Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Irrational Bias Against Gold

Commodities / Gold and Silver 2016 Aug 11, 2016 - 09:39 AM GMT

By: Nick_Barisheff

Commodities

When I conceived of creating an RRSP-eligible, open-end mutual fund that held precious metals without compromising the fundamental attributes of the metals, I thought that such a fund would be embraced by mining company executives, financial advisors, institutions and retail investors – I was wrong.


I thought that everyone knew of gold’s attributes of protecting the portfolio. I thought that everyone had heard the saying, “Put 10% of your money into gold and hope it doesn’t work.”  This comes from the fact that gold is negatively correlated to financial assets and, by including gold as a long-term strategic allocation, the volatility of the portfolio will be reduced while the returns are improved, along with the Sharpe and Sortino ratios.

I thought that everyone knew that there were seven asset classes: cash, equities, bonds, real estate, precious metals, commodities and collectibles. Since everyone seems to agree that portfolios should be diversified, you would expect that portfolios would include all seven. For the typical retail investor, collectibles can be eliminated because of the personal level of knowledge required. Commodities can also be excluded, as the primary methods to invest in commodities are derivatives and proxies of commodities, such as futures contracts and futures options. Purchasing actual physical commodities is not practical for retail investors, as it is impractical to store large quantities of most commodities. However, the remaining five asset classes are all available to be easily added to investment portfolios.  By optimizing the percentage allocation to each asset class, reductions in risk and improvements in returns are achieved, as demonstrated in the above charts. For a complete analysis, investors can request our report, Alternative Asset Allocation.

However, most portfolios consist of only equities and bonds in a 60/40 ratio. Very few portfolios have any real estate or gold. However, over the past 44 years, real estate and gold have been the two best-performing asset classes.

When I launched BMG BullionFund in 2002, I contacted many mining company executives, since I assumed that it was in their corporate interest to let their shareholders know they could now buy gold, silver and platinum bullion in their retirement accounts. After all, we would be buying the product that mining companies produced, and promoting their product as a critical asset for all portfolios. As the importance of owning gold increased, the demand would rise accordingly: the price of gold would go up, and so would the share price. However, most executives did not respond, and the ones that did thought we were in competition for investor money. They did not know that combining gold and mining company shares in the right ratio would improve their investors’ returns, and minimize the volatility of owning mining shares. With very few exceptions, the mining company executives didn’t differentiate gold – real money – from other commodities, such as copper and zinc. Their objective was to find the gold, dig it up and exchange it for pieces of paper with green ink on it. In the past 14 years we have had no support from the mining companies, even though we have purchased in excess of $500 million of the products that they produce.

The attitudes of many financial advisors are even more puzzling. Globally, investment portfolios have less than 1% allocated to gold. For example, in Canada, the total size of the retail mutual fund market is C$1.27 trillion, not including institutional holdings. The total value of Canadian ETFs, closed-end funds and bullion mutual funds amounts to about C$10.1 billion, as of August 2016. Therefore, in comparison to the retail market, bullion represents 0.80% of total portfolio values. This number is elevated when you consider that most mutual funds and ETFs invest in bullion proxies and derivatives, and most Canadian closed-end funds are purchased by US citizens. If US purchases of closed-end funds, and the bullion substitutes in mutual funds and ETFs are eliminated, the number drops to about 0.15%. This means that only 0.15% of Canadian mutual fund portfolios have physical bullion held on an allocated and insured basis.

This is hard to understand for the second-best performing asset class for the last 44 years.

When we call many financial advisors, they tell us that they do not invest in gold on behalf of their clients, and that they are not even interested in discussing the subject. I think most investors would be shocked that their financial advisors have not had any educational background in money – the key component for all investments. There are, however, many advisors who have invested the time and energy to gain knowledge about money and the increasingly obvious flaws in the 41-year experiment in the global fiat monetary system. They do their due diligence, read the Prospectus, the Annual Information Form and the Financial Statements before they make any recommendations. They have studied the history of money and construct portfolios that are truly diversified, demonstrating how adding precious metals and real estate reduces risk and improves returns. However, ironically, many of these advisors come under extra scrutiny by their compliance departments because of the prevailing myths about gold, even though they are doing the best job for their clients. If you do not own gold and real estate in your portfolio, you should ask your advisor what justification they have for not including the two best asset classes in your portfolio. You will likely be given some (or all) of the myths that I have previously written about.

