I’m an advocate of holding gold. I think it is a key part of my portfolio but I own too much as a percentage of my other assets.
Datta Phuge
Not counting retirement-specific accounts, gold (and silver) make up 54% of my liquid net worth.
That is way too high for me!
So I decided to read what some public figures have said or written in regard to the percentage of a portfolio that should be gold (and silver).
The following is educational only and NOT SEC-investment-advice. So make up your own mind with the help of an appropriately licensed, registered, and SEC-anointed financial advisor.
Warren Buffett doesn’t like precious metals. He has several famous quotes regarding why he doesn’t like the shiny stuff. While I wouldn’t be surprised if he actually did own some precious metals, but the way he speaks he acts like he doesn’t own any. I’m not a Buffett fan but I think you can learn from him if you carefully sift what he does from what he says or writes.
Mad Money host Jim Cramer recommends no more than 10% in gold. He recommends owning gold via an ETF unless you have enough money to buy physical in bulk.
I’m not a Jim Cramer fan, but I include him because he is a big-time stock guy and yet he still recommends holding some gold. I think there is reason to believe the ETFs don’t hold the gold they claim to so I don’t like gold bullion ETFs. I also disagree that gold is just an insurance policy. Pure insurance (such as term or homeowners) is not an asset, it’s an expense. I think gold is an asset class in and of itself.
Peter Schiff – SchiffGold and EuroPacific Capital – 5-10%
Peter Schiff recommends 5-10% in physical gold. I was actually surprised by this low number because Schiff talks about gold and silver A LOT. Schiff’s 5-10% allocation to gold and silver does NOT include mining stocks–but that is a different topic.
Mike Maloney is the most pro-precious metals person I know of. He is 100% allocated to precious metals with 90% to silver American eagles and 10% to gold American eagles.
I would like physical precious metals to be around 10-25% of my liquid, non-retirement portfolio. I don’t have an opinion on the amount of silver relative to gold. I am of the opinion that silver is more undervalued than is gold and as a result has more upside potential.
I think gold and silver are a great way to preserve wealth but they are not a great way to build wealth since they don’t pay a dividend or yield. For many readers that might be obvious but I’m still learning!
I purchased a lot of gold in 2013, on the heals of the all-time highs, so much of my gold and silver holdings are worth less in fiat than I paid for them. So I intend to reduce my gold holdings as a percentage of my portfolio by focusing my savings and investments on other asset classes going forward. By doing this I can reduce my gold and silver holdings as a percentage of my assets without selling any of my gold and silver.
On the flip side, if my portfolio did have less than 5% physical gold I would consider adding to my holdings via gold maples, silver American eagles, and foreign-stored physical gold via a Goldmoney personal account held by a trusted and low cost custodian.
I previously wrote an article, “I Own Too Much Gold” and I’ve gotten several replies on twitter such as, “Impossible” and “No Such Thing”.
I strongly suspect (although I can’t prove it) these folks didn’t read the article. But in case they did and still aren’t convinced here are five reasons why you don’t want to own too much gold as a percentage of your asset allocation:
Reason 1: Lack of Tax Benefits
In the US, gains on physical gold are taxed as ordinary income, which could be a lot higher for you than the capital gains rate.
Even if you were an uber-gold bull and thought it was going to $100,000 per ounce would you really want to pay all your taxes on those gains as ordinary income?
Why not invest in some gold mining stocks (which would certainly go up as well if gold skyrocketed) and pay the capital gains tax rate? Why not hold some of those gold mining stocks in a Roth IRA so you pay zero capital gains taxes?
Reason 2: Diversification
Sometimes less is more
It’s important to be diversified in non-correlated assets. If I owned no gold, it would be important to own some, as gold tends to be less correlated with stocks and bonds. However, for the same reasons why you don’t want to be all in one asset class, you don’t want have too much of your assets tied up in gold.
If all you own is gold you don’t own any silver! Some speculate that silver will go up in value even higher than gold. If that’s the case you’ll want to diversity your precious metal holdings into the gray metal as well.
Reason 3: Liquidity
If you’re like most people, you need to buy food, clothing, energy, and the staples of living. You want to have some money in a more liquid format so you can pay for these things. If all your money was in gold, how are you going to pay your taxes or buy food?
Reason 4: No Cash Flow
If you invest in a business or a rental property or a dividend paying stock, there is cash-flow. If you own shares of a company, that company has employees trying to grow the business and increase shareholder value. Gold doesn’t do anything of those things. This is okay, gold doesn’t need to do those things (which come with their own set of risks), but if all your money is in gold then you are by definition missing out on opportunities to invest in cash-flow producing assets.
