Question. What kind of gold should I buy?
Answer. We
probably get that question more than any other -- pretty much on a daily
basis. The answer, however, is not as straightforward as you might
think. What you buy depends upon your goals. We usually answer the "What
should I buy?" question with one of our own: "Why are you interested in
buying gold?" If your goal is simply to hedge financial uncertainty
and/or capitalize on price movement, then contemporary bullion coins
will serve your purposes. Those concerned with the possibility of
capital controls and a gold seizure, or call-in, often include historic
pre-1933 gold coins in the mix. Both categories carry modest premiums
over their gold melt value, track the gold price, and enjoy strong
liquidity internationally.
Q. When should I buy?
A. The short answer is 'When you need it.' Gold, first and foremost, is wealth insurance. You
cannot approach it the way you approach stock or real estate
investments. Timing is not the real issue. The first question you need
to ask yourself is whether or not you believe you need to own gold. If
you answer that question in the affirmative, there is no point in
delaying your actual purchase, or waiting for a more favorable price
which may or may not appear. Cost averaging can be a good strategy. The
real goal is to diversify so that your overall wealth is not compromised
by economic dangers and uncertainties like the kind generated by the
2008 financial crisis or the debt and currency problems now unfolding in
emerging countries.
Q. Why not wait for the necessity to arise, then buy gold?
A. Over the
past few years, as concern about a financial and economic breakdown
spread, there were periods of gold coin bottlenecks and actual
shortages. In 2008-2009 at the height of the financial crisis, demand
was so great that the national mints could not keep up with it. The flow
of historic gold coins from Europe was also insufficient to meet
accelerating demand both there and in the United States. Premiums
shot-up on all gold and silver coins and a scramble developed
for what was available. There is an old saying that the best time to
buy gold is when everything is quiet. I would underline that sentiment.
As you can see from the chart immediately below, the demand for newly
minted bullion gold coins shot up dramatically in the aftermath of the
2008 financial crisis, reached a plateau and has remained stubbornly in
place ever since. National mints have yet to release statistics for
2015, but when they do I would not be surprised to learn total sales
internationally approached 2013 levels.
Q. Can you give us a profile of the typical gold investor?
A. Gold owners
are a group of people I have come to know very well in my 40+ years in
the business. Contrary to the less than flattering picture sometimes
painted by the mainstream press, the people we have helped become gold
owners are among those we rely upon most in our daily lives -- our
physicians and dentists, nurses and teachers, plumbers, carpenters and
building contractors, business owners, attorneys, engineers and
university professors (to name a few.) In other words, gold ownership is
pretty much a Main Street endeavor. A recent Gallup poll found that 34%
of American investors rated gold the best investment "regardless of
gender, age, income or party ID. . ." In that survey, investors rated
gold higher than stocks, bonds, real estate and bank savings.
Q. What about high net worth investors?
A.
Traditionally, wealthy, aristocratic European and Asian families have
kept a strong percentage of their assets in gold as a protective factor.
The long term economic picture for the United States has changed
enormously over the past several years. As a result, that same
philosophy has taken hold in the United States particularly among those
interested in preserving their wealth both for themselves and for their
families from one generation to the next. In recent years, we have
helped a good many family trusts diversify with gold coins and bullion
at the advice of their portfolio managers. Few people know that the
United States is the third largest consumer market for gold after China
and India.
Q. You frequently mention gold as insurance. What do you mean by that?
A. Gold's
baseline, essential quality is its role as the only primary asset that
is not someone else's liability. That separates gold from the majority
of capital assets which in fact do rely on another's ability to pay,
like bonds and bank savings, or the performance of the management, or
some other delimiting factor, as is the case with stocks. The first
chapter of my book, The ABCs of Gold Investing,
ends with this: "No matter what happens in this country, with
the dollar, with the stock and bond markets, the gold owner will find a
friend in the yellow metal -- something to rely upon when the chips are
down. In gold, investors will find a vehicle to protect their wealth.
Gold is bedrock."
(Reader note: For a useful review of gold's role in preserving assets under various worst-case economic scenarios, please see Black Swans, Yellow Gold - How gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation. OPEN ACCESS. )
Q. What percentage of my assets should I invest in gold?
A. Once
again the answer is not cut and dry, but a general rule of thumb is 10%
to 30%. How high you go between 10% and 30% depends upon how concerned
you are about the current economic, financial and political situation.
James Rickards, strategic investment analyst and author of the New York
Times bestseller, Currency Wars: The Making of the Next Global Crisis,
advocates a 20% gold diversification. "Gold," explains Rickards, "is
not a commodity. Gold is not an investment. Gold is money par
excellence."
A diversified approach to the precious metals' portfolio works best.
USAGOLD can help you achieve the right balance.
Q. In your book, you state: "Who you do business with is one of the most important aspects of gold investing." Why is that?
