The Case for Bullion

Now that gold is trending mainstream, it is important to understand why bullion bars and coins are by far the best way to own gold.

Bridgewater’s Jamie Dimon advocates 15% allocation to gold.

Morgan Stanley is now recommending a 20% allocation to gold.

They both cite gold as a hedge to inflation… a store of purchasing power. Of course, those reasons to own gold date all the way back to when President Richard Nixon took us off the gold standard in 1971.

Since then, fiscal mismanagement by both parties has ensured gold’s upward trajectory.

That is why gold has outperformed the Dow, the S&P 500, and the Nasdaq by a wide margin since January 1^st of 2000. Gold has outperformed the U.S. equities indices by a factor of 2 or 3 times over the past 25 years.

It is about time they came around to the value gold provides!

Unfortunately, they will most likely try to paper over a problem that is best solved with hard assets.

Do not fall for it.

Exchange Traded Funds (ETFs) and Mining Stocks

Understand this. I own both precious metals ETFs and shares in mining companies. My issue with them both is not owning them.

My issue is when investors own them for the wrong reasons.

If you choose to own gold for the reasons cited by Jamie Dimon and Morgan Stanley – as a hedge against inflation and a store of purchasing power – your first choice should not be ETFs or mining shares.

For that purpose, you want wealth insurance… a store of purchasing power, with high liquidity, for a potential financial crisis you hope to never have.

To that end, here are some of my issues with ETFs and mining shares.

When you invest in Exchange Traded Funds…

• You own no gold.
• You own shares in an offshore trust whose fund manager’s job is to mimic the gold price.
• In most cases, you cannot take delivery of gold.
• There are “hidden fees” that most investors fail to understand that detract from the value of your shares.
  • Shipping of metal
  • Storage of metal
  • Insurance of metal
  • Administrative fees to include the fund manager’s salary.
• There are physical limitations the fund manager manages such as minimum buy and sell quantities from the bullion banks.
• If you read the prospectus – and most investors do not – you will realize the offshore trustees are very well protected, but you, the investor, are not.

When you invest in shares of gold mining companies…

• You own no gold.
• You own shares in a company whose job it is to profitably mine gold and return some of those profits to shareholders.
• You cannot take delivery of gold.
• There are various variables that can negatively affect the share price… even if gold is appreciating.
  • Experience and competence of management
  • Extent of the resource – the physical potential of the mine
  • Permitting issues
  • Environmental issues
  • Relationships with the indigenous personnel
  • Access to roads, power, water, mills, maintenance, etc.
  • Financing structure of the mine

Both mining stocks and ETFs have positive aspects to them. Namely, they are easy to transact, and, in the case of the mining stocks, a well-run and prolific mine can generate leveraged returns compared to simple participation in the gold price.

But as wealth insurance, they fail miserably… because you own no gold.

The Bullion Advantage

In contrast, when you own physical bullion coins and bars, you own gold.

It is in your possession for when you need it.

There is no counterparty risk.

It is not managed. So, it cannot be mismanaged by anyone.

It is immediately liquid.

It is a direct beneficiary of the lack of fiscal responsibility we witness daily on Capitol Hill.

And… although it does not provide you with interest and dividends, who cares when it outperforms equities indices by a factor of two or three?

The biggest knock on gold bullion ownership is that it is slow and cumbersome to deal with. But the reality is that while gold bullion has not changed for millennia, how we deliver it to you has changed.

It has gotten much more efficient and owner friendly.

Call us toll free at (800) 831-0007 or email us and we will show you how easy it is to preserve your purchasing power with gold bullion… how to Keep What’s Yours!