is a great time to rebalance in favor of shoring up your 10% allocation to wealth insurance. And, I see the value in adding some for-profit gold to your portfolio at these levels as well… as long as you understand the wealth insurance is the primary concern… always.

Now, if you agree…

• What form of gold should you own?
• Where should you keep it?
• When should you sell?

What form of gold should you own?

Your ‘core holdings,’ or wealth insurance gold holdings need to be readily recognizable and extremely liquid. To meet these criteria, the best forms of gold to own are typically 1-ounce bullion coins and bars from mainstream and well-respected government mints and private refiners.

This is where you will find the best mix of lower premiums and high liquidity. In addition to 1-ounce gold, you may very well consider a small allocation to pre-1965 90% U.S. silver coins for divisibility. We suggest you consider a $1,000 Face Value bag of 90% silver (commonly referred to as ‘Junk Silver’) per family member.

Where should you keep it?

In order to be immediately accessible in the case of a financial emergency, you should take delivery of your gold and ‘Junk Silver.’

However, if your 10% allocation is significant, you may consider holding some close at hand and putting the rest in the hands of an independent, non-bank depository in the U.S. and/or abroad. How much you keep close at hand is dependent upon two things…

1. How much do you feel comfortable storing and safeguarding yourself?
2. How much do you anticipate needing close at hand for a potential financial crisis?

Everyone’s answer to those two questions is different. But, when you cross one or both thresholds, seriously consider a non-bank, independent depository for the overage. Let’s face it: Storing precious metals yourself is the cheapest option… until they are lost or stolen. Then, it becomes the most expensive option.

On that note, your best protection is oftentimes a low profile.

When should you sell?

That depends.

For ‘core holdings’ or wealth insurance, my answer is: Never, unless you have a financial emergency. If you have one, sell immediately to meet the need. That’s why you own it. Then, over time, as you are able, replace the allocation.

For precious metals held over and above wealth protection needs (for-profit metals allocations) should be rebalanced periodically as you would any allocation in your portfolio. If you are over-weighted, sell to get back to your desired allocation. If under-weighted, sell other portfolio assets to achieve the desired allocation.

But, never forget, wealth insurance is first and always.

As I am writing this, four more articles on the new gold bull just hit my inbox. And, while I agree this is a great time to add gold to your portfolio for wealth insurance and investment, hopefully now you can cut through the hype and fully understand the importance of gold in your portfolio.

Remember, gold doesn’t replace equities. Gold is held in addition to equities for improved portfolio performance, decreased portfolio risk, potential profit at times, and for wealth insurance always.

Call us today at 800-831-0007, or email us to discuss how to take advantage of the current U.S. dollar strength to achieve your desired gold allocation.