Monthly Archives

October 2017

The Purchasing Power of Gold

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I love this quote. Using the suit illustration to demonstrate the purchasing power of gold is something that most gold traders and investors are familiar with, but when I came across it in this article: Former Lehman Brothers Trader: Unpredictable Government Actions Make It Smart to Hold Gold it felt more powerful.

In this Forbes piece by Shannara Johnson, former Lehman Brothers trader Jared Dillian explains why he believes in owning physical gold. The piece starts by asking, “What does a hot-shot Wall Street trader see in physical gold? And why would he be adamant about holding it?” Dillian answers that question effectively first by referencing the suit illustration above, then by stating:

“Dollars have depreciated over time; pretty much any fiat currency has. So when I look at gold, I don’t look at it like, it’s going to go up and I’m going to get rich. It’s actually not a trade—it’s the furthest thing from a trade. It’s a way to maintain your purchasing power over time.”

Do you have that purchasing power?

The Best Gold Article I’ve Read All Year

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In the Bloomberg article “Is Gold Really a Good Hedge?” the author, Cameron Crise, takes a skeptical stance and employs “a Mythbusters-style approach” to discover the answers.

 

“My first step was to search for evidence of a statistical relationship between risk aversion and the gold price. I used the CBOE Volatility Index (VIX) as a proxy for market risk aversion and ran a series of multifactor regressions to determine whether equity volatility is statistically significant as an explanatory variable for gold. The answer, somewhat to my surprise, appears to be yes.” – Cameron Crise

 

Every day I search the internet looking for news and insight that can help me serve my clients. There are the usual “this stock is going to the moon” suspects, and of course, there are the “gold going to the moon” articles as well, but I have to sift through the bias and look past the agendas to find the true gems. This was one such gem.

You can read the entire article here and I recommend that you do, but the highlight of the article for me was this chart and the accompanying breakdown:

A chart from the article “Is Gold Really a Good Hedge?” by Cameron Crise on Bloomberg

 

“I identified 10 notable episodes of risk aversion over the past three decades, defining the duration of each as the peak-to-valley move in the S&P 500 index. I then calculated the performance of U.S. stocks, Treasuries, and gold during these episodes. Again, on this metric, gold looks pretty good as a risk-aversion hedge. By definition, equity market performance was poor, with an average loss of almost 20 percent per episode. Treasuries proved a useful offset, returning an average 3.4 percent and performing positively on seven occasions. Gold, meanwhile, was a star performer, rising almost 7 percent per episode, with gains in 8 of the 10 periods.”

 

Talk about taking the words right out of my mouth! I have been advising people to buy gold and silver as a hedge since 2004 and to see this was downright delightful. This was by far the best gold article that I have read all year. Do you have gold in your portfolio?

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