The ABCs of Gold Investing by Michael J. Kosares

Author:Michael J. Kosares
Language: eng
Format: mobi, epub
Publisher: Addicus Books
Published: 2013-04-13T21:00:00+00:00

Chapter 10

J is for …

Jump-Starting Your Portfolio Plan through Gold Ownership

The rich old speculator Bernard M. Baruch forehandedly bought gold and gold shares after the 1929 Crash. Years later a suspicious Treasury Secretary asked him why. Because, Baruch replied, he was “commencing to have doubts about the currency.” Many are beginning to doubt the strength of the dollar, as they well might. Following Baruch’s example, they should lay in some gold as a hedge.

—James Grant, Grant’s Interest Rate Observer

Essentially, there are two broad categories of gold investors: those who want a safe haven to hedge disaster, and those who simply want to make a profit. A third type of investor seeks to combine both objectives. Your needs will determine what you include in your portfolio. Some thought and attention must be given to which of the three categories you belong. Along these lines, if you place yourself in the hedge disaster category, you must also determine which economic disaster you consider most likely to occur—inflation, deflation, or any of the rest of the economic maladies described in the previous chapter. What you conclude in this respect will play a determining role in how your portfolio should be structured.

Portfolio planning is inherently a very personalized business. It cannot be achieved without strong input from the client. Do your homework. Know what you want to accomplish. It is very important to making wise gold-investing decisions. To plan your portfolio properly, consult with a professional in the gold business. Stockbrokers, financial planners, mutual fund sales personnel, and the like have little knowledge of the highly specialized field of physical gold ownership. As a result, they sometimes confuse more than help.

Safe-Haven Investors

Those oriented toward hedging disaster generally prefer a combination of gold bullion coins and historic gold coins. The customary split is half of each. The bullion coins will protect your portfolio against currency deterioration, inflation, deflation, bank failures, stock and bond market collapses—the gamut of financial evils. What they won’t protect you against is intervention in the gold market by the federal government, including capital controls or a potential seizure, or gold call-in, as occurred in the United States in 1933.

For an extra layer of protection against government intervention, you will want to include the historically significant European and/or lower-grade uncirculated United States $20 gold coins minted during the nineteenth and early twentieth centuries. Although complete protection cannot be guaranteed through the ownership of pre-1933 gold coins (in the United States, gold ownership is a privilege, not a right), precedent does offer a strong argument in their favor as historically relevant items. (See Chapter 8, “H is for Historic Gold Coins.”) These items track the gold price and usually trade at moderate premiums over what you would pay for contemporary bullion coins.

If you rate the possibility of a new gold ban as low, then you should weight your portfolio in the direction of bullion coins—anywhere from 60% to 100%. If you are concerned about seizure and other forms of government intervention (such as

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