6 REASONS RICHARD RUSSELL WANTS TO OWN GOLD
From Richard Russell:
There are a number of items favoring higher gold now.
(1) Interest rates are at zero, which means the “opportunity cost” of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.
(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to “jump start” the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money — any quantity at will, but it cannot direct where that money will go. So far, the money is not going into the economy, banks remain reluctant to lend and consumers are reluctant to spend. The newly-created money has been going into bank reserves and into the stock market. Stocks have been rising on an ocean of liquidity. The sinking dollar has been a huge help to the big Dow-type stocks which benefit from their ability to export. This is resulting in world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.
(3) The world’s central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold. In today’s WSJ we see the headline, “Central Banks Join A New Gold Rush.” Russell Comment — This is indeed ironic. In swapping their own paper for gold, many central banks are admitting that gold is superior to the very paper they are creating out of thin air.
(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves. The US has the largest ratio of gold to junk fiat paper, 77.4%. But the US stupidly only places the value of our gold at $42.22 an ounce. If the US marked our gold to market, it would be a tremendous help to our government’s balance sheet. But the US prefers to live in a fantasy world where gold is worth less than $50 an ounce!
Germany has 69.2% of its reserves in gold.
Italy has 66.6%.
France has 70.6%.
UK has 17.6% (after idiotically selling most of its gold near the low below $300 an ounce).Japan has 2.3% of its reserves in gold.
India has 4.0%.
Russia has 4.3%.
China has 1.9%.It’s easy to see that Russia, India and China are low on gold. All three would like to at least double the percentage of gold in their reserves. The race is on for these central banks to accumulate gold without running the price of gold sky-high.
(5) In the US, literally no one owns gold. Rather US citizens are selling their gold (jewelry) to companies who are advertising that they’ll buy “your overpriced” gold for cash.
(6) A few nations are actively promoting the ownership of gold. China, the world’s biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod’s department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.
I’m one of these people who doesnt own gold ….. I’ve seen lots of discussion about how to own it via an equity i.e. a GDX or a GLD or a new GDXJ, but I havent seen too much about the pros and cons of owning the real thing and which version of the real thing to own. Can anyone offer some thoughts?
Meanwhile, I had barely a 2 day opportunity to own it because it makes a new high everyday. Buy it today or wait? Same old story lately.
poke646 Reply:
November 17th, 2009 at 4:20 PM
Keep it simple. You get the most bang for the buck just buying Krugerrands.
You can buy them in any coin shop. I buy a lot of mine on Ebay (and only from people with a lot of history).
nebyarg Reply:
November 17th, 2009 at 5:22 PM
Should you decide to own gold, recognize perhaps that the easy money has been made. Timing is always important. If you buy, don’t invest more than 10% of your portfolio in gold. Buy gold etf such as GDX realizing gold stocks go up and down faster and further than gold bullion; that there is a big commission buying and selling gold; there are much higher taxes for owning a bullion fund like GLD; and storage costs if you want others to hold it for you…
I would suggest GDX, which I found volatile and have owned in the past, is quite useful. Canadian Maple Leaf coins of any size are good, buying larger quantities to get a better price, but remember dollar cost averaging over time. There are many good dealers out there on the web, but your word is honored once.
Gold at $800 an oz in 1980 now would be @$2300 an oz. So, we are a long way from a top. When I was a kid one dollar could buy more than four Swiss Francs. Now, one dollar buy one franc.
I believe things will get worse, albeit our govt reports otherwise. What has not rallied? The S&P is up 60+% this year. How much has gold rallied this year? I just sold some for a forty % profit and you are buying. That is the market. My next big investment is real estate, probably next year if my offer is accepted, which is obviously a risk and has expenses too. I’ve learned, don’t buy what you don’t need. A little gold is good. Keep diversifying out of what others are buying… Good luck.
Good post by the way.
It might be a help if the gold was actually there:
http://lewrockwell.com/north/north436.html
Tyler,
I’m no expert, but I’ve been trying to read up on these issues, and here’s what I’ve found.
The gold ETFs are probably fine for trading, but if/when TSHTF, you only have a piece of paper, not even a legal claim on an asset.
If you want gold as a disaster hedge, taking physical possession of the metal makes more sense. In that case, the choice is between bullion (such as U.S. Eagle coins), and bars. The “spread” between buy and sell is about 4%, if you use a reputable dealer.
I’ve read that GoldMoney is a way to hold physical metal offshore (in London and Swiss vaults). The spread is even tighter – about 2%. And you can take physical possession on demand + shipping.
