by Richard Young | March 6, 2014 1:39 pm
There is no better insurance policy for your portfolio than precious metals. I buy them as stores of value and pray the price trends down. Why? Because most likely everything else I own would trend up.
For example, even as gold lost around 20% of its value in the first three quarters of 2013, the S&P 500 rose by a similar amount. So I repeat: I do not buy precious metals to profit from a rise in price or to sell to someone else. If they should soar in price due to the destruction of the fiat dollar (likely), I not only will be glad I own every ounce that I now own, but will also wish I had bought a whole lot more.
Though personally I own physical gold and precious metals ETFs that own gold, silver and platinum bullion, most investors will want to stick to ETFs, as the liquidity is better.
On to my top 3 ETF picks in the sector:
Click to Enlarge Of the four common precious metals, platinum is the rarest. All the platinum in the world could fit into a decent-sized living room.
Adding to platinum’s allure is the ever-increasing demand for clean air. Automotive catalytic converters need a certain amount of platinum to enable them to clean the toxic fumes from your vehicle’s exhaust. Without it, terrible smog and pollution of the Mexico City variety would be the norm in every major city.
Another platinum price booster is the geopolitical risk associated with the locations of the world’s reserves of the metal. About 70% of the world’s platinum supply is South African. If you haven’t been watching the news, you missed stories of riots and fighting at the mines there. The other major platinum supplier is Russia, no stranger to political unrest.
As you can see on my chart below, the price of platinum is near the bottom of its range when compared to gold historically.
The price of platinum is out of balance. The ETFS Physical Platinum Shares (PPLT) exchange-traded fund is one of your best options to invest here.
Click to EnlargeI’ve always recommended gold as a form of portfolio insurance. Why?
In spite of its poor performance in recent years, gold is still in a secular bull market and will remain so until the world’s central banks stop printing excessive amounts of money and governments stop issuing excessive amounts of debt. Gold, unlike fiat paper currency, cannot be created out of thin air. The Fed hates gold. All central bankers hate gold. Governments hate gold. Gold equates to discipline, and discipline is not, unfortunately, what central bankers and politicians are all about.
Your choices for physical gold are coins and gold backed ETFs. I own both, though most investors will want to stick to ETFs that own physical gold, as the liquidity is better.
Therefore, holding a fund like SPDR Gold Shares (GLD) is a smart move to counter geopolitical upheaval, inflation, and U.S. dollar depreciation.
This fund does not invest in shares of gold mining companies. Rather, it is a gold bullion fund (trust). GLD is intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold. It’s a relatively cost-efficient and secure way to invest in gold.
Click to EnlargeHowever, gold isn’t the only precious metal you should have in your portfolio.
My current precious metals strategy is to add to precious metals today and double my most recent additions every two dollars per ounce down in the price of silver, emphasizing silver and platinum over gold.
Relative to gold, silver is cheap. The higher the gold/silver ratio, the cheaper silver is. The historical gold/silver ratio has been 15:1. Today, it is about 63:1.
Central banks do not own silver, which they could dump on the world market to depress prices. This is a big plus for silver as a store of long-term value.
A good strategy would be to pick away slowly at iShares Silver Trust (SLV) over the next few years. Each silver share corresponds to 10 ounces of silver.
Dick Young is the editor of Intelligence Report, an advisory newsletter focusing on a mix of blue-chip dividend payers, fixed-income funds and commodity funds to compound your wealth without undue risk to principal.
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