Research

The Importance of Gold in a Portfolio for the Average Investor

• The stock market has lost a huge amount of value since the market high in late 2007.

• The economy has crashed due to failures in Washington and Wall Street.

• The Obama administration is printing money and running massive deficits to try and save the banks and rescue the economy. Both carry enormous risks for our long-term future.

• In the short term (6-18 months), this may head off a depression and limit a recession.

  • Unemployment will continue to rise until the additional money hits the economy but will level off and start to decline once the economy begins to expand.
  • We may see the stock market recover some of its losses as the plan is understood and implemented.
  • Large banks will begin to clean up their financial statements and start lending again.
  • Interest rates will remain low during this time period, and banks will continue to have almost no cost when borrowing from the Fed.
  • Investor sentiment may begin to turn the corner and investment in equities will increase as investors take advantage of better buying valuations.

• In the longer term (18 months+), our situation will turn for the worse

  • All of the money hitting the economy will lead to a dramatic increase in demand for goods and services.
  • The price for these goods and services will rise dramatically (inflation).
  • In an attempt to curb inflation, Central Banks around the world will increase interest rates. However, in an already fragile economy, this will reduce economic growth.
  • The stock market will fall because the companies’ costs will rise and profits will fall.
  • We’ll see areturn to a 1970’s style economy when commodity prices (oil, gas, electricity, food) will rise faster than workers’ wages.

• At that point, your investment portfolio may have another major downturn.

  • Inflation and a weak dollar will eat away at the value of your equity portfolio.
  • The Dow and S&P will fall in value.
  • Investment money will rotate into bonds and other fixed instruments and people will once again move out of the stock market.
  • All major commodities will rise – gold bullion, silver bullion, oil, and agricultural commodities.
  • Of all of the hedges against inflation, gold bullion and rare coins will protect your assets the best.

• 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 being an asset that will offer 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 3-5 years.
  • 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.