John Mauldin on Gold

John Mauldin, author and financial advisor, has some interesting thoughts on gold.

The question I am asked the most is some variant on “What do you think about gold?” So, let me deal with that question here, as it has been a while.



First, I do not think of gold as an investment. It is insurance for me. I buy a rather fixed amount of gold nearly every month, no matter the price. I hope the price of gold goes down, because that means I get more coins in the mail to go into the vault. Yes, I take delivery of my gold, and it is near me if I need it.



My fondest dream is that I will give my gold coins to my great-great grandkids some 70-80 years from now, and they will be rather embarrassed that their “Papa John” bought all that much of that barbarous yellow metal instead of more biotech stocks. But as I live in the real world, I buy gold, even though I am optimistic we’ll get through this rough patch; because I simply don’t trust the bas*%*ds who are driving this ship with 100% of my money in dollars, or any fiat currency, for that matter.



Gold to me is a neutral currency. While the metal looks good over the last ten years (and I became bullish on it in 2002 in this letter), over the last 32 years it has not had all that much luster. Bonds have been much better as an investment. It is all about timing.



If I wanted to buy gold for investment or trading, I would simply buy GLD. (It is an excellent vehicle for traders; however, GLD is not what I think of as insurance.) And if I were buying gold as a trade, I would buy it in terms of the euro or yen, which I think are both going down against the US dollar.



For those who want to buy larger sums of gold, there is a program that I like backed/sponsored by the state government of Western Australia, called the Perth Mint. You can buy gold certificates that represent actual bullion in vaults in Perth at reasonable prices. While your gold is stored in Perth, you can take delivery if you want and leave the country with no taxes owed. Or you can sell the gold and get cash. You diversify your country risk, have excellent and safe storage facilities, diversify your currency risk (if, like me, you think of gold as a currency), and have a different asset class than traditional portfolios.



...Where to buy actual bullion? Gold coins are gold coins. ASI is a good choice, but I would shop around. Depending on the amount you are buying, mark-ups can be significant, and there are differences in service and responsiveness. Delivery can be an issue, although I get mine in the mail with insured mail (although we do have to pick it up!).



Do I think gold is at a high? While I hope so, I truly do, I rather think that gold still has some upside because of government policies. When the deficit gets under control and we are on the road to real recovery, I rather think that gold will come back down from whatever highs it makes. I remember in 1980 there were True Believers who thought gold could only go one way.



For the record, I think you should own about 5% of your net worth in gold, as insurance, not as an investment. The “goal” and your hope should be to never have a reason to sell your gold. I trust that tells you where I stand.

Given the ongoing meltdown in Europe -- with a liquidity crunch unfolding at this very moment -- words of caution are warranted.

Banks are seeking to retain their liquidity, making interbank lending more difficult, as funding from money and capital markets becomes harder to obtain, ABN Amro Group NV Chief Executive Officer Gerrit Zalm said.



Interbank borrowing for more than six months is also becoming problematic because banks are reluctant to lend to competitors with “big positions in weaker countries’ debt, for instance,” he said today on Dutch television...



A demise of the euro would have “catastrophic” consequences for the Dutch economy, which sends about three- fourths of its exports to other euro-zone states, and “would cause a recession that would make the 1930s a trifle by comparison,” Zalm said.

No one can say where the price of gold is headed. But the reckless debts run up by big government Marxists and progressives around the world do nothing but demoralize investors in fiat currencies.