A Gold Classics Library Selection
Ten Rules For Investing In Gold
by John Hathaway
Editor’s Note: Few have done a better job over the years of articulating the often misunderstood, yet compelling case for owning gold like Tocqueville Funds’ John Hathaway. Below in short form he offers ten nuggets of practical wisdom for those contemplating gold ownership.
“Gold is a controversial, anti-establishment investment. Therefore, do not rely on conventional financial media and brokerage house commentary. In this area, such commentary is even more misleading and ill informed than usual.” – John Hathaway
1. An investment in gold should be based on macroeconomic considerations. If one expects or fears rising inflation, destabilizing deflation, a bear market in stocks or bonds, or financial turmoil, gold should do well and exposure is warranted.
2. Understanding the internal dynamics of the gold market can be helpful as to investment timing issues. For example, the weekly position reports of commodity trading funds or sentiment indicators offer useful clues as to entry or exit points for active trading strategies. Reports on physical demand for jewelry, industrial, and other uses compiled by various sources also provide some perspective. However, none of these considerations, non monetary in nature, yield any insight as to the broad market trend. The same can be said for reports of central bank selling and lending activity. Central banks are bureaucratic institutions and in their judgements they are essentially market trend followers.
3. Excessive reliance on trading strategies to generate returns can be dangerous and counterproductive. Returns from a “buy and hold” strategy should be more than sufficient to compensate for the inherent volatility. Many who have tried to outsmart this market by hyperactive trading have under performed. Success is dependent in large part on the occurrence of “fat tail” events that lie outside the parameters of trading models.
4. A reasonable allocation in a conservative, diversified portfolio is 0 to 3% during a gold bear market and 5% to10% during a bull market.
5. Equities of gold mining companies offer greater leverage than direct ownership of the metal itself. Gold equities tend to appear expensive in comparison to those of conventional companies because they contain an imbedded option component for a possible rise in the gold price. The share price sensitivity to a hypothetical rise in metal price is related to the cash flow from current production as well as the valuation impact on proven and probable reserves.
6. The carnage of the last twenty years has simplified the task of individual stock selection because so few have survived the gold bear market. Although a rising tide may lift most boats, financial statements should be reviewed with special attention to hedging arrangements that could undermine participation in higher gold prices or even jeopardize financial stability. Individual stock selection is less important than identification of the primary trend.
7. Even though gold itself is a conservative investment, “gold fever” attracts a crowd of speculators, promoters, and charlatans who only want to separate investors from their money. Avoid offbeat “exploration” companies with little or no current production and gargantuan appetites for new money.
8. Bullion or coins are a more conservative way to invest in gold than through the equities. In addition, there is greater liquidity for large pools of capital. Investing in the physical metal requires scrutinizing the custodial arrangements and the creditworthiness of the financial institution. Do not mistake the promise of a financial institution to settle based on the gold price, for example, a “gold certificate” or a “structured note”, (i.e. derivative), for the actual physical possession of the metal. Insist on possession in a segregated vault, subject to unscheduled audits, and inaccessible to the trading arrangements or financial interest of the financial institution.
9. Gold is a controversial, anti establishment investment. Therefore, do not rely on conventional financial media and brokerage house commentary. In this area, such commentary is even more misleading and ill informed than usual.
10. Don’t settle for too little. Should outlier events now deemed unimaginable by consensus thinking actually occur, the price target for gold would be several multiples of its current depressed price. Gold represents insurance against some sort of financial catastrophe. The magnitude of the upside is a function of the amount of paper assets that would be converted to gold irrespective of price.
by John Hathaway, Tocqueville Funds
Reprinted with permission.
A word on USAGOLD – USAGOLD ranks among the most reputable gold companies in the United States. Founded in the 1970s and still family-owned, it is one of the oldest and most respected names in the gold industry. USAGOLD has always attracted a certain type of investor – one looking for a high degree of reliability and market insight coupled with a professional client (rather than customer) approach to precious metals ownership. We are large enough to provide the advantages of scale, but not so large that we do not have time for you. (We invite your visit to the Better Business Bureau website to review our five-star, zero-complaint record. The report includes a large number of verified customer reviews.)
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.
Britain’s Gold Sales ‘a Reckless Act’
(Sir Peter Tapsell’s speech before the House of Commons, June 16, 1999, on the partial sale of United Kingdom’s gold reserves)
We do not update our Gold Classics Library often, but when we do we try to choose items that have a timeless quality. This latest selection certainly meets that standard. It comes to us unexpectedly as a by-product of research for the recently published article, The Power of Gold Diversification, and with the kind permission of the United Kingdom Parliamentary Archives.
Many associate Britain’s sale of nearly 60% of its gold reserves in 1999 with the beginnings of gold’s secular bull market. The government’s rationale for the sale, as explained by then Economic Secretary to the Treasury Patricia Hewitt, was to “achieve a better balance” in its reserves by going to foreign currencies. Sir Peter Tapsell took the opposite tack. “The Chancellor [of the Exchequer] may think that he has discovered a new Labour version of the alchemist’s stone,” he argued, “but his dollars, yen and euros will not always glitter in a storm and they will never be mistaken for gold.”
