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Gold: Now is the Time

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If investors ever needed physical gold in their portfolios, now is the time.

Now is the time to protect even a well-diversified portfolio against the risks inherent in financial assets (equities, debt) and tangible assets (real estate, fine art, etc.) alike. Here’s some reasons why:

  • If you hadn’t noticed, geo-political uncertainties are at a high pitch, what with failed states (Iraq, Libya, Syria) and terrorist victories in the Middle East, East-West Russian roulette in Central Europe, and rising tensions between the United States and China as the PRC seeks to extend its territorial claims in the South China Sea.
  • Economic anemia just about everywhere threatening to sink the world economy into renewed recession . . . or worse. Here in the United States, despite the rosy growth scenario now espoused by Federal Reserve policy-makers and many business-cycle analysts, the outlook remains uncertain with slow growth or even renewed recession threatening.
  • Financial markets are increasingly unstable with many equities overvalued . . . and investors likely to run for the fire exits if central banks dare tighten their “ultra-loose” monetary policies.
  • Greek default and withdrawal from the euro zone are real possibilities despite lots of talk and continuing negotiations between the Greek government and that country’s European creditors.

Any of these “disaster scenarios” could initially trigger a swift tumble in the price of gold as some retail and institutional investors raise cash to cover losses in equity and other financial markets.

But, in my view, any retreat in the metal’s price should be seen as an opportunity for savvy investors to acquire more gold at bargain prices.

Over the long haul, gold is the least risky and potentially most rewarding of all investment asset classes. Indeed, it serves as an insurance policy for private investors, institutional funds, and central banks – an insurance policy protecting holders of the yellow metal from consumer price inflation, U.S. dollar depreciation, asset confiscation, and portfolio volatility.

That’s why America’s most threatening rivals – Russia and China – continue to accumulate gold bullion . . . and hold it at home.

It’s also why some of America’s closest allies – including Germany, France, the Netherlands, Belgium, and Austria – are slowly repatriating some of their gold previously held on deposit with the New York Federal Reserve Bank and the Bank of England.

Gold reserves stored outside a country’s geographic borders, even with such venerable institutions as the Federal Reserve or the Bank of England – once considered risk-free by some central-bank portfolio managers – have been in recent years tarnished by the danger of confiscation and the possibility of economic sanctions as we’ve seen in the past few years.

There’s a lesson here for private investors. That’s why I advocate one’s “core holdings” – perhaps five-to-ten percent of your investment portfolio – be held in physical gold held under one’s personal control just like a nation’s official reserve holdings . . . and not in paper substitutes such at exchange-traded funds, depository receipts, mining equities, etc. These vehicles may make sense for some investors some of the time – but only after one’s core holdings are established as the ultimate form of financial insurance.