Gold Bullion - A Viable Investment for EMD clients
Bullion Basics – Part One
By: Mark MacDonald, EMDA Director,Vice-President of Shareholder Relations, Bullion Management Group Inc.
of Bullion Bars are not to be confused with coin dealers and jewellers
who sell coins on a retail basis at relatively high premiums. Bullion
Bars dealers sell investment grade Bullion Bars, commonly gold, silver
and platinum, at a small premium to the spot price. Attractive commission and trailer fee arrangements are available.
A properly balanced investment portfolio should contain at least some precious metals component but this currently is often not the case despite precious metals being the best performing asset class over the last 10 years. Many professionally
managed "balanced” portfolios contain only the three asset classes:
cash, stocks and bonds. The most negatively correlated asset class to
these three common asset classes are precious metals, yet many
"balanced” portfolios contain no precious metals component whatsoever.
For the record, there are actually seven asset classes: cash, stocks,
bonds, precious metals, real estate, commodities and collectibles.
Arguably, down the road there may be litigation against advisors when
investors who were represented that they had "balanced” portfolios fi nd
out they were missing key asset classes.
Why is this the
case? There are several possible explanations. One is that it is simply
"inconvenient” for a regular adviser or broker to do so. In many cases,
advisors are not aware of or have not been trained on precious metals.
How many times has an investor called his advisor or broker to buy some
physical gold Bullion Bars only to end up investing in speculative gold
mining stocks? The fact is that currently, there are just not that many
active Bullion Bars Dealers available to deal with and few investors
that realize buying a Bullion Bar for the very first time is less
complicated than purchasing a stock.
So the question on everyone’s
mind is: what’s going to happen to the price of gold? About 10 years
ago, I heard the commentary that despite conspiracy theories and market
manipulations, 90% of the price movement of gold would be inversely
correlated to the US dollar. Generally speaking, this has pretty well
been true. As the price of the US dollar goes down, the price of gold
has gone up, and vice versa. In order to think that the price of gold is
risky then you have to think that the United States is going to start
paying off some of its debt so that the US dollar will strengthen. This
just isn’t going to happen! Gold is bound to go up – I just don’t know
A further consequence of this situation is that gold is
not in a bubble. To the contrary – if only a small portion of the
world’s 200 trillion dollars currently invested in financial assets were
to convert to some of the 1.5 trillion dollars of gold available after
allowing for the 1.5 trillion dollars of gold bullion held by central
banks, then the price of gold would soar.
If the US dollar
declines in value then everyday prices will rise. The extent to which
the US dollar has lost its purchasing power in the past is illustrated
by the fact that in the 1960s you could get a new car for $2,500 and a
great meal for under $5.
Think of it this way - if you could choose to bury $10,000 of US dollars for 10 years or $10,000 of gold for the same period of time, which would you choose?
For more information contact: Mark Macdonald For more articles, please download the Exempt Market Update - the national magazine of the EMDA