Over the last few years, a new, popular, and dangerous trend in thought has been gaining ground among many financial advisors: the misguided notion that precious metals no longer possess the safe haven values that they once did. There are many problems with this way of thinking, and it puts American portfolios at serious risk.
First, it is incredibly short-sighted:
Second, and most importantly, it misunderstands the real value of gold and silver in relation to other dollar-based assets:
Third, it prevents many investors from learning how to use gold and silver in ways that can give them a tremendous advantage:
At GSI Exchange, we are deeply rooted in the fundamental values of gold and silver. And to put our values to the test, we also offer our clients the benefit of unique 3rd party hedging plans to eliminate common risks associated with gold and silver ownership, which we will discuss later in the brochure. For now, let's explore why you should invest in gold and silver as part of a robust and diversified portfolio.
THE SMART MONEY
INVESTS IN PRECIOUS
Why do the world's most sophisticated investors allocate a percentage of their portfolios to gold and silver? Do they seek high returns? Are precious metals investments about seeking high growth similar to what stocks and equity funds can give you?
Historically, gold and silver have provided investors with tremendous growth. In fact, with both metals at record value prices, now would be the ideal time to load up on gold and silver.
But there is much more to precious metals than just high growth. And to think otherwise would be highly misguided. Gold and silver can provide you with unique value that can never be found in equities, funds, bonds, or cash: precious metals can insure your wealth in a way that no other asset or investment can.
Gold and Silver are the only investments that can "insure" all of your other investments, including the almighty dollar.
You likely have insurance for your car, your home, possibly even your life. But what kind of insurance do you have on your wealth?
It's important to understand that these scenarios (at times can be severe) are the reason why the "smart money" investors always keep a percentage of their portfolios in gold and silver.
GOLD AND SILVER CAN
OTHER ASSETS CAN'T
Insuring your purchasing power against inflation
Many investors fall into the trap of believing that cash savings or fixed-income securities make for the best "safe haven" investments. This belief wouldn't be so misguided if it weren't for the insidious and highly-erosive effects of inflation.
Bear in mind that since 1925, inflation has risen roughly 3% annually. A small amount? Think twice.
If this trend continues, then $1,000,000 stored in a vault will only be worth $400,000 in 30 years.
But here's a more relevant example: if you have estimated that you need around $50,000 each year to pay for your retirement, then in 30 years, you'll need to have $120,000 just to have the same level of purchasing power.
GOLD OFFSETS INFLATION
From 1972 to 2018
Remember, money is about purchasing power. Wlthout it, money is useless. And while the dollar and all dollar-based assets continue to lose purchasing power to inflation, gold and silver retain their purchasing power value.
And that is how precious metals insure your wealth from inflation-they preserve the thing that makes your financial assets valuable: purchasing power.
DIVERSIFYING YOUR ASSETS AGAINST CYCLICAL ECONOMIC DECLINES
We diversify to avoid "putting all our eggs in one basket." This is particularly critical when it comes to your nest egg.
As you well know, markets and economies move in cycles. And right now, we may be riding the tail end of the longest bull market in history. We may also be riding the longest US economic expansion in history since World War II.
And that is how precious metals insure your wealth from inflation-they preserve the thing that makes your financial assets valuable: purchasing power.
But everything that goes up has to come down. And when equities markets begin to decline, you want to be invested in assets that rise significantly.
Take a look at gold's performance during periods of severe market declines:
YOU HAVE A RIGHT TO PRIVACY WHEN IT COMES TO YOUR ASSETS
No American citizen appreciates being surveilled, whether it is their phone conversations, internet activity, or private communications. So why should Americans allow their own money to be tracked, monitored, and vulnerable to confiscation during times of national emergency?
Your money is your business, period. And it should remain that way. But the sad truth is that you are not in full control of most of your own assets.
And this leaves you potentially vulnerable to big data collection, asset monitoring, and a host of charges from financial institutions.
Physical gold and silver can give you near-full control of your own assets, as such assets are stored privately. They are not subject to being digitized or monitored unless you purchase CUSIP-approved metals (which we highly discouraged if privacy and control are important to you).
