the dollar vigilante blog

The Fear of Gold

I was on a panel at the recent California Investment Conference in Palm Springs and the question was asked, "What percentage of your portfolio should be in gold bullion?"

The first panelist answered 20%.  The second panelist said, up to 30%.  Then it came to me.

"I have no problem with someone having 100% of their portfolio in gold," I stated bluntly.  Many in the crowd laughed.  Their laughter confused me.  What's so funny about that, I thought?

I went on, "I think it's weird that people find my answer weird."

GOLD IS REAL MONEY

After all, we are talking about time tested and true money.  The only money that has lasted for thousands of years and is still fully accepted worldwide as a store of wealth.  Even Warren Buffet had to recently admit that “Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

And that from a man who hates gold the way Whitney Houston fans hate Bobby Brown.

So, by stating that I have no problem with someone having 100% of their portfolio in gold I am making an ultra conservative statement.  I am stating that I'd have no problem with someone having their entire portfolio in "cash".  In real money.

What would you rather hold "for eternity"?  US dollars?  A paper debt obligation of a bankrupt nation state?

The fact that so many found that to be a shocking statement says a lot about where we are in this current process of the collapse of the fiat currency system.

THE FEAR OF GOLD

There is such a "fear of gold" amongst most people that it must be due to statist indoctrination and propaganda.  It makes no rational sense to have such a fear of such a time tested and true store of wealth.

The same people who fear gold seem to have no problem holding a significant amount of their assets in euros in a European bank as Europe burns around them, both figuratively and literally.  The euro might not exist 12 months from now but no one seems too concerned.  They act like its been around forever and always will be, but it only was dreamt up by globalists in 1999.

YOUR BROKER FEARS GOLD

Near the end of 2007 a good friend of mine who had been wanting to sell her house called me.  I had been telling her for a few months to sell her house and buy gold because a big housing crash was coming.

She said she had received a good offer for her house and checked with me to make sure I was certain about her selling, buying gold with the proceeds, and renting for a few years.  I told her, emphatically, yes.

So she sold her house.  At the time gold was around $750 per ounce.  We fell out of touch for a few years and she contacted me last year around when gold was near $2,000 per ounce.  I smiled when she called, waiting for her to tell me about the fortune she made.

"So?" I asked, waiting for the exhaltation.

"What?" she also asked, confused.

"How'd that trade work out for you?" I asked.

"Oh.  Well I sold the house.  And I put the funds into my brokerage account with my (government registered) financial advisor," she responded.

My heart sank.  I knew what she was going to say.

He talked her out of it.  He said putting all her assets into gold was far too risky.  Where in the government training manuals does it tell you to even own any gold!

She got worried too and less than a year after selling, under pressure from her old Chinese parents, bought another house.  It was a bit cheaper but after transaction and moving costs it was a loss.

GOLD IS IN A BUBBLE

Of course, now, with gold over $1,700, it is nearly impossible to get anyone from the general public to buy gold.  It's gone too high, they cry!  CNBC says it was a bubble, they repeat like trained seals.

It's gone from near $300 to nearly $2,000 in the last decade.  Surely that is a bubble and if it hasn't already popped it soon will, right?

No.  That's not right.  This is the problem with watching the value of anything in terms of constantly depreciating US Federal Reserve Notes.  In the following chart, when looking at the price of gold in nominal dollar terms it looks like an insane rocket ride of epic proportions.  But, when adjusted by the US Government's own, heavily massaged inflation statistic (the Consumer Price Index, or CPI), the price of gold has just finally reached nearly the same level it was at in 1980 and looks far less spectacular.

PORTFOLIO ALLOCATIONS

Getting back to the initial question posed on the panel as to what percentage we recommend people hold gold bullion as a percentage of their portfolio.  While I stated I'd have no problem with 100%, we actually recommend to TDV subscribers holding 30% of their portfolio in bullion - both gold and silver.

We also recommend, at this time holding 20% of your portfolio in gold mining juniors and 15% in gold mining major stocks amongst other things.  That's because we are expecting all the monetary printing going on with abandon in the western world to foment a true bubble, not only in the price of gold but even moreso in the price of the mining shares, especially the juniors.

We are expecting a mania for the ages in these stocks.  And, how will we know when to sell?  When I am asked what percentage of their portfolio should be held in gold bullion and I say 100% and no one laughs.

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