30
May

5 Reasons Why You Haven’t Invested in Gold and Silver Updated For 6/1/2012

 

The price of gold and silver has moved higher for 11 straight years and you’re not yet invested? Why is that? Will you wait for the price to reach record highs before you invest, or is now the time to buy?

There are many reasons why you are not invested in these metals and most of them reveal how the deck is stacked against you in learning the truth about gold and silver.

This article will reveal the five reasons why you haven’t yet invested in gold and silver. Keep in mind, gold and silver are not in a bubble just because their price has moved lower. Long term, it is the U.S. dollar that is in a bubble. But it is also all other currencies that are in a bubble, along with the U.S. Treasuries.

The fact that gold and silver are moving higher despite some strength in the dollar is quite revealing. What will happen to the price of gold and silver when the dollar resumes its downward trend?
5 Reasons Why You Haven’t Invested in Gold and Silver
Reason 1: Your Financial Advisor Doesn’t Understand Real Diversification, Let Alone How Gold Fits Into a Diversified Portfolio
When it comes to retirement planning, most financial advisors miss the mark in properly diversifying portfolios. The missing ingredient is the insurance against what most U.S. investors currently own; U.S. Stocks, U.S. Corporate Bonds and U.S. Government Bonds. All of these assets are subject to U.S. dollar risk. I addressed this before in Challenging Financial Advisors on the Need to Diversify Into Gold.
For decades, the typical financial advisor diversified U.S. investor
portfolios as follows:

60% Stocks
30% Bonds
5% Real Estate Investment Trust (REIT), Commodities, Other
5% Cash

One’s age and number of years from retirement would dictate the amount allocated to stocks. The old adage has been “subtract your age from 100 and that is the percentage you should be invested in stocks.” So if you’re 55, then 100-55 = 45, thus 45% of your portfolio should be invested in stocks.

The vehicles that advisors have typically used to invest in stocks would be a mixture of U.S. Large-Cap, Mid-Cap and Small-Cap mutual funds or ETF’s diversified among a wide range of sectors, with some foreign exposure. The bonds would be a mixture of mostly U.S. corporate, with some allocated to U.S. Government bonds through GNMA funds or U.S. Treasuries. The cash would be parked in U.S. money market accounts waiting for future investment opportunities.

Outside of some foreign exposure that could take advantage of currency appreciation in other countries, what in this “typical” recommendation from your financial advisor counteracts the fall of the U.S. dollar?

The answer; is nothing. Financial advisors may add some TIPS that are supposed to be an inflation hedge, but TIPS only follow the manipulated Consumer Price Index (CPI) that doesn’t take into account real inflation.

The fact of the matter is, an investor needs physical gold and silver bullion, not numismatic or “rare” coins (run, don’t walk from anyone who tries to sell you numismatic or European coins like Swiss Francs or British Soverign’s), to hedge against the risk exposure your portfolio has to the U.S. dollar.

Many financial advisors don’t understand this diversification because they believe that the U.S. dollar and U.S. treasuries are “risk free.”  They are not. This will become clear in the years ahead as Treasuries are currently the next bubble to pop.

Reason 2: The Media Is Biased Against Gold and Always Pro-Stocks

The media is almost always bullish on stocks and always trying to spin good news out of bad reports on the economy. As long as you are investing in stocks, they have done their job.

Gold is competition to stocks.  Investing in physical gold doesn’t do anything for the economy, but it does do something for your portfolio. It makes it appreciate as it has the last 11 years straight. No other asset has done this.

Here is the problem in taking the advice of the media pundits. The media is owned by corporations. Corporations also do heavy advertising on various media as do Mutual Funds who try and get investors to buy their fund. It would be a conflict of interest for any media to talk negatively about the stock market in general as they are biting the hand that feeds them. If they say something negative about the economy, then people might pull their money from the stock market and put it into cash and thus the remaining owners of stocks could see their value go down.

We saw this in 2008 when investors left stocks in droves, driving the DOW down to the 7,000 range. We’ll see it again. In 2008, not many realize this, but gold finished the year higher.

When one turns on the financial media, listen to what they say about gold (they hardly ever, ever, mention silver). I’ve heard all of them on CNBC, at one time or another, mock those who recommend gold. In fact, I created a video you can watch of them being ignorant of gold and bashing it all the way up, day after day. It’s so much nicer to make fun of the media and their bias using their own words!

You can watch the video by clicking here: http://www.youtube.com/watch?v=u7x4qCRiDVg

Reason 3: Our Education System Teaches Us Nothing About Gold, Let Alone Money

If you have young children, ask them to do some simple math calculations using money. Set up a little store with $1, $5 and $20 bills, quarters, dimes, nickels and pennies. Pretend you are a customer and you with to purchase items from them (give them some items to purchase in advance). The purpose is, to see what they have learned in school about money. More likely than not, they may know how to add, subtract and even do multiplication tables, but they don’t know how to give change for a $3.33 item when handed a $5 bill.

While children eventually learn how to make change, they are never taught anything about the Federal Reserve, the name printed on the top of all paper money, let alone what gold and silver used to represent in this country; real wealth and a way to maintain purchasing power. I will have a video on this coming out shortly. Subscribe to my blog at http://buygoldandsivlersafely.com/blog to be notified.

If you had a 1964 Roosevelt dime which contains 90% silver, that dime could buy you a loaf of bread in 1964. Today, that same exact dime, because of its silver content, has a value of over $2 and can still buy you a loaf of bread.

Lastly, regarding our current higher education system, high school teaches you nothing from an economic perspective and the student is introduced to Keynesian economic philosophy in college. This philosophy fits right in with keeping the individual ignorant on how an economy is supposed to work, and in order to pass the class, one has to go along with the nonsense they teach;

“Debt is good.”
“If there is deflation, print more money (quantitative easing).”
“If companies and banks are in trouble, bail them out.”