I’d love to own some (more) gold, too, but I am very reluctant to *buy* it just now, at record high prices. Maybe it is due for a correction.
Bazooby,
Thanks for that. I guess that is about what I was thinking and have read. Its a little hard to see myself filling up a safe deposit box … to be honest, I never thought I’d be here contemplating buying literal gold. A coupe of “out there” guys at work sold all equities and bought coins a while back because they didnt trust anything and thought gold was going to $1500. I thought they were pseudo crazy.
I continue to sit here in a quandry trying not to do something stupidly impatient.
The Philospher King Reply:
November 16th, 2009 at 11:52 PM
Tyler;
Keep in mind that with an ETF like GLD for which option trade, you have the option to sell Puts, thereby commiting to buy at a lower price if the price fall in return for the put premium. That to me is the primary advantage of any ETF and especially this one. If have a decent command of options you can in fact make Gold generate a degree of income. Now that said, the continuing lack of clarity (as far as I know) from GLD regard the extent to which they actually hold physical gold and the lack of an option for worst case physical delivery give GLD some downside risk that doesn’t seem to me to be priced into the options, but it gives you some choices nonetheless.
Good luck.
If you want a disaster hedge, buy gun manufacturers and farms. What the F&*k will you do with some crap metal? People will just steal it from you anyway.
TPC Reply:
November 16th, 2009 at 3:54 PM
Gold is a pure fiat currency hedge.
Octopus Reply:
November 17th, 2009 at 8:08 AM
You buy gold when you feel there are no other attractive investments. The uptrend in gold has nothing to do with inflation: it went from 700 to 1100+ with no present or foreseeable inflation.
Ken Reply:
November 17th, 2009 at 10:00 AM
Gold is based in the currency you are trying to get protection from. Don’t you see the problem?
If gold went to $1500 and the US Dollar (peso) loses 25% of its value, what have you really gained? We are in a deflationary period unlike any other. Commodities are going higher because their underlying currency is going lower.
The comment about the gun purchases is interesting. Maybe we should all be buying physical LEAD.
poke646 Reply:
November 17th, 2009 at 4:27 PM
No, gold and the dollar don’t run perfectly inverse to each other. When people start running to gold because the dollar is falling, gold will do a LOT better than whatever the inflation is.
Well, we bought some gold this fall through a goldmoney account. We was waiting and vacillating like other commenters here, reading up on the wide continuum of opinion out there on owning gold, and waiting also because some analysts this past summer anticipated that gold would go lower, into the $800s.
But when we considerws that governments buying gold, we reasoned that government buying puts a floor under the price for the short to medium term, while the conditions Mr. Russell describes above obtain. That moved us off the fence and into buying, for better or for worse. It’s an inflation hedge and a diversifier. If the price of gold goes down, it would probably be good news for the rest of our investments.
avery Reply:
November 17th, 2009 at 9:00 AM
Err, sorry for the typos.
DarkTrader Reply:
November 17th, 2009 at 1:02 PM
avery, when was the last time that governments timed investment correctly? Maruitious, India, etc. are the ultimate Gold sell signal for trading.
Ken, why own gold if dollar goes down? Well that is the point, to maintain your wealth in a precious metal that is far less volatile than paper.
I will borrow a historical tale. A dollar could buy you 4 hot dogs at a baseball park in the 1910’s…now you need four dollars to buy one hot dog. A 1oz gold coin could buy you a good suit in the same time frame, same now.
Gold purchasing power (in this admittedly simplistic model) has maintained purchasing power, the dollar has fallen by a factor of 16. THAT is why we all should buy some gold regardless of price.
If that parabolic dollar (hey, all paper money) devaluing continues (big jump in gold from a 98% USD drop to a 99% drop) gold skies higher.
We love finding articles and we wanted to let you know, we will pass your site on in our email newsletters to our clients which collect gold . Thank you
In present times when things are getting so costly this post details 6 Reasons Richard Russell wants to own GOLD.But the topic is so well explained that after reading it even I agree with the view point of Richard.It was amazing experience reading this post.
well well how short are your memories or actually you have not been around long enough.here it is in 1977 a 1500 sf house was on aveage 20,000 now it is 200,000.00 Ten times your money and gold in the same time frame 600 am ounce then and 1100 now wow does not even keep up with inflation so go buy some Real Estate and o buy the way its on sale
Another thought for all the geniuses out there.Lets look at all paper assets from the 1930 and guess what none of the stocks from the 30’s are around anymore but the dirt under your feet is and its worth 100 times what it was 80 years ago pretty good return huh
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