When you see someone write an article with a title like this, putting 50% of your wealth into precious metals, mainstream financial media would typically criticize the heck out of such a strategy. But allow me to explain the reasoning for such a strategy, and to critique mainstream financial media and the “status quo” at the same time.
First off, a little background on my experience. I first started in the industry in 1986 and like everyone else, sold mutual funds to investors. In 2002 I was introduced to Richard Russell, author of Dow Theory Letters and got a real education on gold through him and his Bulletin Board of investors all over the world. I wrote my first book on gold in 2010 and suggested everyone have 10% of their wealth in precious metals and another 10% in gold and silver mining stocks. Gold was trading around $1,000 an ounce then and is now double that price.
My recommendation has always been to dollar cost average into the allocation of gold you feel will counter the U.S. dollar exposure of your portfolio. For most investors, the U.S. dollar risk is close to 100% as they invest in CD’s, money markets, U.S. stocks, U.S. bonds, and they might have a bit of foreign stocks and bonds. What these investors don’t realize and CNBC never addresses, is if your portfolio goes up 10% and the dollar falls 10%, you haven’t gained any purchasing power with your wealth. Typically, gold and silver have an inverse relationship with the dollar. You can see that relationship over the years in the following chart of the dollar and gold.
You can see the dollar was over 120 in the early 2000s and fell to under 75 in just 8 years or a -37.5% drop. Gold went from under $500 to a peak in 2011 of almost $2,000. The dollar moved up the next 10 years or so to where we are today, but gold has maintained its strength in dollar terms. This is primarily because foreign currencies have fallen and the likes of Europe and other foreign countries have been buying gold to buoy their portfolios because of the currency drop. But this is where it gets a little complicated. I wrote a 400 page book called Illusions of Wealth to explain it but in a nutshell, the strength of the dollar is an illusion. The dollar is actually a representation of the following currencies;
Euro (EUR) – 57.6% weight Japanese yen (JPY) – 13.6% Pound sterling (GBP) – 11.9% Canadian dollar (CAD) – 9.1% Swedish krona (SEK) – 4.2% Swiss franc (CHF) – 3.6%
You can see the dollar is heavily weighted towards the Euro at 57.6% of its value.
What do all of these currencies have in common? The answer is an out control government spending. The Debt to GDP Ratio for the above countries are as follows;
70% of the dollar is hovering around 100% Debt to GDP.
And thus the conclusion of my 400 page book is simply, “all currencies fail because governments screw it up.” There is no difference today. With people living longer and Europe offering retirement while someone is in their 50’s, its unsustainable. For the U.S. we have out of control spending because Congress’ job is to spend. Doesn’t matter who is elected, the national debt goes higher.
So pricing lousy currencies in each other masks the fact that the ship they are sailing on is sinking in debt. That’s the real illusion. One still has to protect themselves with insurance against this out of control spending and against future spending that includes Medicare, Social Security and other government promises to its citizens from the past, as well as funding endless wars, handouts to big pharma, and an influx of illegal immigrants that are being processed, housed and compensated on their quest to become citizens.
Where does the money come from? Congress simply borrows from the Federal Reserve who prints money out of thin air and loans it to Congress and on paper, all is well. But the Federal Reserve has issues as well. Their balance sheet if over $7 trillion.
That’s $41 Trillion that we as a nation are on the hook for. Where does this money come from to pay it back? The answer is higher taxes or inflate it away. Richard Russell used to say “Inflate or Die.” We know politicians do not get elected by saying, I will raise your taxes. So this leaves inflate or die. The Fed pretends it is fighting inflation and all they are really doing is making certain classes of people rich and doing all they can to protect the banks. Yet as I pointed out in my book, banks break the law right and left and pay their millions in fines and continue breaking the law to the tune of $10’s of millions of fines a year. In fact, they were caught manipulating gold prices and fined $920 million.
Richard Russell to the day he dies a few years ago, always said to his subscribers that he had 50% of his wealth in physical gold. Was he wrong? Let’s analyze such a plan.
First off, let’s look at where your average investor allocates their wealth, outside of their personal residence. It’s typically, 80% in stocks and 20% in bonds if you are young, and the opposite if you are retired. But more and more have held onto stocks into retirement to help counter inflation. 2022 and 2023 were devastating year for the bond market and 2024 should turn out to be better, but you still have the coming dollar decline that will eat into purchasing power. Stocks have had a good run at it hitting record highs in some indices. But that’s coming to an end and what’s ahead is about as ugly as one can imagine. Almost depression like. The question is, if this is true, what do you have to counter such a decline?
My next book is called How To Profit In Up and Down Markets. If I wasn’t such a perfectionist, it would be out already, warning everyone of what’s to come, while at the same time, telling investors not to worry about it if you are allocated appropriately. I have developed a system to help investors with that, but that’s not what this article is about. I’m not even going to put a link to my book here. I prefer you concentrate on your own allocation to precious metals and understand one thing; If I have one pocket full of cash and another pocket full of precious metals, and take the cash and put it into the metals, I can take from the pocket and put it back into cash at any time. The question to answer for yourself, is what’s stopping you from doing that if you know the dollar is at its highs? Then the question becomes, how much to put into gold and silver? The answer in 3 years when you are seeing prices much, much higher will be, I should have allocated more. In fact, at this present time, is a once or twice in a lifetime opportunity for precious metals. Especially silver but you’re not going to complain with just going the conservative route and buying gold either.
Your $5,000 or $10,000 in gold and silver isn’t going to protect your $1 million portfolio. Know that. The dollar will fall from it’s current 103 area to 75 next. That’s a -27.18% decline. Probably about the same decline as the next stock market drop, although I expect more of a decline overall.
Gold has a 5000+ year record of maintaining purchasing power. Silver too. The Federal Reserve Note, which used to be exchangeable into gold, has a 111 year record and has lost most of its purchasing power. To bring this analysis to more recent times, a 1964 quarter could buy you a gallon of gas in 1964 and today exchanged for the scrip of the day, dollars, can still buy you a gallon of gas. A 1965 quarter could buy you a gallon of gas in 1965 and today can buy you 25 cents worth of gas. What more do you need to know in understanding purchasing power than that? And keep in mind, our national debt and future obligations aren’t going lower. And inflation is just beginning to come to fruition and gold especially is sniffing it out as we approach all time highs. Silver has some catching up to do and the last 2 times silver had catching up to do, 1971-1980 and 2000-2011, silver outpaced gold. The gold/silver ratio is sitting right around 90/1 (90 ounces of silver for one ounce of gold) and that ratio will fall back towards 50.
On a side note, I follow David Brady Chartered Financial Analyst (CFA), and he has 80% of his wealth in precious metals. Is he wrong?
Call us today at 888-604-6534 and discuss your particular situation and allocation to precious metals. Premiums are the lowest they have been in 4 years. And silver is still at a good price to acquire.
For future reference, current spot price for gold is $2058.90 and silver is $23.28. We may get a small pullback as we shot up in price today and my advice is to buy now if you have none and dollar cost average in on dips. According to David Brady, over $2090 in gold and we won’t look back. We are close. Avi Gilburt from Elliott Wave Trader is also saying we may have already bottomed.
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
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