How else do you think we have allowed this great nation to get into so much debt? Congress is a complete failure.

Reason 4: Your Neighbor Probably Won’t Tell You They Bought Gold

Unlike the euphoria that surrounded the run up to the dot.com bust, when everyone and their neighbor was telling you to get into NASDAQ tech stocks, most people who own gold today, are quiet about it. They don’t want the world to know they own gold. Gold is a private transaction and should be as the more people who know that you own some, the more who may come busting down your door when and if a currency crisis hits.

In reality, the price of gold would be much higher if the owners of it were more vocal. The fact that it is moving higher despite financial advisors, media and what little word of mouth supporting it means that it’s not just U.S. citizens who are buying, but the world is waking up to how gold can maintain one’s wealth and purchasing power.

You can bet those in Europe today are trying to figure out a way to maintain their wealth as the Euro declines in value. Up next will be Japan as they sit with the highest debt to GDP ratio in the world.

Eventually though, all of those Treasuries owned by China, Japan and the rest of the world will come home to roost. The only soldiers left standing will be the ones who have won the battle for over 5,000 years; gold and silver.

Reason 5: The Government Has an Incentive to Keep the Lid On Gold

If the government was forced to live within its means, something I fully support, then we wouldn’t have the budget deficits, wars and other waste that has caused the national debt to surpass $16 trillion and march towards $17 trillion.

Republicans and democrats both are responsible for where we are. Anyone that thinks this spending will be curtailed at any point in the future simply doesn’t understand the nature of politicians. As long as the choice is between the lesser of two evils, it’s still evil and they’ll still spend. Increased spending depreciates the dollar.

But doesn’t spending stimulate the economy? The answer is, it has produced some green shoots, but those green shoots have roots embedded in the earth of fiat wealth. It is not based on any strong fundamental foundation or by real job growth, but one of more debt. It is literally a house of cards. This house of cards can crack at any moment just as we saw when MF Global went bankrupt on a bad bet, and just as we saw when J.P. Morgan made a bad bet losing billions of dollars. There will be many more bad bets. Keep a close eye on J.P. Morgan who the Fed has already given millions of taxpayer dollars to. They will have their hand out for more before this is over and “too big to fail” language will be tossed around again while Congress gives in as usual. Things will get ugly again. You can bank on it! (Unfortunately)

The recent influx of government spending has done little to stimulate the economy and the only reason the dollar is presently not crashing is because during this deflationary credit contraction, people are putting their wealth in what is currently still perceived to be that “risk free” asset; the U.S. dollar. If you had a choice of the Euro or Dollar, most will choose the dollar as it is “perceived” as a better place.

At some point the dollar will become weaker. At some point, gold and silver will be double where they are today. At some point, you will buy gold and silver or be left with depreciating dollars or whatever currency your country uses.

Closing Thoughts

Gold is still in its second and longest phase. The professionals will still try and buck you off the gold and silver bull. The dips will come. Holders of physical gold and silver care not that it falls 20% or so on its way to appreciating 100% or more.

The U.S. government and Federal Reserve will never change their colors. Our education system will always have flaws when it comes to helping people understand wealth and money and how to manage it. The media will always be biased against gold. And sooner or later financial advisors will wake up to the risk involved with the U.S. dollar and recommend physical gold and silver for your portfolio.

You insure your house for the unlikely event of a fire, flood or theft. You insure your car for the unlikely accident. If you can do simple math, and I don’t say that to ridicule anyone, it is easy to see the financial Armageddon that lies ahead. While the media keeps your mind busy with issues that divide us don’t forget to take care of what matters most, maintaining your wealth.

10% to 20% of one’s portfolio needs to be in physical gold and silver bullion as insurance against the risk associated with the rest of your portfolio having exposure to the U.S. dollar. Holding anything that is paper like the gold and silver ETF’s (GLD and SLV) can be good for “trading,” but technically is an illusion of wealth. You can’t buy things with those pieces of paper unless they are converted to the proper medium of exchange. This may not mean anything to an investor today, which is why I am ok with the trading of them, but don’t think for a second that with the likes of J.P. Morgan Chase (SLV) and HSBC (GLD) as your custodian that you are possessing real wealth.

This is why I say to take delivery of the metals. This gives you full control and you still have the liquidity if necessary. You can sell the bullion products anytime you want if you need to raise cash. I can’t stress the possession of physical gold and silver enough in the years ahead.

Any pullbacks are the perfect opportunity to acquire more gold and silver. Most people will wait for the price to move higher. They will buy when gold is over $2,000 an ounce rather than buy when the financial media is saying the party’s over. The smart investor naturally knows that buying low and selling higher is the way to go. The time for dollar cost averaging into a position is now. You will look back at these prices in the years ahead and say one of two things;

I made the best investment of my life!

Why didn’t I buy when Doug Eberhardt recommended I buy?

You know the old saying….you can lead a horse to water….but you can’t make them buy gold (or something like that!)…

Lastly, I set myself apart from other gold dealers in that I have been dollar bullish which I have said over and over that it could have a negative impact on precious metals. I have said the Euro is in deep trouble when it was north of 1.34. It is now under 1.24 heading down to the support level of 1.18. The dollar meanwhile just broke 83 on the Index.

So while I do sell gold and silver for a living, at least I have been advising clients to not just jump in, but rather dollar cost average into a position, hope the price goes down so you can acquire your allocation into precious metals at an overall lower price.

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About Doug Eberhardt

Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534

Disclosure:

Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.

All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.