SILVER MAY BE
TODAY'S STRONGEST INVESTMENT PLAY
Every investor's dream is to enter an investment at the bottom floor.
Why can't most investors do just that? Most can't for two simple reasons:
Even when the fundamentals are screaming "undervalued" or ''buy," most people won't do it. Hence, if you follow the crowd, you will most likely miss out on the best investment opportunities available to you.
Silver is one of those rare opportunities, even more so than gold-and most investors refuse to see it!
We know that silver is more affordable than gold, and more volatile than gold (making it a better growth asset), but what makes it a superior investment at this moment are its fundamentals.
First, note that silver has not been a sleepy investment for most of the world: silver prices have been rising in almost every currency-particularly in emerging markets-exceptfor the US Dollar.
Spot Silver to Turkish Lira
Image source: Investing.com
Spot Silver and Brazilian Real
Image source: XE Corporation
But more importantly, the world is experiencing a massive undersupply of silver and a pending short sale liquidation!
Here are a few facts on Silver:
Only 852 million ounces were mined in 2017.
657 million ounces were already used for industrial fabrication.
209 million ounces were used for jewelry.
The rest was used for scrap - yet there is an outstanding demand for 480 million more ounces of silver from short-sellers who may be forced to liquidate their positions.
Traders are carrying massive shorts amounting to 480 million ounces of silver. There may not be enough silver in the world to unwind those short positions! The world is already in short supply.
Hence, there will likely be a dramatic short-covering rally when silver positions go into forced liquidations.
HOW TO BUY
USING THE GOLD-SILVER-
REAL ESTATE CYCLE
Real estate and precious metals are two different asset classes that have provided investors with wealth preservation and growth. But what many investors may not be as aware of is that they have an inverse relationship. In fact, history has shown that over the course of their cycle, one can be swapped for the other at discount prices.
In other words, if you play your cards right during the current cycle, you may be able to buy a house for 100 ounces of gold or 2,000 ounces of silver.
THE REAL ESTATE AND GOLD/SILVER CYCLE
This may seem like a bold statement, but it really isn't if you look at the historical relationship between real estate and precious metals. You see, most people are used to associating the stock market with precious metals as two asset classes that are inversely correlated; that move in opposite directions to one another. Aside from stocks, however, it is real estate that has one of the strongest inverse correlations.
HERE'S A CHART ILLUSTRATING THE RELATIONSHIP BETWEEN REAL ESTATE AND GOLD:
Image source: FRED
NOW LET'S LOOK AT SILVER'S RELATIONSHIP TO REAL ESTATE OVER THE SAME 43-YEAR CYCLE:
As gold and silver are at their bottom levels, this cycle presents us with a timely opportunity that any wise investor can take advantage of now.
When real estate gets overvalued, gold and silver tend to be undervalued. And when gold and silver prices rise, real estate prices tend to fall. And right now, real estate prices appear to be topping, while gold and silver are bottoming.
I INVEST IN
COINS OR BULLION?
Even a precious metals portfolio needs diversification.
Let's suppose you decide to invest in gold and silver. What kind of gold and silver are you looking to invest in? Bullion bars? Investment grade certified coins? If the latter, which coins?
Certified coins trade at a premium above bullion bars, also referred to as their "numismatic" value. That's because certain crafted coins are much more rare, and their value is based not only on the spot price of each metal but also on the rarity of their distinctive design.
This makes coins a much better hedge against price risk than bullion bars. Ultimately, owning both might be the ideal solution. How much of each you purchase depends on your capital resources and how you want to allocate your metals assets.
Here's a short QUESTIONNAIRE that may help you determine your preferred weighting of coin to bullion. Check each answer that best suits your preference. There are no right or wrong answers, but please try to answer each question honestly and accurately.
You may feel more confident than most investors with regard to your own market forecasts and your ability to take advantage of investment opportunities. Perhaps you have more experience than most in participating in the markets, or perhaps you just have more time, capital resources, and a greater risk tolerance than more conservative investors. In this case, we recommend apportioning a larger segment of your portfolio to bullion, as it is more responsive to fluctuations in spot price than coins. This would also give you an opportunity to allocate your assets in a more flexible manner.
