Posted May 17, 2011 at 3:10 am
by Barry Goss
It’s about time that we passed along some practical comments about gold allocation from the more refined and prestigious side of the financial world.
Heh, not that the WV team here doesn’t consider itself to be ambitious in holding a solid and cordial academic debate on such nefarious things as gold versus fiat-money, or whether Hillary Clinton had to take acting lessons to look so “aghast” in this picture.
Yup, we do appreciate offering up continuous doses of to-the-point professional info and critical thinking too.
But, sometimes, we find we can get a tad too much time on our hands and end up saying the same things over and over. Getting ourselves too comfortable, ya know, can be easy when we’re outsourcing a chunk of our individual portfolios to people smarter than us.
Yup, when we get restless, we’re not shy in bringing out a street-level kinda rant from time to time (like this and this one, from yours truly) about gold bugs, gloom ‘n doomers, and Chicken Little investors.
But, in this post, allow me to just pass along a note from American Century Investment — one of ‘em seasoned big boy fund manager firms out of the mid-west — that gives some practical, lets-not-get-too-carried-away advice on allocating and managing gold in your investment portfolio.
“Gold’s Role in a Diversified Portfolio
The key consideration for gold investors is not so much the price of the metal, but what is gold’s role and allocation in your overall portfolio. Because gold benefits from safe-haven demand in times of political and economic uncertainty, and it has unique properties as an alternative currency, the precious metal has a low correlation to the performance of stocks and bonds.
That is, gold has tended to do well when stocks and bonds struggle, and vice versa. These characteristics mean gold is well suited to diversify a larger portfolio against inflation or market uncertainty.
From a short-term, market-timing perspective, it’s hard to advocate buying gold—or any other asset, for that matter—after a huge run-up. But from a long-term, portfolio diversification point of view, it can make sense to have an allocation to gold because it tends to do well when other asset classes struggle.
Of course, diversification does not ensure a profit or protect against a loss in a declining market.
For younger investors/those in the wealth accumulation phase: It’s important to remember why you are investing in gold—it’s meant to be a small allocation in a much larger, diversified portfolio, not a core portfolio holding. For this reason, a number of analysts suggest that a modest 3–5% allocation to gold or gold stocks could be a hedge against a downturn in financial markets related to inflation risk or other economic or political uncertainty.
For older investors/those in the wealth preservation phase: Here, too, investors must consider the high degree of volatility and risk inherent in gold investing, and allocate only a comparatively modest portion of their overall portfolio to gold. Analysts typically suggest a 5–10% allocation to gold may be appropriate for investors in the wealth preservation phase of their financial lives.
This higher allocation is because you are more vulnerable to the effects of inflation (or a market sell-off as a result of financial uncertainty or calamity) the closer you are to retirement—your balance is at its highest level, and you won’t be making any more contributions to offset losses.”
Simple, rational thinking that is easy to understand and implement.
So, if Uncle Ned is currently hoarding every brand of survival food he can, while looking at land in South America to start a soybean farm, tell him to stop the madness and run on over to read this WV post.
If you can’t shake some sense in his head, maybe the above commentary and information will
P.S. For some great commentary on why Gold Is NOT an Investment, click here…
Posted April 27, 2011 at 1:52 am
by David Mildenberg and Pham-Duy Nguyen
Dallas hedge-fund manager J. Kyle Bass helped advise the University of Texas Investment Management Co. on taking delivery of 6,643 gold bars, worth $991.7 million yesterday, that are stored in a bank warehouse in New York.
Bass, who made $500 million with 2006 bets on a U.S. subprime-mortgage market collapse, said managers of the endowment, known as UTIMCO, sought board approval to convert its gold investments into bullion this year. A board member, Bass, 41, said he was asked to help with that process.
While Bass, a managing partner at Hayman Capital Management LP, said in an April 16 e-mail that “the decision to purchase and take delivery of the physical gold” was made by endowment staff members, “I helped where I could.” Gold futures touched a record $1,498.60 an ounce today in New York before settling at $1,492.90.
The Texas fund’s $19.9 billion in assets ranked it behind only Harvard University’s endowment as of August, according to the National Association of College and University Business Officers. Last year, UTIMCO added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer.
