How Would You Like Your Gold?

My wife and I pulled up to the drive-through window at our local burger joint. Why is it easier to understand a rapid-speaking, strange-talking tech service specialist in some foreign land than it is a drive-through clerk 50 feet away talking into the squawk box? We wanted two simple burgers and drinks. We struggled to understand at least ten questions, and many had to be repeated, to finally place our order. We got home, opened the bag, and they got it wrong.

It’s more than just burgers and Happy Meals! It’s easy for us to preach – Got Gold? – but making all the necessary decisions to do it correctly can be a virtual minefield.

Last week, we offered some general guidance. Friend Rich Checkan, President and COO of Asset Strategies International, sent along a report How do I own gold? which outlines many options. Rich is an expert who understands the challenges facing our readers.

Bottom line – if you are buying gold to hedge inflation, you need to get it right the first time! Rich agreed to an interview.

DENNIS: Rich, thank you for taking the time to educate our readers. I want to set some parameters for today’s discussion.

Mutual friend Chuck Butler constantly urges readers to own gold (and silver) as a hedge against inflation. Most readers are baby boomers, not trying to get rich, but trying to avoid getting poor. Retirees think they are safe with government bonds and CDs, while inflation clobbers the buying power of their life savings.

We suggest a minimum of 10% in metals. Most readers rely on their nest egg to produce some income, which metal stocks can do.

Rich, let’s start with a multi-part question…. Do you agree with our 10% suggestion for physical metal? What do you see as the safest metal to own, and why?

RICH: Dennis, thank you for bringing me into this important conversation.

I wholeheartedly agree with a 10% allocation in physical metals; we’ve been preaching this to clients and readers for over forty years. We didn’t get there by throwing darts at a dart board.

The World Gold Council does extensive research on the effects of gold in various portfolios – different currencies, various stock/bond mixes, and varying allocations to gold as well. They found there is a sweet spot for gold, regardless of the currency choice or stock/bond mix. Typically, including between 8% and 12% in gold increases performance and decreases risk.

Ten percent is smack dab in the middle of that range, and it makes the math really easy.

I prefer to fill that ten percent allocation with gold bullion… the world’s only real money. I don’t have a preference for coins versus bars. I like whatever has the lowest premium at the time, as long as it is London Bullion Market Association (LBMA) approved.

I know you guide your clients to coins because it is easier for them to sell, and I won’t argue with that.

That allows you to get the most gold for your money.

DENNIS: I’ve seen TV ads for numismatics and collector-type gold. I’m very wary.

The “We Buy Gold” folks have a reputation for ripping off their customers.

I have some sports memorabilia, which I was told would be a good collectible – and it may have appreciated. I don’t know how to sell at a fair price. My fear is I will encounter a “We Buy Baseballs.” How do I know what it is really worth, and how do I sell it and get a fair price?

How do you feel about retirees buying numismatics from their nest egg as an inflation hedge? Isn’t it similar to my “collectibles?”

RICH: Numismatics behave exactly like your other collectibles.

Generally, the price is usually well in excess of the underlying value of the gold or silver in it, which is typically not a good inflation hedge. An effective inflation hedge carries minimal premium, and the value is quickly derived by simply looking at the price of gold or silver for the day.

If you don’t know how to quickly determine the market value, and how/where to easily sell it for a fair price – don’t buy it! Look for better alternatives.

Special Offer ONLY for Miller On The Money Readers! As you know, I’ve mentioned Richard Maybury’s Early Warning Report often, and I’ve been a reader for many years. Richard’s world outlook is unique, and his letter provides great education you will not find elsewhere! For a limited time, he is offering Miller on The Money readers a phenomenal deal. Click here right now and you will get $201 off the regular subscription price! You’ll get the current issue and these 4 FREE Special Reports: I encourage you to click here and take advantage of his special offer.

DENNIS: Gold has been trading at all-time highs for a few years now. For readers building up to their 10% allocation, is it too late? Have they missed the boat?

RICH: That’s a question I get a lot. No. Not even close. Nothing does what gold does, and has been that way for thousands of years.

As long as Congress doesn’t cut spending, balance a budget, and reduce our $37 trillion debt, the money supply will expand. In the long run, the price of gold has no place to go but higher.

I suggest readers buy regularly, not try to time the market. It will average out.

DENNIS: I worked with some real experts on metal and mining stocks at Casey Research. I learned that all gold stocks are not equal.

The junior mining stocks are hyping their search for gold. If we find it, you will get rich. The term 100-bagger is frequently used. Some hit it, but many more do not. The risk factor is very high.

On the flip side, there are established mining companies earning profits by harvesting gold from their proven reserves. If gold goes up $100 oz. it is straight profit. Meanwhile, their stock appreciates and you normally get some sort of dividends.

What advice do you offer to those who want to earn income and protect their wealth with minimal risk?

RICH: I’m not an investment advisor, so take my opinions here with a grain of salt. Just keep one thing in mind… mining shares, mutual funds, royalty companies, and exchange-traded funds are not to be confused with that 10% allocation to physical gold. They are equities, and they should come out of your stock allocation – in addition to your physical holdings.

Yes, you should reduce risk as you increase age. If you lose on a longshot in retirement, what chance do you have to earn it back?

I believe junior miners are fantastic speculations when you are young. As we get older, I think we should turn our attention to major producers and royalty companies.

DENNIS: You mentioned royalty companies.

Corporate Finance Institute explains:

“A metal royalty company will give a mining company a loan and then receive a percentage of the revenue generated by the mine. Generally, the royalty is small, around 1% to 3 %. For example, Franco Nevada can give Kirkland Gold $400 million in loans and, in exchange, they get 3% of the royalties on a mine.

If Kirkland Gold’s mine produces 200,000 ounces of gold, then Franco Nevada will get 3% of the revenue generated from the 200,000 ounces.”

Rich, using the above example, 3% of 200,000 ounces is 6,000 oz. At $3,000/oz. that produces $18,000,000 profit – on top of the interest on the loan….

One of my top performers is a royalty company, Wheaton Precious Metals.

Do you suggest a mix of mining companies and royalty companies in a retirement portfolio?

RICH: Yes, I like a mix of major miners and royalty companies. The majors have a proven track record, and royalty companies offer all the upside of metal appreciation with a small fraction of the risk.

DENNIS: One final question. Experts preach that when you buy a stock, you should have an exit strategy. I wish I had understood that when I purchased my memorabilia.

How does a consumer find a reputable dealer? Are there any criteria you would recommend they use in finding one?

RICH: Dennis, thank you for inviting me.

Avoid those you see on T.V. or radio with celebrity endorsers! Those ads and those endorsements are very expensive, and those costs are passed on to the consumer – you.

If you do not have personal experience with a dealer over the years, take the recommendation of trusted advisors, friends, or family members who do.

Do a quick search. Make sure they do not have a bunch of complaints. A lack of complaints is much more important to me than paid endorsements from agencies.

Lastly, and most importantly, when you get price quotes (and you absolutely should shop and compare), ask them one simple question… “When I am ready to sell, will you buy it back?”

You would be surprised how many dealers answer “No” to this question. No matter what reason they give you for not buying back, run away. The real reason is they will charge you too much when you buy, and they would be embarrassed by the margins if you sold it back to them and they had to pay fair market value.

If they don’t buy back, never ever buy from them.

Dennis here. I agree with Rich. If you are not at your 10% threshold, buy regularly as your budget allows and your cost will average out.

Inflation isn’t going away any time soon. Baby boomers will suffer a huge loss in buying power – and I fear a huge Minsky Moment in the process. Owning precious metals and stocks will be a significant element in maintaining our standard of living.

Take your time, shop well, and build your fortress.

Editor’s note: I’ve been a client of Asset Strategies International for well over a decade. While I’m a customer – I have no other financial arrangement with them of any kind, no referral fees, kickbacks – nothing. They have a great team of precious metals experts; straight-shooters, and I’m happy to give them a forum in exchange for sharing their expertise for our readers’ benefit. Feel free to contact them if you have any questions.

 

Help keep us online! I love it when readers thank me for “telling it like it is” for providing content they won’t find in the mainstream media. I’ve been sent to Facebook purgatory a few times – they didn’t approve. Free speech isn’t appreciated in all circles. When I started Miller On The Money, I vowed to keep our newsletter FREE! I’ve kept my promise – our weekly letter is an expensive hobby. Donations are our primary source of financial support, and what keeps us going. We don’t peddle your name to anyone. I’ve turned down proposals from advertisers, feeling their offerings were inappropriate for our readers. Readers pitching in to help offset our cost are much appreciated. It’s strictly voluntary – no pressure – no hassle! If you want to help, click the DONATE button below. You do not have to sign up for PayPal to use your credit card. And thank you all!

On The Lighter Side…

We’ve flipped the calendar over to August. The baseball trading deadline is behind us. The contenders try to beef up their rosters in their push for postseason playoffs. Avid sports fans experience the excitement and frustration as the season progresses.

At the 7/31 trade deadline, my beloved Cubs are one game out of the lead with the second-best record in baseball. This is my 81^st year following my hometown heroes. Long-time fans know, you can be leading as you approach the final turn, but it guarantees nothing. It normally goes right down to the wire with exhilaration or heartbreak at the end. Keeping our fingers crossed.

Jo is flattered by the readers encouraging her in her recovery from rotator cuff surgery. Each therapy session, new challenges are added. Next week, the sling comes off. She is anxiously looking forward to that – with some trepidation, anticipating some anxiety in actually using her arm again.

Also, a reminder to please continue to “like” and “follow” our Miller On The Money Facebook page. Feel free to forward our articles to family and friends, encouraging them to subscribe – it’s free. It all helps to increase our subscriber base.

Quote of the Week…

“If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary systems of those nations pursuing this course will break down completely. The purchasing power of the monetary unit will decline more and more, until finally it disappears completely.”

— Ludwig von Mises

And Finally…

A few laughs and sage advice from friend Phil C.

• “Logic will get you from A to B. Imagination will take you everywhere.” – Albert Einstein
• “Thinking is difficult, that’s why most people judge.” – Carl Jung
• “No amount of evidence will ever persuade an idiot.” – Mark Twain
• “You never know how strong you are until being strong is the only option you have.” – Unknown
• “The forest was shrinking, but the trees kept voting for the Axe, for the Axe was clever and convinced the trees that because his handle was made out of wood, he was one of them.” – Turkish Proverb
• “If you don’t have the time to do it right – what makes you think you have the time to do it twice?” – Unknown
• “Tolerance will reach such a level that intelligent people will be banned from thinking so as not to offend the imbeciles.” – Fyodor Mikhailovich Dostoevsky
• “Do you remember, before the internet, that people thought the cause of stupidity was the lack of access to information? Yeah, it wasn’t that.” – Unknown
• “Actions prove who someone is, words just prove who they pretend to be.” – Unknown
• “You were born to be real, not to be perfect.” – Unknown
• “If you don’t want the truth, don’t ask me. If you want something sugar coated, go eat a donut.” – Unknown
• “You will learn nothing from life if you think you are right all the time.” – Unknown
• “I asked my wife what women really want. She said, “A tent of lovers.” Or perhaps it was “attentive lovers.” I wasn’t really listening.” – Unknown
• “Not being biologically related to someone doesn’t make you any less “family”. Being a real family isn’t in the DNA, it’s in the heart.” – Unknown

And my favorite:

• “Note to yourself: You are not too old and it is not too late!” – Unknown

Until next time…

Dennis Miller

“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken

 

Affiliate Link Disclosure – This post contains affiliate links. If you make a purchase after clicking these links, we will earn a commission that goes to help keep Miller on the Money running. Thank you for your support!