You seek both growth and capital preservation, allowing yourself to take advantage of market opportunities while carefully mitigating risks that may appear to threaten a specified percentage of your principal investment. In this case, we recommend an equal allocation of investment grade coins and bullion.
Your risk tolerance and outlook privileges caution over speculation, capital preservation over growth, and long-term security over short-term opportunity. Whether you feel uncertain about the future state of the economy or not, you want to ensure that you can maintain your wealth and lifestyle regardless of the outcome. We recommend being overweight investment grade coins with little to no bullion.
TO PROTECT YOUR
FROM PRICE DECLINES
To "hedge" your assets is to protect them from adverse market movements and declines. The goal of hedging is simple and straightforward: reduce market risk to as close to zero as possible. The process of hedging, however, can get very complicated. Hedging is a standard operation that precious metals dealers often implement, and it often involves the use of leveraged financial derivatives. And if done incorrectly, it can cause more harm than good.
HOW OUR SOLUTIONS DIFFER
Guided Hedging Strategies: GSI Exchange extends this service to its customers. There are numerous different hedging strategies that customers can use, from a partial to a full 100% hedge; from simple to complex pproaches; from using limited-risk options to covered futures exposures. This type of operation is best done under the guidance of a professional. And if you decide that hedging might be appropriate for your portfolio, GSI and our 3rd party affiliates are ready to help.
Many Investors Flock to gold and silver for one reason: they are both "safe havens" that protect against inflation, currency depreciation, market declines, and recessions.
But like every asset that has the potential for growth, gold and silver are also subject to market fluctuations. After all, if an asset can rise in price, it can also fall in price.
This doesn't mean that the "intrinsic value" of both metals depreciate, but rather, their prices relative to the US dollar ten to fluctuate. And this fluctuation has more to do with the US dollar, specifically, than any other economic factor concerning the value of gold and silver
WHAT IS HEDGING
Think of hedging like insurance. It is the process of playing both sides of the market to protect against the downside should you forecast a decline in gold or silver demand.
As a precious metals investor, your concern is that the price value of your metals may fall during a downtrend.
Through implementing a strategy using futures or options on futures, you can effectively lock-in the current value of your metals, protecting it from the volatility and price depreciation.
HEDGING IN ACTION
Let's suppose you purchased 50 troy oz of gold bullion in December 2017 at the price of $1,256/oz
Having reached a high of $1,361 in January 2018, gold prices began trading sideways for the next three months.
The Strengthening of the US Dollar has become a focal point in all markets. Gold prices are foretasted to decline, perhaps significantly.
In May 2018, gold reaches a low of $1,304
You decide to take action and place a full (100%) hedge on your entire position, including your unrealized $2,400 gain, by going short one Mini-gold futures contract (equivalent to 50 ounces of gold) at the price of $1,306 per contract (note that you can hedge as little as 10 troy ounces to start for a "partial" hedge).
By placing a full hedge, you have effectively "locked-in" your entire position at the price of $1,304
Over the next three months, gold prices plunged well below its 2017 levels, closing on August 18 at the price of $1,172
Your physical gold position has depreciated by -$4,200. But, because of your short hedge, your futures position currently has a net profit of $6,480 (after commissions and fees) making up not only for the gains you locked-in, but also the amount that your physical gold had depreciated in price.
At this point, you decide to close your hedge. With you $6,480 profit, you can keep your futures profits in cash, or you can use it to buy more precious metals.
You are now in a much better place financially, having hedged your assets against price declines. And now that gold is back at value levels, you have the choice of buying more or staying put with your current holdings.
SHOULD I HEDGE OR
ACCEPT THE MARKET RISK?
The answer to this question really depends on how much precious metals you own and your time horizon for investment
If you are far from retirement age, then price declines might not matter as much. In fact, price declines in safe haven investments provide value buying opportunities for investors. Depending on the size of your holdings, you may want to consider a partial hedge at the most.
If you are nearing retirement, holding large amounts of gold and silver and planning to cash in on some of your metals to pay for your retirement, then you might want to seriously consider hedging your investments against price volatility.
