Frank Holmes: Own Gold for Risk Management

Release Date: 
Friday, May 16, 2014

Gold and Silver Prices

Gold prices breached $1300 per ounce this week on escalating tensions between Ukraine and Russia, but gave back some of the gains on stronger than expected U.S. economic data. “Gold futures settled with a slight loss on Friday, but still scored a gain for the week as traders assessed U.S. economic data for hints on the demand outlook for the metal and weighed the likelihood that India may soon ease restrictions on gold imports.” (“Gold futures slip back, but score weekly gain,” MarketWatch, 5/16/14.)

Gold finished the week up slightly, $2.60, closing at $1,293.70. Silver prices closed at $19.45, up $0.19.

Frank Holmes: Own Gold for Risk Management

Frank Holmes, CEO and Chief Investment Officer with U.S. Global Investors, penned a commentary for the Wall Street Journal explaining why gold should be part of a risk management investment plan.

“Gold is an alternative investment with a different risk-reward profile than traditional financial assets, and can be a good addition to a diversified portfolio. Owning some gold should be considered when making risk-management plans. I have seen success in gold as an alternative investment through holding 10% of the precious metal within a portfolio…and rebalancing annually.

“Gold is seen as a safe-haven asset and is a hard asset, and follows a seasonal pattern over time…This seasonal buying in line with religious and cultural celebrations is what I call the Love Trade, one of the two main demand drivers of gold.”

“The flip side of the demand coin is the Fear Trade. The Fear Trade relates to government policy, leading people to buy gold as a safe-haven asset and a hedge against inflation. The Fear Trade continues because of low real interest rates, along with the Federal Reserve’s current focus on long-term job creation and quantitative easing (QE).

“Over the years, both the Love Trade and the Fear Trade have continued to significantly drive gold demand and this is why I like it as an alternative investment.” (“The Case for Buying Gold,” Wall Street Journal, 514/14.)

Analyst: Now is the Time to Buy Gold

Financial writer and market analyst Keith Fitz-Gerald explained why investors should consider adding gold to their portfolios now.

“With gold trading at roughly $1,300 an ounce, many investors are asking themselves if now is the time to buy gold. I think that's the wrong question. What they should be asking themselves is if they can afford not to buy it right now…”

“Central banks are trillions of dollars in the hole, so they are buying gold as a means of supporting their currencies…The world is a complicated place, and it's only getting more complicated. As we face war, terrorism, and other ugliness, the need to hedge value is beginning to supersede the need to hedge price. Gold is one of the few assets with that capability - it's physical, it's been around a long time, and it's almost universally recognized as being valuable, even though the markets don't always reflect that.

“Consumers in India and China (who jointly represent three out of every five people alive today) generally believe gold is going to increase in price over time…As the economic development in these two countries continues at a rapid pace, overall demand will increase…” (“Is Now The Time To Buy Gold?” Investing.com, 5/13/14.)

Russell: Longer Case for Gold is “Solid”

Veteran newsletter writer and publisher of The Dow Theory Letters, Richard Russell, analyzed the findings of a recent study by the World Gold Council (WGC) on Chinese demand for gold.

“After a bleak 2014, WGC figures predict China's appetite for gold increasing 19% by 2017. It's noted however, that any shocks to China's financial system (events which are seemingly becoming more probable) could trigger an immediate flight to gold, especially when considering the limited range of options and cultural affinity for the metal. The longer-term case for increasing Chinese gold demand comes primarily from the expectation for China's middle class to grow by over 60% during the next six years. This would bring China's middle class to 500 million. The total population of the US is currently about 319 million, and in a stroke of irony, the middle class here seems to be heading the opposite direction.

“The takeaway is that pending any financial catastrophes, gold prices in 2014 may waver in the face of declining demand from its top consumer, but the longer-run case for gold appears to be solid and bolstered by strong and improving demand from China.

“A side note -- India, the number two consumer of gold, is amidst elections and some believe that a new regime could ease some of the policy restrictions on purchasing gold. If this holds true, demand from India could pick up, offsetting the stagnant demand from China.” (“Dow Theory Letters—Letter 1544,” Dow Theory Letters, 5/14/14.)

Goldline’s Express IRA℠ Program

Many Goldline clients choose to include precious metals as part of their retirement planning especially during times of economic crisis and uncertainty.* Goldline’s Express IRA℠ allows clients to acquire precious metals on their schedule; they no longer have to wait for your self-directed IRA to be funded before getting started.

Goldline's Express IRA℠ not only provides clients with the ability to diversify their IRA on an expedited basis, clients can also qualify for Goldline's ground-breaking Two-Way Price Guarantee Program℠ when they acquire $10,000 or more of our exclusive bullion coins. When an Express IRA purchase qualifies for Goldline's Two-Way Price Guarantee Program℠ clients are protected on short-term upside and downside market movement: they can either call to reprice their coins if the selling price falls (up to a maximum of 28 days depending on the size of the purchase) or, if the selling price of the coins increase during the qualifying period, clients can call Goldline to acquire additional coins at the original selling price.

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program. Listen to the show below:

*Federal IRA tax laws are complex and may change from year to year. Goldline believes it is appropriate to have 5%-20% of retirement portfolio allocated to precious metals. Other individuals and institutions may recommend different percentages. As with any investment, you should consult your tax advisor before making a decision regarding precious metals IRA investments.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

You should review Goldine's Account Agreement along with our risk disclosure booklet, Coin Facts for Investors and Collectors to Consider ®, prior to making your purchase. Goldline has a spread or price difference between our selling price, called the "ask", and our buy-back price, called the "bid". That spread varies depending on coin or bar you acquire. Spreads on 1 oz bullion coins, 90% silver dimes and quarters, and one ounce and larger bullion bars are 13%. All other coins have a spread of 28%. There is also a 1% liquidation fee when you sell your coins back to Goldline. The market must go up enough to overcome this spread before an actual profit is achieved. Precious metals and rare coins can increase or decrease in value. Past performance does not guarantee future results. Coins are a long-term, three- to five-year, preferably five- to ten-year investment. We believe precious metals are suitable for 5% to 20% of the average investment portfolio though others may recommend a different percentage.

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