A. A solid,
professional gold firm can go a long way in helping the investor
shortcut the learning curve. A good gold firm can help you avoid some
the problems and pitfalls encountered along the way, and provide some
direction. It can help you in the beginning and through the course of
your gold ownership both in making additions to your portfolio and
liquidations. A solid companion piece to the interview you are now
reading is How to Choose a Gold Firm
offered on this website. It offers clear guidelines for newcomers and
is well-worth the five or ten minutes it takes to read it.
Q. How can the average investor distinguish between the good gold firms and the bad?
A. First, and most important: Check the Better Business Bureau's
profile on a company before you do business with it. Check not only its
rating but the number of complaints lodged against it and how those
complaints were handled. A consistent record of complaints can be a
warning sign even if the company has managed to keep an A+ rating. This
is a simple and straightforward step every first-time investor should
take, but it is amazing how many ignore it. Second, choose a gold firm that has a solid track record. Ten years in business is good; fifteen years or more is even better. Third,
choose a firm with a commitment to keeping you informed, i.e., one that
is interested in answering your questions now and keeping you informed
in the future. If a sales person gives you short shrift or hits you
with a heavy sales pitch take it as a warning.
(Reader note: The Better Business Bureau began its Gold Star Certificate program in 2003 and USAGOLD has been a recipient of the award every year it has been issued – fourteen straight years without a complaint. The firm has been a member of the Bureau since 1986 and accredited every year since 1991 (the year it began its accreditation program) with an A+ rating. To see USAGOLD's full BBB report, please visit this link.)
Q. Can you briefly describe what you believe to be the biggest mistake investors make when starting out as gold owners?
Answer. The
biggest trap investors fall into is buying a gold investment that bears
little or no relationship to his or her objectives. Take safe-haven
investors for example. That group makes up 90% of our clientele, and
probably a good 75% of the current physical gold market. Most often the
safe-haven investor simply wants to add gold coins to his or her
portfolio mix, but too often this same investor ends up instead with a
leveraged (financed) gold position, or a handful of exotic rare coins,
or a position in an ETF that amounts to little more than a bet on the
gold price. These have little to do with safe-haven investing, and most
investors would be well served to avoid them.
Q. What about the high profile gold companies that advertise on talk radio and cable television?
A. The same
vetting rules outlined earlier apply. Check them out. Too often
investors make the mistake of believing that the gold firm that sponsors
their favorite political commentator is also the best place to make
their gold purchases. National media campaigns are expensive and those
costs are usually covered in the prices paid by investors for their gold
and silver coins. In some instances that mark-up can be twice the
underlying metal value. Take care that you are not paying too much for
your gold and that you are buying the gold items best suited to meeting
your goals.
Q. What is your view of gold stocks?
Answer.
Many of our clients own gold stocks and we believe they have a place in
the portfolio. However, it should be emphasized that gold stocks are not
a substitute for real gold ownership, that is, in its physical form as
coins and bars. Instead, stocks should be viewed as an addition to the
portfolio after one has truly diversified with gold coins and bullion.
Gold stocks can actually act opposite the intent of the investor, as
some justifiably disgruntled mine company shareholders learned in the
recent past when their stocks failed to perform as the price rose. There
is no such ambiguity involved in actual ownership of gold coins and
bullion. When gold rises, they rise with it.
Q. What about gold futures contracts?
Answer.
Futures contracts are generally considered one of the most speculative
arenas in the investment marketplace. The investor's exposure to the
market is leveraged and the moves both up and down are greatly
exaggerated. Something like 9 out of 10 investors who enter the futures
market come away losers. For someone looking to hedge his or her
portfolio against economic and financial risk, this is a poor substitute
for owning the metal itself.
Q. What about ETFs?
A. Since, for one reason or
another, it is difficult to take delivery from any of the ETFs, they are
generally viewed as a price bet and not actual ownership of the metal.
Most gold investors want possession of their gold because they are
buying as a hedge against an economic, financial or political disaster.
When disaster strikes, it does not do you much good to have your gold
stored in some distant facility by a third party. For this reason, over
the past couple of years the trend even with hedge fund operators has
been away from the ETFs. In 2011, ETF sales plummeted while purchases
of physical coins and bullion for delivery skyrocketed.
Q. Please summarize -- What is the best approach for the safe-haven investor?
Answer. If
you want to protect yourself against inflation, deflation, stock market
weakness and potential currency problems -- in other words, if you want
to hedge financial uncertainties, there is only one portfolio item that
will serve you in all seasons and under most circumstances -- gold coins
and bullion. Make sure you do your homework on the company with which
you choose to do business, and make sure that the gold ownership vehicle
you choose truly reflects your goals and aspirations.
Though this interview will
help you start safely on the road to gold ownership, it is just an
overview. If you would like more detailed information, I would recommend
my book, The ABCs of Gold Investing: How to Protect and Build Your Wealth With Gold, which
covers the who, what, when, where, why and how of gold ownership in
detail. You can also shortcut the learning curve by contacting our
offices and asking to speak with one of our expert client advisors who
will be happy to answer your questions and help you get off to a solid
start.
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