The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass.
Contracts Exceed Supply
Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand, Bass said.
“If you own a paper contract where they can only deliver you 10 cents on the dollar or less, you should probably convert it to physical,” said Bass, who isn’t related to Fort Worth’s billionaire Bass family. He said holding cash wasn’t a better choice because the rate of inflation exceeds money-market rates by 2.5 percent to 3 percent, eroding the value of cash.
“The call to take delivery is more of a challenge to the system and it borders on the anarchistic,” said Ralph Preston, a principal at Heritage West Financial Inc., a San Diego company that specializes in futures trading. “It’s like the Republicans trying to overturn President Obama over the birth certificate issue. It’s poor sportsmanship.”
Bullion banks generally charge his clients about $15 a month to store a 100-ounce bar of gold, the amount covered by a single contract, Preston said. The Texas fund negotiated with Comex to pay about 0.1 percent of the metal’s value, Bass said.
That would indicate an annual cost of about $992,000 to store the delivered gold, based on today’s price. By comparison, the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, charges a management fee of….
Posted April 21, 2011 at 4:08 pm
From Richard Russell in Dow Theory Letters:
This nation is so riddled with lies and corruption, sometimes I wonder how the U.S. has survived the many centuries since the Founding Fathers gave us our great Constitution.
No wonder Fed Chief Bernanke fought so hard to keep the Fed’s lending a secret. I just read in Rolling Stone magazine a story entitled “The Real Housewives of Wall Street.” It seems that the Fed loaned bailout money of $220 million to the wives of two Morgan Stanley bigwigs. After his wife got a big taxpayers bailout John Mack, CEO of Morgan Stanley, bought a $15 million home equipped with a 12-car garage. Outrageous!
When you think about it, it’s no wonder that Wall Street and the Fed hate gold. Gold exists outside the system. The Fed can’t manipulate or create gold the way they do Federal Reserve Notes. When gold rises, as it has been doing, it hoists a red flag over Wall Street, the Fed, and the economy.
Surging gold tells the world that something is terribly wrong. All the lies, corruption, and secrets of the Fed and the politicians can’t erase the dire message of gold.
Gold is the protector and refuge of the common man. No wonder all the recent record highs in gold remain unreported by the media.
Editor’s Note: Learn more about the excellent Dow Theory Letters here.
Posted March 4, 2011 at 1:14 am
by Daniel Gross:
With the U.S. facing large, structural deficits, analysts of all stripes are taking an inventory of the nation’s assets and liabilities. Mary Meeker, famed for her coverage of Internet stocks, has produced a long presentation on the nation’s balance sheet, as if it were a private-sector company.
Historian Niall Ferguson suggests in Newsweek that the U.S. start selling off some of its assets. “The U.S. government currently has $233 billion worth of non-defense ‘property, plant and equipment’,” he noted. Plus there’s land, power-generating assets and roads. (As if somebody would buy I-95).
On Tuesday, word came that President Obama is set to propose setting up a board to look at whether the U.S. can sell off some of its real estate holdings, a move that might raise some $15 billion.
But they’re missing a big source. To quote the Seinfeld character Kenny Bania: “That’s gold, Jerry. Gold!”
For a good chunk of its modern history, the U.S. was on the gold standard. That meant the Treasury and central bank had to keep a ready supply of the metal on hand in case anybody wanted to turn in paper money for bullion.
While the U.S. left the gold standard for good in 1973, it has held on to its stash of what economist John Maynard Keynes called a “barbarous relic.”
And so there’s lots of it lying around, in Fort Knox in the fortress-like Federal Reserve Bank of New York, in various U.S. Mint operations. Some of it is used to make gold coins. But most of it is in bullion. Tons of it.
Posted January 25, 2011 at 10:19 am
Some quick video commentary, from Abigial, about Gold and Silver.
- Despite the current downward trajectory of both gold and silver, I think we may see a near-term rise in these precious metals.
- Specifically, if gold and silver move toward the fulfillment phases of their respective Falling Wedges, gold could move as high as $1,400 per ounce and silver to $30.50 per ounce in the near-term
- However, on the other side of these potential moves up will be the intermediate decline predicted by the topping process that each is engaged in irrespective of a near-term move up or not.