The negative bias in the mainstream media is also a major contributing factor. I have never seen more negative media articles about any investment than there is about gold. It seems that a journalist, who knows very little about gold or the history of money, wakes up one morning and decides to write an article perpetrating the unfounded myths about gold. In surprising contrast, there are few articles about how bad an investment Japanese equities have been. From the peak in 1989 to the low in March 2009, the Nikkei lost 81.9%. After 27 years, the Nikkei is still down 57.3%. They didn’t write many articles about how many investors lost 78.2% in the NASDAQ crash and it took 15 years to break, even before taking inflation into account.

The investors, financial advisors and journalists, who think for themselves and logically analyse the facts, inevitably conclude that they need at least 10% of their portfolio in gold to protect their accumulated wealth. Self-made entrepreneurs come to this conclusion most readily, as they are conditioned to think out of the box and make decisions based on logic and facts, rather than unfounded myths.  Today, some of the most prominent billionaires have already taken their positions in gold, while the retail public is slowly starting to come around, and the institutions are largely missing.

After the longest correction in precious metals, many analysts believe that they have entered a new uptrend, and that prices have been artificially suppressed for the past four years.

However, many investors who had invested at the interim top of $1,900 in 2011 are now selling their gold holdings. This is the worst possible move they could make, as equity markets, bonds and even real estate are artificially overvalued due to central banks’ easy money policies. The well-known Wall Street saying is to “buy low, sell high” not “buy high, sell low.”  Today’s activity is very much like that in 1976, when gold rose from $35 to $200 by 1974, and then corrected 50% to $100. In 1976, many investors sold their gold holdings and didn’t want to ever consider owning gold again. However, from the low in 1976, gold rose 750% to $850 by 1980.

With today’s financial vulnerabilities and overpriced equities and bond markets, not to speak of depreciating currencies, precious metals are set to rise dramatically while traditional financial assets decline.

The total value of all stocks in the world as of July 2016 was US$61.47 trillion. The total value of all government and corporate bonds in the world as of July 2016 was US$87.69 trillion. The total value of all investable real estate in the world as of January 2016 was US$81.0 trillion. Combined, these three asset classes amount to US$230.16 trillion. When it comes to gold, the total amount of physical gold, outside of central bank holdings, is estimated at only US$1.16 trillion, even though most of this gold is not available for sale at any price. This represents a global portfolio allocation of only 0.51% to gold.

What do you think will happen if even 10% of $230 trillion (equal to $23 trillion) tries to buy what little aboveground gold is available? Since you cannot simply print more gold, and mine supply is already declining, there will be an enormous supply/demand imbalance. When the attractiveness of gold becomes obvious to everyone, it will be too late to acquire large quantities of gold. Precious metals will be revalued at many times today’s price. My original estimate of $10,000 in my book, $10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Haven, will seem like a conservative estimate.

“This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard’.  ~ Alan Greenspan

To download article

By Nick Barisheff

www.bmgbullion.com

Nick Barisheff is the founder, president and CEO of Bullion Management Group Inc., a company dedicated to providing investors with a  secure, cost-effective, transparent way to purchase and hold physical bullion. BMG is an Associate Member of the London Bullion Market Association (LBMA).

Widely recognized as international bullion expert, Nick has written numerous articles on bullion and current market trends, which have been published on various news and business websites. Nick has appeared on BNN, CBC, CNBC and Sun Media, and has been interviewed for countless articles by leading business publications across North America, Europe and Asia. His first book $10,000 Gold: Why Gold’s Inevitable Rise is the Investors Safe Haven, was published in the spring of 2013. Every investor who seeks the safety of sound money will benefit from Nick’s insights into the portfolio-preserving power of gold. www.bmgbullion.com

© 2016 Copyright Nick Barisheff - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules