The Importance of Gold in a Portfolio for the Individual Investor
- In the short term (6-18 months), uncertainty continues to dominate the news of the day.
- The U.S. political system is broken. We have leadership that is unable to govern effectively. We refuse to confront the systemic issues with our budgets. We continue to kick the can down the road for future elections and future generations.
- The Fed continues to ease monetary policy, temporarily reprieving us from potential market crashes or economic depressions. While this buys time, it doesn’t solve our structural issues, and may make matters worse in the long run.
- The stock market is range-bound by decent individual company performance, but that performance is offset by poor U.S. and global macroeconomic conditions. We seem to be stuck in neutral with no real returns for the average investor.
- The fate of the euro and European Union is uncertain. While austerity measures are being adopted, it may be too little, too late.
- China’s economy seems to be slowing down.
- Political and religious conflict in the Middle East and a potential nuclear threat from Iran could bring military upheaval at any time.
- In light of these conditions, caution and patience are the keys to success. It is important to adopt a defensive, balanced-yet-opportunistic posture to your portfolio.
- As the issues listed above unfold, you will see gold move up and down based on the news of the day.
- For opportunistic investors, this will present buying opportunities.
- For conservative investors, a properly balanced portfolio will also mitigate the ups and downs of the market.
- In the long run (18 months+), our situation will become worse without some major structural changes to our economy.
- While the U.S. election in November will be important, our problems run deeper than a simple presidential election.
- We simply are spending too much money relative to the money we are collecting in taxes. Our deficits are unsustainable, and if this continues, it will ruin our economy. We need only to look to Europe today to see our future of austerity and turmoil.
- The failure of the current administration to offer any meaningful solution to our long-term debt issues means that this uncertainty hanging over the market will continue for quite some time.
- Sooner or later, the bond market will punish our greed with higher borrowing rates. We have been fortunate that there isn’t a real alternative to the U.S. dollar as the world reserve currency. That will not last forever.
- At that time, the prospect of 1970s-style inflation, rising commodity prices (oil, gas, electricity, food) will outstrip workers’ wages. The stock market will fall as costs rise and profits fall.
- Gold will experience a major run-up in price.
- This will occur in three phases over the next five years.
- In the first phase, which is occurring now, professional money managers enter the market as a hedge against anticipated inflation down the road. (We have seen several major hedge funds, as well as other large institutional buyers, purchase tens of millions of dollars of physical gold in recent months.)
- In the second phase, when the initial signs of inflation start to become public, and the stock market begins to fall, individual investors will enter the gold bullion market.
- In the third phase, after gold bullion has experienced a positive return vs. equities and bonds, the stragglers will enter the market and provide a last burst of growth.
- Smart investors will enter the market in phase one, and sell into the phase three wave, as it is going up.
- Our advice:
- Invest 20% of your financial portfolio in assets that provide a hedge against inflation. Gold bullion and investment grade gold should be on your investment advisor’s short list for consideration.
- Beware of non-physical gold assets, such as leveraged gold and ETF products. While the promise of higher returns is enticing, gold can be volatile and is subject to world news and macroeconomic trends (up and down). It is difficult to call the top and bottom of these markets, and you don’t want to get caught on the wrong side of the news cycle when buying leveraged products. Simpler is better and safer when protecting your assets from inflation.
If you like gold as a hedge, buy gold bullion now before inflation hits. It offers investors long-term wealth protection as well as portfolio growth. Wall Street analysts are predicting $2,500/oz. gold within the next five years.
Consider a balanced portfolio which blends bullion products – gold and silver – with numismatic products such as investment grade and rare coins. Bullion and investment grade coins will track the overall movement in spot prices for gold and silver. Rare coins offer the highest potential return, but investors must be prepared to hold these coins for a minimum of 2-5 years. See our 3-Step Gold Strategy to diversify your gold investments for maximum benefit.
- Every investor’s objectives and timeframes are different. Let a Blanchard Account Executive help you achieve your investment goals by investing in our bullion and numismatic products.
Call a Blanchard and Company, Inc. Account Executive today at
1-800-880-4653 to add gold to your portfolio, or review our recommended gold buys.
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