- In gold, an intermediate decline will likely be below $1,200 per ounce, and perhaps as low as $1,150, and in silver we’re looking at a level between $22 and $24, best case, and possibly $18 per ounce.
- The ironic effect of this type of downward price action, however, will be to strengthen the primary uptrend shown in the long-term trendlines of both gold and silver.
- In other words, the primary bull market in gold and silver remains “on” despite any such volatility.
As always, I welcome your comments.
Best regards –
Abigail F. Doolittle
Peak Theories Research LLC
Posted January 7, 2011 at 1:11 pm
by Chris Vermeulen
The past 12 months it seems like everything has been a dollar based play. Meaning if you were to pull up a 1 minute chart of the dollar and a 1 minute chart of the SP500 or Gold, you would now that when the dollar moves up stocks and commodities go down and vise-versa.
That being said the SP500 has started to move up with the dollar in the past month so there is a shift happening but it’s a slow change and is not much of a concern for gold right now.
If the dollar starts another leg higher it will make for good timing as market sentiment is at an extreme and earning season is here. That typically means lower prices in stocks and commodities.
In short, in the next 1-4 weeks I am bullish on the dollar, and bearish/neutral on stocks and commodities. The reason I’m neutral is because I don’t like to short things in a bull market phase as they can keep going up much longer than we think at times.
Rather hold my strong positions and wait for a correction to buy/add once I feel the selling momentum has stopped later this year.
I would not be surprised if we get a 4-10% drop in the next few weeks in both stocks and commodities, but until I see a clear roll in price I will not be looking for any trades to the down side. I’m not in a rush to pick a top/short the market but if we get a setup we will take a small position to play a falling market. Be sure to visit the link to today’s video which is posted in the gold chart section above.
Posted December 13, 2010 at 10:01 pm
by Barry Goss:
Whether this is a sign of the times — whereby more and more average, everyday Joes and Janes jump on board the “gotta have gold” dominant social theme (a start of the mania phase, anyone?) — or just over-the-top, fear-driven marketing in action… I won’t judge or predict.
What I will say about the latter, however, is this:
If we could predict with certainty the ultimate destruction of any trading vehicle (including currency itself), we wouldn’t be trading (or investing)… we’d be in Vegas.
Unfortunately (for the susceptible, impressionable and uninitiated, anyway), when a fast-talking, swift-moving group of marketers suddenly jumps on an IDEA — a “thing” that they see as being new or extra-revealing — they tend to speak with a black-and-white tongue.
The happy medium — the grey-area thinking — is rarely expounded on or tossed around.
Here’s the deal:
We also adore GOLD (I last talked about that via our “The 9-Year Gold Bull” post ).
Yes, we get the background and history lesson too:
Gold, for thousands of years, has been the world’s only truly secure investment. It’s called the money of monarchs for a reason. It’s easily portable (when divisible in coin form), cherished, durable and backed by nature (rooted in its crust) in limited quantity (a good thing). Most importantly, it’s no one else’s liability.
But, in our pitch for owning the Midas Metal, this is where we typically stop. You’re not going to get any solemn Nostradamus-like “you-better-own-it-or-else” scare tactics from us.
We might simply end the appeal for buying it selectively, and keeping maybe 20% of your portfolio held in gold-backed assets, by saying that it’s a great insurance policy against government incompetency and stupidity.
Yes, gold in all its forms is a beautiful thing to own. But then we move on to the current reality at hand:
Making, managing, and multiplying “fiat” currency. In our case, ‘GROWING’ our dollars.
After all, those digits that show up in your bank and brokerage accounts are what they are. You can either fall for the “demise of the dollar” run-for-the-hills (and take your MREs — Meals-Ready-To-Eat — cans with you)… or… you can work with the current system you’re in.
Which means, whether you like it or not, employing a larger percentage of your available “investable cash” in assets that TRADE — usually those can be bought and sold via a public exchange (or sometimes privately).
And, one of the best ways we know to do this is to get to know ‘smarter’ people than us… namely fund managers and traders who are more consumed (and intelligent) than we are.