Reason 5: Charity
Wealth is a good servant but a terrible master. Ultimately you can’t take your gold with you and one of the great perks of having extra money (or wealth) is giving it away to those in need!
Do you want to gift your gold to a charity and have them have to deal with selling it?
If you keep some money in local currency it is easier to donate to a good cause. My favorite charitable organization is Children of Hope and Faith they help feed, clothe and educate orphans in Tanzania. I know the founder and board members personally and I know they have very low overhead which means it is efficient and there is more money going to the kids who need it. You can’t get any better than that!
Gold reclaimed the $1,500 level just a couple months ago over Christmas. Now the yellow metal has topped $1,600 and is trading north of $1,610. Gold also reached this level earlier this year on January 8. However, long term Gold has not been at this level since March of 2013.
With a US stock market that is 11 years in a bull market, profligate government spending, artificially low interest rates and geopolitical uncertainty in Iran and China, gold will likely remain a safe haven place to park capital.
However, for those over allocated gold, this is also an opportunity for some profit taking.
In what I describe as an anti-Black Friday sale, Goldmoney announced on the 29th of November a new $10 per month minimum storage fee.
This goes into effect on 1 January 2020.
Goldmoney (formerly BitGold) already had storage fees, but they were proportional. Now, smaller accounts might not make financial sense anymore.
I’ve determined that Goldmoney doesn’t make sense for me anymore.
Goldmoney Fees are Too Darn High
It is always important to understand the fees a financial services company charges, and Goldmoney has plenty. There is a 0.5% gold buy/sell fee and a $20 wire transfer fee for withdrawals (funding can be free with EFT).
Storage fees vary by location and the lowest cost locations are .01% per month (London, Hong Kong, Zurich, Singapore).
However, this new a $10 per month minimum fee is a killer. In order to pay just .01% per month, you’d need to have at least $100,000 in gold stored.
As a simple example, $10 per month fee on $120 worth of stored gold would be equal to the value of the gold stored after just one year.
Some other considerations, which in my view don’t help enough, are that Goldmoney does offset the minimum fee with commissions paid and the accounts are insured.
However, your homeowners insurance or renters insurance might cover your safe deposit box as well.
If you have a larger account, insurance is important to you, or conduct a lot of transactions, Goldmoney might make sense.
Goldmoney Doesn’t Make Sense for Smaller Accounts
I was previously an advocate of this low cost way to store physical precious metals around the world. With this new development in fees I have decided to withdraw my endorsement of Goldmoney.
Because of the smaller amount of Gold I have with Goldmoney, I’ve elected to sell all my gold in their custody. At this time I have no intention of doing business with Goldmoney again.
The insurance is an important consideration, however, a safety deposit box or other secure location is going to be much more cost effective for the small investor.
The S&P 500 made fresh and new all time highs Friday. Bonds were down, the dollar index was modestly higher and gold was on the receiving end of a severe drubbing.
On the day the S&P 500 was up 0.33%, the dollar index was up 0.26%, 10-year treasury down 0.36% and gold bring up the rear down 0.62%
On the year gold is still up over 13%. But the over the course of the fall the S&P 500 has surpassed gold’s performance and is up 23%.
Gold has fallen over $100 from the 4 September highs
Looking back: 2019 Gold
In June of 2019 Gold finally managed to break out of the monkey-hammer zone of the $1350s, consolidated between $1400 and $1450, made a second breakout and with a great run up as high as $1566.
However, starting in September, gold has been trending down again and has been drubbed down to the mid $1450s.
I think this is a temporary setback for the price of gold and a buying opportunity for someone who is under-allocated in gold.
2016 was indeed the start of a new gold bull market after gold bottomed out in December of 2015.
Finishing 2019 and Beyond
The price of gold ebbs and flows a great deal with news and sentiment. Right now the market seems to believe 1) the Fed is done easing and 2) the trade war is close to a peaceful resolution.
Certainly the Fed is not done easing as the balance sheet continues to grow. There are also certain core issues in which Trump and China are both unwilling to compromise on.
A limited trade deal is certainly possible, but I doubt China is going to relent on certain core demands the US is making.
To me the chart looks bearish in the short term. Some potential places gold can find support would be where it is currently trading, at around $1450. Below that perhaps $1400.
If traders become very optimistic about the stock market, could even go down to $1380 or retest the monkey-hammer zone in the $1360s.
Of course it is only my educated guess but I think gold will find support somewhere between $1400 and $1450.
While the recent price action looks rather bearish over the next 3-6 months I think gold will reach $1600 in 2020.
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