Bear in mind that hedging does have its risks, and should be done under the guidance of a specialist.
To determine whether hedging might be suitable for your investment goals and risk tolerance, or to learn more about the different hedging strategies you can employ, contact us. Gold and sivler are the most trusted safe haven assets available to any investor.
And hedging your assets-placing a safetynet under your safe have-is the ultimate protective step you can take to secure your wealth.
There are many options to store your precious metals beyond the control of the US Banking System. The two preferred methods to correctly holding gold and silver out of harms way include; A Safe in Your Home or a Depository Account with a top-tiered organization like Brinks or Delaware Depository.
Storing Metals at Home
If you choose to store metals in your home, we've got the connections to safeguard your investment. We have worked out an arrangement with the Second Amendment Safe Company, and we will cover all costs associated with delivering a safe to your doorstep on *qualifying orders.
Storing Metals at a depository
If you choose to store metals via a registered depository we've got you covered. GSI has worked out institutional pricing with Brinks Global Services and Delaware Depository Services Company to bring you the lowest tiered pricing the companies can allow. Moreover, we will cover two years of storage and insurance on your
*Orders that exceed $wok or better on premium gold or silver coins.
FOUR OF THE
PRECIOUS METALS INVESTING
Investing in precious metals mining stocks instead of physical gold and silver
Investing in precious metals ETFs instead of physical gold and silver
Investing in CUSIP-Identified gold and silver
Investing the wrong amount
INVESTING IN PRECIOUS METALS MINING STOCKS INSTEAD OF PHYSICAL GOLD AND SILVER
When you invest in a gold or silver mining company, you are betting on the fundamentals of that company, and not necessarily on gold or silver. If a company performs poorly, you might see the value of your shares sinking while the price of gold and silver are soaring. Plus, you do not get the purchasing power protection that only precious metals can offer. In short, physical metals and mining stocks are not the same thing.
INVESTING IN PRECIOUS METALS ETFS INSTEAD OF PHYSICAL GOLD AND SILVER
Severe economic downturns are more common in certain countries outside the US. But despite America's economic strength and solid foundation, there's no ruling out the possibility that someday, it can happen here. Should something of a disaster happen here (it could be a natural disaster as we've seen in Puerto Rico with Hurricane Irma and Maria in 2017), in which case you may need to use your gold and silver, your ETF holdings will be useless for making transactions. Again, ETFs and real precious metals are not the same thing.
INVESTING IN CUSIP-IDENTIFIED GOLD AND SILVER
If you value your financial privacy and control, you would do everything to avoid CUSIP-tagged metals. CUSIP identifiers make your gold and silver monitorable by the banking system. Should thye government ever decide to impose a seizure of precious metals holdings, your gold and silver are tagged, making them vulnerable to confiscation. There is no reason for the banking system to monitor your safe haven assets. They are yours to privately store and access. And it should remain that way.
INVESTING WRONG AMOUNT
Financial experts recommend allocating 10% to 30% of your portfolio to gold and/or silver. Allocating less than 10% will do very little as an inflation hedge. And owning more than 30% may prevent you from pursuing other higher-growth assets such as stocks. Remember, gold and silver do provide growth, but their main fole in your portfolio is to stand as a form of "money" that cannot be degraded by inflation.
At GSI EXCHANGE, our professionals can work with you to design a precious metals investment strategy that aims for growth and capital preservation.
Ultimately, we will provide you with the information you need to feel confident that your choice of precious metals, from coins to bullion, and their allocation within your portfolio is appropriate to your needs, risk tolerance, and overall financial goals.
This information is for informational purposes only and is not to be relied on as a recommendation or an offer to buy, hold or sell any product or service to which this information may relate. While the information is obtained from sources we believe to be reliable, we do not guarantee that it is accurate or complete. While physical precious metals may offer benefits not associated with other asset classes, they may be subject to storage, liquidity, accessibility, price volatility, and other issues that should be considered in determining suitability as an investment. All investors should make their own determination whether or not to make any investment, based on their own respective independent evaluation and analysis. All GSI Exchange orders, purchases and sales, if any, are subject to the terms of our Client Agreement and other applicable policies.