We use MANAGED trading-based accounts, in other words, to accomplish this.
The bottom line is: The dollar is still the world’s reserve currency. And, as of this moment (or any foreseeable near-future moment), there’s nothing of super value to put in its place. There are no better solutions (unless the entire world is willing to have gold-backed currencies).
Control what you can, focus on what you’re dealing with, and learn to PROFIT from current reality.
Posted November 13, 2010 at 10:07 pm
by Barry Goss:
No slowing down… as it’s just kicking into medium gear.
The “mania” phase — where most U.S. investors, who have grown up not understanding the concept of “real money,” begin being enthusiastic about it — hasn’t even started yet.
But, institutional investors — the “smart money” — are taking it in at a rapid pace, preparing their coffers for its inevitable climb to $1,600/ounce, then $2,000/ounce… and beyond.
Our prediction? Yes.
Anybody else predicting that? Yes, of course.
When will it happen? Nobody knows!
My bet? Sooner than later.
Why? We’re in an economic reality where major shifts in spending habits have just left the starting gate. People are getting liquid, deleveraging, and saving like no time before. At the same time, the up-tick in mass-awareness of the devaluation of paper/fiat currencies is taking hold.
The recent rally of the U.S. stock market, starting in September, is driven off hollow air — simply nothing more than a response to Ben Bernanke devaluing the U.S. dollar.
And, with rising unemployment and poverty, entitlement dependence (e.g., 41 million U.S. citizens are on food stamps), increasing political corruption, declining civil rights, and out of control ‘money’ creation, is there any wonder why ‘tangibles’ of all kinds, including natural resources, real estate, land, and precious metals, is where money is headed?
As Bill Bonner succinctly points out:
“People only change their spending and investing habits — in a positive way — when they believe they have real, permanent wealth, not when they anticipate a speculative increase in share prices, driven by hot money.”
In our latest ‘Wealth Vault’ member update (posted yesterday), we gave members a more elaborate take on the state of the GOLD market, where we see it going, and more importantly, a very little-known way to conveniently buy physical gold without taking delivery of it. The bullion is stored in what many consider to be the most secure vaults in the world.
And, each share you purchase in this investment vehicle represents 1/10th of an ounce of physical spot gold. So, it’s a great way for the “little guy” to participate in the ongoing bull market that, again, isn’t slowing down.
Yesterday, it was selling for $1,387/oz after a run of nine years, seven months and ten days.
Put another way, the price is up 442%, or about 19.3% compounded (returns on the returns). Over this same time frame, the S&P 500 has returned 7.5%. And U.S. home prices have gained less than 30%, according to the S&P/Case-Shiller home price index.
We feel this is just the beginning. Either way (even if there will be a short-term correction that lasts several weeks), do you really want to be left holding the bag, without any in it?
When you become a paid WV member, you can immediately access our latest update, which tells you the approach we’d take for buying now, even at these current prices.
As Brad pointed out yesterday via the Nov 12th member update:
“For most people, the thought of investing in farmland is the furthest thing from their mind, and even more so if it happens to be outside their country of residence. But farmland is one of those tangible assets that’ll continue to hold its value no matter what happens.
“After all, unlike paper currency (which can be printed into oblivion), there’s only a finite quantity of farmland available in the world. This is one of the main reasons experts are predicting that agriculture is going to be one of the greatest industries in the next 20 to 30 years.
“Thankfully, you don’t have to wait that long to be able to enjoy the many benefits investing in farmland can provide, because in our latest report, you’ll learn about three ways you can profit from farmland as an investor, in one of the most ideal places in the world.”
For more information…. [ login or become a member ]
Posted August 16, 2010 at 11:48 pm
by Chris Weber:
A Huge Mystery Remains To Be Solved
Yesterday marked the 39th anniversary of the day when the US Government declared bankruptcy. Oh, they didn’t call it that at the time. But what happened on August 15, 1971 was that the US defaulted on its promise to pay gold for dollars.
Before that day, gold was the legal linchpin of the world monetary system. Although every currency was defined in terms of the US dollar, the dollar itself was legally defined as 1/35th of a troy ounce of gold.
Since then, there really has been no center to the international monetary system. The “reserve currency” continues to be the US dollar. But there is no official definition of what a dollar is.
Like every other currency, its value changes every ten seconds as it is traded on the global currency markets. It is a promise to pay nothing. Its value has been devalued for years.
On top of that, enormous effort has since been put into the global currency markets: buying, selling, manipulating…none of which has caused anything productive to the world economy. Oh, sure, currency investing has made some of us rich, but is it really the same kind of wealth that, say, Steve Jobs has created with Apple?
After cutting that last tie to gold, there was no longer any discipline left to keep the value of the dollar steady. The US dollar of August, 1971 is as of 2009 worth just over 18 cents, according to the Inflation Calculator. Thus, in purchasing power, the dollar has lost over 80% in the past 39 years.
Only foreigners were legally able to turn in their US dollars and get gold from the US Government from 1934 to 1971. August 15 of that year closed off that last power of convertibility.
In 1934, gold was confiscated from US citizens, melted from coins into bars, and gathered over the next few years into a…
Posted August 7, 2010 at 5:59 am
Donald Luskin, chief investment officer at Trend Macrolytics, has been at the center of the money management world for quite awhile. He launched MetaMarkets, the world’s first transparent mutual fund, in the 1990s and also created and patented LifePath, the first target-date portfolios.
So IndexUniverse.com Managing Editor Olivier Ludwig was keen on hearing what Luskin had to say about the current state of the economy and markets. Luskin expects ultra-low interest rates to go on for awhile in what he called the “expansionless recovery,” and sees gold to be an increasingly valuable form of money at a time when many other currencies have been cheapened by the economic crisis.
Ludwig: Regarding gold, what do you make of views that say prices are being increasingly supported by investment demand? Is the gold market headed for a correction?
Luskin: I don’t really think of gold in terms of the traditional jargon—investment demand or jewelry demand. I think of gold as just basically a form of money. It’s different than dollar bills; you can fashion pretty jewelry out of gold and you can’t do that with dollar bills. Gold throughout history, and still now, is considered money. Gold should be thought of as a competing currency, right up there with the dollar and the euro and the yen and the yuan and the franc and all the others. And the price of gold in any one of those currencies is simply the exchange rate. We’re certainly comfortable talking about the dollar-euro exchange rate, and yet when we talk about the gold-dollar exchange rate, we call it the price. I would argue that that is wrong – it is an exchange rate.
Ludwig: As long as we’re talking about gold as a currency, can you talk about your dollar outlook?
Luskin: We all know there hasn’t been a dollar story at all; it’s been a euro story. The euro went through weakness and that looked like dollar strength. It had nothing to do with the dollar. I don’t really have a particular opinion about the dollar vs. the euro. I feel like all of the large economies of the world are kind of acting the same way.
They are all doing everything they can to stimulate flagging economies and prop up their creaky financial sectors, and that involves a great deal of debt creation and money creation. And all of those things, whether they’re happening in the United States or Brussels or wherever, they tend to cheapen, demean and corrupt all currencies.
So let’s not worry about the dollar against the euro, let’s worry about all of them together vs. gold—because we cannot make more gold by printing it, you can’t make more gold by borrowing it.
Ludwig: How do you view what is going on in the U.S. economy?
Luskin: Where we are right now—until some energy comes along to change it, is the U.S. economy is neither in an expansion nor a contraction. The little slogan we’ve come up with when we communicate this to our clients is “expansionless recovery.” That’s a way of saying we’re not in a recession anymore.
Ludwig: And what sectors in this “expansionless recovery” are now prospective, apart from going into something like Pimco’s MINT, which is basically like holding cash?
Luskin: What was the best thing you could have done in the fixed-income market in the last two months? Buy Greek bonds. What’s the best thing you could have done in the equity market in the last two months? Buy Greek bank stocks. So this is exactly what we’re telling our clients. We’re saying: “Any time the fire alarm goes off and there’s a fire drill, go over and buy.” And so that’s the pattern: Not only do you not want to pay up for quality, you want to be bold and buy low quality at a discount.