Gold Master Class Day 1: The Surprise Reason to Own Gold

Dear Rich Lifer,

As Americans honor the sacrifices made by the men and women of our armed forces, Rich Life Roadmap is kicking off a special series. Today’s issue is the first in a five-part gold master class that will help you on your road to financial freedom.  

Your teacher: World-renowned precious metals expert Jim Rickards. 

You may already know him from his five best-selling books, including The New Case for Gold… 

But in this special interview series with our friends at Hard Assets Alliance, Jim pulls back the curtain on what the latest U.S. policy proposals will mean for gold. 

He understands how the U.S. financial system ticks… and impacts global precious metals markets… because he helped shape it in the roles he’s played on Wall Street and in Washington. 

This week, you’ll discover his new predictions… and his expert advice on how you can prepare. 

And remember that in our opinion, hands down the best way to buy, sell and trade gold is with an account from our business partners at Hard Assets Alliance. It’s easy to set up. Easy to use. And best: opening an account is FREE OF CHARGE. Click here to find out how easy it is to put a portion of your assets in gold today. 

With that, let’s get right to day one of your Rich Life Roadmap gold master class…

First Off, You Should Own This Much Gold

Alex Daley, president of Hard Assets Alliance: Jim, people hear all the time you need to have gold as part of your portfolio. You’ve long been someone who has espoused that as an important part of investing. Why is gold so important for someone’s portfolio?

Jim Rickards: You put your finger on one of the most important aspects of gold… It’s part of a portfolio. 

I’ve written a lot about gold, and I speak at conferences and do interviews such as this. And I talk about a lot of other things, but gold always comes up. And people want to put words in your mouth and they say, “Jim Rickards says sell everything and buy gold.” 

I’ve never said that. I don’t believe that. I don’t think it’s good advice.

You should definitely have a slice of gold in your portfolio. I recommend 10%. Some people say, “Well, if you’re so bullish on gold, why not more?” 

Well, the answer is, if I’m right about how bullish I am, and I think I am, 10% will do just fine. You can have more. And I say season to taste if you want a little bit more or less, but I recommend 10% gold but as part of a balanced portfolio. 

I would recommend a slice of cash… There’s room for residential real estate… There’s room for government securities… There’s room for equities…

And absolutely have gold in your portfolio.

That gives you real diversification. I run into people and they say, “Jim, you invest in gold. How do you sleep at night?” 

“Well, you’re 90% in equities. How do you sleep at night? That is an extremely risky portfolio.” And you see people say, “Well, I’m diversified, I’ve got 30 different stocks in 10 different sectors. I’ve got technology, semiconductor and healthcare and so on” 

To that all I can say is, “You’re not diversified. You may have 30 stocks, but you have one asset class, stocks.” 

All stocks  are highly correlated with each other, more so than was true in the past. So yeah, have some stocks in your portfolio, but have all the other things I mentioned, including gold.

There Won’t Be Enough Gold

I don’t really know how you can have a well-diversified portfolio that will be robust to all states of the world now. And particularly today with the pandemic and economic depression. 

As far as the pandemic goes, the latest data is a little bit better. It looks like the caseload is going down. The fatality rate is going down. Those are good things. The vaccinations are going up. 

There are still a lot of uncertainties in terms of virus mutations and whether the vaccine works against the mutations… and whether that means there’s another wave coming. We’ve had three already, each one worse than the one before. 

The long-term effects of the pandemic are still uncertain. It’s fair to say that we have more uncertainty for investors than ever before. 

So why on earth would you put everything in one asset class? Stocks are going up right now. But even if they do go up a lot further, you don’t need to put all your money in stocks. And you shouldn’t put all your money into gold.

But you should have a slice, and that’s the real problem. Most people don’t have any. Institutional investors globally have less than 3% of their assets in gold. You can find some gold funds out there, but a large institutional portfolio, maybe held by an insurance company. They have somewhere between 1% and 3% gold. It might go up to 5%, but that still doesn’t meet my 10% obligation.

And if institutions just went from say 2% to 5%, there’s not enough gold in the world at these price levels to satisfy that kind of demand. 

So, the problem isn’t that people have too much gold, it’s that they don’t have any, and you definitely need some.

Now, let’s look at it from a portfolio perspective…

Buy Gold in Case of Deflation??

We’re definitely going to have inflation, and you’d know exactly what to do in the event of inflation. You would buy more gold and some other hard assets and commodities and… 

But here’s what you might find counterintuitive. What if I say we’re definitely going to have deflation?

You would buy government bonds, and you want some cash and things that do well in deflation, right?

But the fact of the matter is it could go either way. In fact, what I expect is it’ll go sequentially. We’ll have some disinflation and deflation first followed by inflation, and that inflation may accelerate as we get into 2022. 

That’s my forecast, but you don’t have to be that precise. You just have to acknowledge the fact that there’s an enormous amount of uncertainty. Why wouldn’t you be robust to all of those outcomes? 

Poised for a Breakout

So have some equities for the bullish scenario, have some gold for the inflationary scenario, have some cash to reduce portfolio volatility, have some government bonds in case interest rates drop, which I do expect. They’re going up at the moment, I know that, but they’ve gone up three times in the last seven or eight years. And they came crashing down all three times. I expect that will happen again.

And by the way, that’s a big driver of gold prices right now, because gold has hit a little bit of a head wind, a little bit of an air pocket. It peaked on August 8th, about $2,070 an ounce. 

Now it’s down to around $1800 give or take. Gold is in a range kind centered around $1850, maybe $1900 on the high side, $1800 on the low side, with occasional deviations. 

Now it’s sometimes a little lower, sometimes a little higher.

But when you see range-bound trading like that, that’s a pretty good indicator that it’s going to break out of the range. And of course it could break out up or down, but there’s good reason to think it will be up because the biggest head wind has been interest rates, and they’re getting a little high for a weak economy, and I expect those to come down.

But the point is to have some gold in your portfolio, along with the other things I’ve mentioned. Not exclusively gold, just a slice. 10% is plenty. 

Protection Against Inflation and Deflation

And it will certainly give you protection against inflation. That’s kind of intuitive. People understand that. 

What people don’t understand about gold, Alex, is that it’s very good at protection against deflation. And you go, wait a second. I get the inflation thing, everything’s going up, so the price of gold goes up. It’s an inflation hedge, and that’s true. 

But the longest sustained period of deflation in American history, which was 1929 to 1933, gold went up 75%. It went from $20 an ounce to $35 an ounce.  

I’ll go into more detail as to why on day two of this series…

But the point is gold does extremely well in deflation and inflation. So it’s basically what some managers call an all-weather asset, but to not have any gold in your portfolio is really creating a gap. And you’re missing a lot of protection in a world of uncertainty.

Alex: Jim, I hate to cut you off, we’ve already covered a lot, but it looks like we are running out of time for today. We can pick this up again tomorrow. Thank you for joining us. And to our readers, make sure to tune in again tomorrow.

To a richer life,

The Rich Life Roadmap Team 

 

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