The ‘Who, What, When, Where, Why and How’ of Gold Investment
How to protect and build your wealth through precious metals ownership
In the fifth entry to our six-part series – Why invest in gold? – we examine the fundamental philosophical rationale for gold ownership and the societal concerns driving it, as described by William Strauss and Neil Howe in the seminal book, The Fourth Turning. In the end, it is not some single event or series of events that need to be hedged by investing in gold, but the times.
Why invest in gold? √
How to invest in gold?
Reader note: This is the fifth installment in our six-part series on private gold investment. You will receive one additional installment per day in the order listed above. Each installment is designed to shed light on a specific, baseline area of concern for most investors. In each instance, we draw on our many years of experience in the gold business to focus on what matters most to first-time investors – the means to protecting and building wealth for the long-term future.
Why invest in gold?
by Michael J. Kosares
The founder of USAGOLD and author of The ABCs of Gold Investing, How To Protect and Build Your Wealth With Gold
Any thoughtful individual who has watched the unfolding chaos in Washington and the instability and volatility on Wall Street would say that something has gone fundamentally wrong with our systems of governance and finance. The fact of the matter is that the problems began way before Donald Trump entered the White House. As I, like you, watch and try to make sense of it all, I keep coming back to the seminal work published in 1997 by William Strauss and Neil Howe titled The Fourth Turning. In that book the authors predicted much of what has happened in America over the past twenty years, including the nearly constant turmoil we are witnessing now.
A fourth turning is a time of crisis – an overturning of the existing social and economic order. The start date of the current fourth turning, according to Neil Howe, was 2008. Since these societal turnings typically last 20-23 years, it will end sometime between 2028 and 2031. So a lot of water will run under the bridge before it’s all over.
I listened to a compelling interview of The Fourth Turning’s Neil Howe recently at the MacroVoices website – a thorough review of the ideas in the book and a lengthy look at what might be next. (The full interview transcript is linked below.) To elaborate on my short description immediately above, here is Mr. Howe’s own description of a fourth turning along with a few other important quotes from that interview:
–– “The fourth turning is the final season of history, if you will, the final generation. And that is the period of crisis. That is the period when we tear down institutions that we’ve built, everything that’s dysfunctional. And we sort of rebuild things from scratch again. And it usually follows a period where – it’s bound up in a period where there’s complete disgust, complete distrust with what we have.”
–– “And I would say these are strong parallels that we see between the decade we’ve been living through and the 1930s. Because it isn’t just what happens to/in the economy. I mean, you consider so many ways in which this last decade has recapitulated the 1930s, starting off with a financial crisis, worries about deflation, worries about declining fertility rates, and currency wars, and beggar thy neighbor policies, and radical attempts by monetary and ultimately fiscal policy to remedy the situation.”
–– “I think we can be too mesmerized by the fact that the last fourth turning we had started with the Great Depression and ended with World War II. I think there are more possibilities. We could be defeated on a fourth turning. We could completely unravel on a fourth turning, giving the amazing popularity of these dystopian or alternative history drama shows on HBO and Netflix today really spelling out those scenarios.”
–– “And then the crisis, when all of these problems begin to coalesce into one huge problem. It’s when the Great Recession met all of these—the rise of fascism both in Asia and in Europe, and everything came together, currency wars, everything became part of a huge problem. Which, by the resolution, you see—and this is what happens at every fourth turning. All the little problems come together into a giant problem. And the giant problem gets completely solved.”
–– “So in politics we see volatility is incredibly high. If there were a political index—there is a political index, there’s a political uncertainty index which actually you can go on FRED and look at it, which is amazingly high levels compared to where it was for the last 20 or 30 years. There is a political index, but it’s very high right now as opposed to the market index which is very low. So, if you’re doing valuation divided by some measure of volatility, which is kind of your basic complacency index, that’s at record high levels now in markets. But you’d have to say complacency is at record low levels in our political and civic life. We’re totally nervous. We even, I think, to some extent, fear that we’ve lost any kind of public square, the ability to even have a public discourse on every issue. I think that that is a real problem.
Historical inevitability and portfolio preparation: Gold and silver ownership
There is a certain amount of inevitability in Howe’s analysis that a good many will have a hard time accepting, but I am among the group that believes that we are carried through life on great waves of history whether we like or not. From an investment point of view, it is counter-productive, even dangerous, to ignore or deny it. That is why cycle theory has always appealed to me since my early days in the investment business. I chose to become a gold and silver broker (back in 1973) because I have always believed that there are good and bad times economically, and when the bad times roll around, that is when you want to be sure that you have made preparation, and most advisedly well ahead of the trouble. Markets cycle. Politics cycles. Economies cycle. Nature, by the way, cycles. When you really put on your thinking cap, that tells you why everything else cycles.
Gold and silver, unequivocally, remain the best choices to preserve capital, and perhaps even build wealth, during the secular downslopes – in other words, in times like these. Whenever you read or watch news reports and can’t seem to put a finger on why people are behaving the way they are, just remember that we are in the grips of a fourth turning and this is the way it is going to go. And, as Howe points, it could get considerably worse.
My concern is getting across the bridge between the great crisis that may still be ahead of us and the resolution that comes at the end of the fourth turning. That is why I own gold personally and why I think every thinking, well-established individual financially should own it as well. The name of the game is to protect wealth in crisis times, even build it, and not leave your life’s work on the table when the crisis hits with full force. A diversification of about 10%-30%, in my view, will get the job done. How high you go within that range depends upon on how strongly you feel about what is going on around you.
Why I put so much stock in the book, The Fourth Turning
You may wonder why I put so much stock in Strauss and Howe’s The Fourth Turning. Besides making a great deal of sense as a view of how we as human beings move through history from one generation to the next, the authors presciently predicted the 2008 financial crisis eleven years before it happened.
From The Fourth Turning:
“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation, and empire.”
Talk about hitting the nail on the head. The last two sentences tell it all as we now live through the experience. I have always felt that gold and silver owners can afford to sit back and watch the show with a certain amount of detachment and a sense well-being, knowing we have taken the necessary steps financially to weather its worst aspects.
Gold certainly worked for its owners during the first stage of the fourth turning from 2008 to 2013 when gold went from roughly $700 per ounce to over $1900 per ounce at its peak (and at the peak of the last financial crisis). Silver did equally well going from roughly $16.50 to $50 at its peak. Since then, both have back-tracked to current levels – prices many view as a buying opportunity. The precious metals are likely to work in the next stage of the cycle as well.
In the quote section above, Neil Howe mentions a “political uncertainty” chart available at FRED. I think he may have been talking about this chart, but even if it isn’t, it tells the same story. As you can see, economic uncertainty has been running at a high level since the year 2000 and in direct correlation to gold’s secular bull market. Since 2008, for good reasons, the uncertainty has been running at consistently high levels and on a hair trigger. Now in early 2018, the financial markets have already provided early warning that the financial, political and geopolitical storm that has been rumbling in the distance is now visible on the horizon.
Neil Howe interview: Courtesy of MacroVoices, audio version can be accessed at the MV link.
Next, in the final entry to this six-part series – How to invest in gold – we get down to the practical business at hand, i.e., designing your portfolio for the uncertainties ahead.
Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.