Gold as an Asset Class

It has been almost three decades since Wall Street and the media have considered gold as an asset class.  It would probably be generous to say that even 1% of American investors have an adequate understanding of why at least a 10% portion of their assets should be safeguarded in gold and silver, primarily in bullion. An even smaller percentage understands that they must have physical possession or a custodian that can prove that they are holding their purchased gold in a segregated account.

When our forefathers founded this country, it was for good reason that they demanded that money only be backed by precious metals. They understood well that putting the wealth of the nation in the hands of politicians and private bankers was equal to handing an automatic weapon to an assassin. The United States Constitution specifically states that the act of attempting to change the backing of money by precious metal is punishable by death. Why would they demand such a harsh punishment for such an act? In the years ahead we are about to find out why, and when we do, the raped public will be looking for some heads to roll.

Shockingly, it becomes apparent that national heroes such as Abraham Lincoln and Franklin Roosevelt were key figures in setting the US on a path to economic ruin. In fact, no figure in history has been more responsible for catapulting us toward the day of reckoning than past Federal Reserve Chairman, Alan Greenspan. In the cases of Lincoln and Roosevelt; when Lincoln printed paper money to fight the Civil War without gold backing, and Roosevelt made it illegal for individuals to hold gold; their level of economic training and knowledge can be open to question. In the case of Greenspan, however, there is indisputable evidence that he had full awareness of the consequences of his actions.

In his own words, “In absence of the gold standard, there is no way to protect savings from confiscation of wealth. There is no safe store of value. Deficit spending is simply a scheme for confiscation of wealth.” There it is. No one can say it better than the man himself, even if he said it 40 years ago. Well, this is exactly what is transpiring today. It is probably a good thing that Greenspan is of an advanced age; for when the masses understand what he has done, they may well call for his neck as has happened in ancient times to a central banker. Clearly, Greenspan has assisted the banks and the Government in confiscating the wealth and savings of the people.

You simply cannot make the masses recognize what is right before their eyes until they are ready to see. If you can recognize the importance of these events and the implications for the future you probably already have a healthy allocation in gold, silver, and related equities. Unfortunately, we have found that the vast majority that has moved to protect their portfolios with investments in the precious metal sector are foreigners. Americans are woefully under protected with a gaping hole in their portfolios.

Also, we find the majority that invest in the sector since the gold bull market started in 2001, are mostly just looking to jump on a hot sector rather than taking advantage of the overall portfolio protection aspects of precious metals which are so desperately necessary today. This is apparent in that we see more interest after strong runs when you should be lightening up than during sharp sell-offs which should be looked at as fantastic buying opportunities.

The really sad part is investors from China, Japan, the Middle East, and India are taking advantage of any pullback to keep adding to their gold and silver holdings. India has regularly paid up to $10 per ounce and more in premiums to get enough gold in the country to satisfy demand. At the current pace, the high physical demand for gold will not take long to overwhelm efforts by the Gold Cartel to cap prices which they do to legitimize their inflationary economic and monetary policies. The keepers of the fiat money system have gone forward with acceleration in money creation that borders on insanity.

You can’t manufacture gold from thin air and that will eventually be the undoing of the fiat money system as it always has in the past.

Among the major reasons why gold should be an important part of all portfolios are:

1. Out of control government spending with budget and trade deficits;
2. Negative real interest rates, with negligible Fed increases, as already demonstrated over the last many years;
3. Tremendous financial market leverage coupled with poorly allocated capital;
4. Continual importation of deflation, killing pricing power and jobs;
5. Demand is rising while production is declining;
6. Gold has a negative beta which should offset times when stocks decline;
7. We are in a war environment which has historically been very inflationary;
8. Financial derivatives are out of control and hiding huge financial failures –  this is a 2008 bust waiting to happen again;
9. Energy prices are hitting all time highs as well as many other commodities;
10. The relative size of the gold market is tiny with the bulk of inflows yet to come;
11. The biggest growers and savers (Asians) have long been moving into gold;
12. Huge short positions in gold and silver that may not be possible to cover; and
13. Foreign buying of US debt is waning which should continue to exacerbate money printing.

Monetary inflation in excess of real production is theft. Alan Greenspan admitted his understanding of this concept many years ago which is probably why gold was his favorite indicator for many years, until recent times.

Protect yourself. The fundamentals for gold get better every single day as money expansion continues. Use declines in the prices of metals and the stocks to build a position as part of your portfolio. It could well protect everything else you own.  Finally, read our article, “If They Don’t Own Gold, Don’t Trust Their Opinion on Gold”.