LR: How does the purchase of physical gold within an overall portfolio allocation generally create a “diversification benefit”?
Todd: A gold ETF investor buys it as a hedge against inflation and to diversify from stocks and bonds.
A physical gold investor buys gold not just as a hedge against inflation, but also to hedge against the highly leveraged Wall Street, Banking, and Federal Reserve system. These investors worry that continued debasement of the dollar with limitless money printing and low-interest rates to support the stock market creates an unprecedented strain on the traditional financial system. Physical gold is an insurance policy.
LR: Is there a correlation between changes in the value of gold and returns from stocks and bonds?
Todd: Fear plays an important role. In recent months, New York received shipments of gold equivalent to nine full loads of Boeing 737 cargo jets during the peak of COVID19 hysteria. As stock prices rise, the big money looks at making the quick returns the stock market offers. They move away from gold, and that affects short term prices.
LR: What is your advice to investors?
Todd: All markets have cycles, and many experts believe we are at the end of one and the beginning of another. The transition between cycles is never smooth. Markets crash, Federal banks print, politicians point fingers and the masses revolt. During these times, fortunes are made, but the average investor usually gets crushed. Then when it’s all done, rinse, and repeat. Over time people forget about the devastation of previous cycles. The younger generation moves into their prime earning years who did not directly experience the last bubble burst, and we do all over again!
Money managers always preach diversification, and this is almost certainly the answer today. Our clientele who invest in physical gold and cryptocurrencies want the extra protection physical gold provides in these unprecedented times. I, for one, sleep a little better with a bit of insurance.
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