Prudent Investors Need "Gold Insurance Reserve" - Incrementum

Release Date: 
Friday, June 2, 2017

Gold prices jumped on Friday to overcome earlier losses following a disappointing labor report.

"Gold prices reversed losses Friday morning, after weaker than expected U.S. employment numbers bolstered the case for the Federal Reserve to continue raising rates at a gradual pace… Some investors believe the data will keep the Fed from raising rates too quickly, for fear of bruising a hard-won U.S. recovery. That is good news for gold, which struggles to compete with yield-bearing investments when borrowing costs rise. 'It doesn't seem the U.S. economy is firing the way people think it is,'  Peter Hug, global trading director at Kitco Metals…." ("Gold Reverses Losses on U.S. Jobs Data," WSJ, 6/2/17.)

Gold ended the week up $11.80, closing at $1,279.50. Silver prices closed at $17.63, up $0.22.

Prudent Investors Need "Gold Insurance Reserve" - Incrementum
Asset and wealth manager Incrementum AG published a report identifying the significant risks to the global economy and the reasons why prudent investors should include gold in their portfolios.

"Most market participants seem to be dismissive of the fact that asset prices have become egregiously overvalued for the third time in less than two decades. Moreover, many investors appear to disregard the negative effects of rate hikes on the business cycle and they ignore that the US consumer debt has once again reached new record highs…

"Whether one fully agrees with our critical assessment of the system is one thing; the question of whether one should hold an appropriate share of one's liquid wealth in the form of a "golden insurance reserve" is a different kettle of fish entirely. In order to make up one's mind regarding this point, it may be helpful to ask oneself a few simple questions, such as: When will I not need any gold in my portfolio? When...
• debt levels can be sustained or can be credibly reduced
• the threat of inflation is negligible
• real interest rates are high
• confidence in the monetary authority is (justifiably) strong
• the political environment is steady and predictable
• the geopolitical situation is stable
• governments deregulate markets, simplify tax regulations and respect civil liberties

"In our opinion, the current environment speaks for itself: purchasing gold as a
hedge should be the order of the day for prudent investors… We continue to believe that the second phase of its secular bull market still lies ahead. There are numerous reasons for this:

"1. The next US recession inevitably approaches - only the precise timing is
open to question… 2. Excessive global over-indebtedness is by now glaringly obvious. That not only applies to developed countries, but to many emerging markets as well.
Moreover, all sectors of the economy are afflicted by huge debt burdens… 3. De-dollarization has begun. We regard this process as an uncoordinated form of dollar devaluation. Its main symptom is a gradual reduction of the US dollar's importance as a global reserve currency… 4. Occurrence of a 'black or gray swan' event. Numerous potential financial shocks can be envisaged in the current environment. Regardless of whether such a shock is triggered by geopolitical tensions boiling over, or by negative economic developments - an appropriate allocation to gold will mitigate the negative performance of assets that typically generate large losses in the wake of such events…." ("In Gold We Trust.Report," Incrementum, 6/1/17.)

Buy More Gold For Income To Increase - Kiyosaki
Robert Kiyosaki, the best-selling author of Rich Dad, Poor Dad, views gold as an "attractor" which helps an investor’s income increase.

"Gold is not only real money it's spiritual money… gold attracts wealth. If you want a $1,000 a month of income, you hold a $1,000 of real gold somewhere near your person, near your house … Real gold attracts and it's done so for thousands of years… I agree with Mr. [James] Rickard that gold is going to $10,000 an ounce… but for me it's more about how much I want to earn per month. If I want $10,000 per month, I hold $10,000 in gold. If I want a $1,000,000 a month, I hold $1,000,000 in gold. Gold is an attractor…

"I love silver. Silver is an industrial metal. I recommend silver all the time simply because you can get into it for about $20 an ounce approximately.…" ("Want $100,000? Get Gold says Rich Dad, Poor Dad's Kiyosaki," Kitco, 6/2/17.)

Platinum Supported By Short-Term And Long-Term Drivers - Raymond
Trevor Raymond, the Director of Research for the World Platinum Investment Council, identified several short term and long term drivers which support higher platinum prices.

"While many investors today are familiar with the investment merits of owning gold, far fewer are aware of the strong investment case for platinum, a precious metal 30 times rarer than gold. Historically, it has been argued that investors should hold a percentage of precious metals in their portfolio to serve as both a 'safe-haven' asset and a hedge against inflation. Clearly, gold is an excellent investment metal in this respect. However, many now refer to platinum as being similar to gold, but with stronger supply and demand fundamentals. Platinum has been shown to improve the effectiveness of precious metals allocations by acting as a long-term portfolio diversifier. It is significant to note that if investors in gold had included even 5% of platinum in their portfolios, their risk-adjusted returns would have been higher over the past 30 years…

"Platinum's unique credentials - precious, industrial and green - combined with the active promotion of jewellery and investment continue to drive growth in global demand in the face of constrained global supply. The platinum price is currently well below recent averages and remains at a steep discount to gold… Platinum has performed well against other asset classes over a long period and has proven itself to be a good store of value with a strong set of diversifying properties... In our view, therefore, platinum is now at an inflexion point. It is currently owned by far fewer investors than those who could achieve enhanced returns by including it in their portfolios. Additionally, platinum's continued diversity and adaptability ensures it will be in demand for
generations to come." ("Why You Should Consider Investing in Platinum," Singapore Bullion Market Association, 6/17.)

China Moves To Destroy U.S. Dollar - Daily Reckoning
The Daily Reckoning reported that China is moving to destroy the U.S. dollar and its status as the world's reserve currency.

"China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar. If this China-Saudi deal happens - yuan for oil - it's another step closer to the grave for the petrodollar, which has dominated global finance since 1974…

"To recap, the petrodollar is weakening because the dollar is losing power as the world's reserve currency. This is similar to the way pounds sterling gradually fell out of favor during the decline of the British Empire. The decline may take a long time, but what we're seeing today is another step in the death march of the dollar.

"If Saudi begins accepting yuan for oil, all bets are off on the petrodollar. Yuan-for-oil will entirely change the monetary dynamics of global energy flows. I expect the U.S. dollar to weaken severely when that news breaks… Much of this oil-for-yuan news is public information. Yet, for some strange reason, there's a form of blindness within western policymaking and media circles concerning the implications of yuan-for-oil. The idea is so 'off-the-wall' that many policy leaders simply ignore it.

"Ignore away. But we could wake up one morning in the midst of a massive currency crisis, in which dollar values are falling and oil prices in dollars are soaring. Jim and I strongly recommend a 10% allocation of your investable portfolio to precious metal." (China's Next Step to Destroy the Dollar," Daily Reckoning, 5/31/17.)

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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.

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