History’s indisputable verdict is that Tapsell was correct and the British government wrong. The ensuing nearly two decades featured a global financial crisis, a pandemic, low-to-zero-percent interest rates, scrambling central banks, and the consistent depreciation of global currencies against gold. Currencies did not glitter in the storm, and they could not have been mistaken for gold which rose relentlessly from $287 per ounce at the time of his speech to the current price of over $1500 (at one point reaching almost $1900 per ounce in 2011). Though his speech before the House of Commons failed to stop the sales, it goes down as one of the most eloquent appeals ever made on the merits of gold ownership for nation-states and individuals alike.
A Gold Classics Library Selection
A Layman’s Guide to Golden Guidelines
for Wise Money Management
Gresham’s Law, Say’s Law, Rule of 72, Marginal Utility, Diminishing Returns, Regression to the Mean, Unintended Consequences, Murphy’s Law, Occam’s Razor, Law of Attraction, Law of Polarity, and more
by R.E. McMaster, former editor of The Reaper newsletter
There is an old saying that not all that glitters is gold — as in the gold coins many of you have held in your hands. There is another kind of gold that inhabits the practical wisdom of the ages. In today’s “go-get-’em,” “read-it-and-forget-it” world of everyday web browsing, it can be a challenge to separate the run of the mill from the meaningful. It is with that thought in mind we offer this compendium of the rules and laws of finance and investment by long-time market analyst R.E. McMaster. Formerly the writer/editor of the widely-circulated The Reaper newsletter, McMaster is known for his occasional forays into the realm of economic philosophy and history. I think you will agree with me that these skillfully condensed descriptions are indeed meaningful — a wellspring of knowledge worth reading, re-reading and passing along to friends and family, especially the kids and grandkids.
(Illustrations by Ed Stein)
Who owns and controls the Federal Reserve
by Dr. Edward Flaherty
“Is the Federal Reserve System secretly owned and covertly controlled by powerful foreign banking interests? If so, how? These claims, made chiefly by authors Eustace Mullins (1983) and Gary Kah (1991) and repeated by many others, are quite serious because the Fed is the United States central bank and controls U.S. monetary policy. By changing the supply of money in circulation, the Fed influences interest rates, affecting the mortgage payments of millions of families, causing the financial markets to boom or collapse, and prompting the economy to expand or to stumble into recession. Such awesome power presumably would be used to benefit the U.S. economy. Mullins and Kah both argued that the Federal Reserve Bank of New York is owned by foreigners. Although the New York Fed is just one of twelve Federal Reserve banks, controlling it, they claimed, is tantamount to control of the entire System. Foreigners use their command of the New York Fed to manipulate U.S. monetary policy for their own and, as Kah asserted, to further their global political goals, namely the establishment of the sinister New World Order.” – From the author’s preface.
A Gold Classics Library Selection
Money and politics in the land of Oz
The extraordinary story behind the extraordinary story of
“The Wonderful Wizard of Oz”
by Professor Quentin Taylor, Rogers State University
Year in, year out, Money and politics in the land of Oz is among our most highly-visited Gold Classics Library selections. Here is the extraordinary story behind the extraordinary story of ‘The Wonderful Wizard of Oz’. Most have seen the movie version of this allegorical tale, but few are aware of what the various characters, places and things represented in the mind of Frank Baum, the tale’s author. Though ‘The Wonderful Wizard of Oz’ was written over 100 years ago, the themes will be recognizable to those with an interest in golden matters. While many today consider gold an instrument of financial and personal freedom, in Baum’s tale, it is painted as a villain — the tool of oppression. So, as you are about to see, we have come full circle, and gold has traveled a yellow brick road of its own.
The Nightmare German Inflation
The surprise is not only the length of time Scientific Market Analysis’ The Nightmare German Inflation has ranked among our most-visited essays, but that it has remained popular even now, when inflation seems a more distant concern. Inflation, though, is never far removed from the minds of many Americans particularly those who remember the inflationary-stagflationary 1970s decade and the dangers it imposed on financial markets and individual investment portfolios. The survivors of the German hyperinflationary debacle of the 1920s did so, as you are about to read, by purchasing gold early in the process. This comprehensive report not only describes how and why the hyperinflation occurred but how various investments performed under those trying circumstances. There is little doubt it will affect your thinking.
Here’s how it can happen and what you can do about it.
Allow us to make a personal observation and then we will send you on your way to Mr. Ganz’ important and timely analysis. Too many gold owners labor under the false presumption that high-end, high-premium numismatic gold coins are the only way you can protect your holdings against a potential seizure. Many of our prospective clients are pleasantly surprised when they discover that there is a whole genre of pre-1933 gold coins that can be acquired at modest premiums over the gold content and still meet the criteria for exemption Mr. Ganz outlines. As he points out, “rare and unusual” does not necessarily equate to “pricey” or “expensive.” To understand why the words “rare and unusual” are important, we invite you to proceed to the link.
Fiat Money Inflation in France
How It Came, What It Brought, and How It Ended
Andrew Dickson White ends his classic historical essay on hyperinflation, “Fiat Money Inflation in France,” with one of the more famous lines in economic literature: “There is a lesson in all this which it behooves every thinking man to ponder.” This lesson — that there is a connection between government over-issuance of paper money, inflation and the destruction of middle-class savings — has been so routinely ignored in the modern era that enlightened savers the world over wonder if public officials will ever learn it. In this essay Dickson White explores France’s hyperinflation at the end of the 18th century in exhaustive detail – its politics, its economics and the social consequences which led, in the end, to Napoleon’s rise as emperor.