After years of laborious study, dissecting, listening, and strategizing I have decided to release my thesis on how one should construct their precious metals portfolio. I have listened intensely to the most respected names in the public and private domain. Respectfully, I hold high esteem for the lessons and values from each and everyone’s perspective in no particular order: Rick Rule, Eric Sprott, David Morgan, Robert & Kim Kiyosaki, Mike Maloney, James Sinclair, Peter Schiff, Rob Mcewen, William Kaye, Egon Von Greyerz, Bill Fleckenstein, John Embry, Marc Faber, Felix Zulauf, Phillipa Malmgren, Stephen Leeb, James Rickards, Ben Davies, Art Cashin, Michael Pento, Pierre Lassonde, Bill Latour, David McAlvany, Jason Sharon, Jim Dines, James Cook, Ted Butler, Tekoa Da Silva, Chris Martensen, Murray Rothbard, Ludwig Von Mises, George S. Cason, Mike Murdock, Jesse Duplantis, Earl Nightingale, Benjamin Graham, Craig R. Smith, and Al Korelin just to name a few :). Each was responsible in shaping my ideology and evolving my thesis on how one should construct their Precious Metals Portfolio. Now, what I am about to share with you may make you shake your head in disbelief, but just follow it through:
1. View your holdings as a savings account (insurance)
- Precious Metals/Bullion constitute the insurance portion of my portfolio (Credit: Rick Rule, David Morgan, Mike Maloney, Bill Latour, Jason Sharon)
- Not a checking account
- Not a trading account
- Got it! ! !
2. Measure your savings in ounces, not the spot price
- When prices go up, I sleep well at night
- When prices go down, I sleep well at night
- Mr. Market does not control me, if anything, when prices go down I want to purchase more (Credit: Benjamin Graham, ‘The Intelligent Investor’)
The preponderance of empirical evidence for owning precious metals directly, proxy (certificated), or mining shares is beyond compelling. Here are some just to name a few:
- Venezuela, Germany, Switzerland, Austria & Denmark, want to repatriate their gold holdings (some, not all) from the Federal Reserve, actually the U.S. Treasury. THE FEDERAL RESERVE DOES NOT OWN ANY GOLD! ! ! Don’t believe me – Click here CSPAN June 2011 –http://bit.ly/1AlnJjP (scroll to the 1:35 min and listen)
- Congress proposed the creation of a numismatic Platinum coin to payoff of the U.S. National Deficit in 2012 and 2013
- The Bureau of Engraving and Printing, via the Federal Reserve, is printing new currency at an unprecedented rate, both physically and digitally
- The Federal Reserve has a toxic balance sheet that has metastasized from < 1 Trillion in 2007 to > 4 Trillion presently: http://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
- The Federal Reserve artificially interfering/manipulating interest rates to 0%
- In recent news, there are advocates in banking and ivory towers of Keynesian Academia advocating the notion of cashless society
No, I am not stating that all is doom and destruction. The above are facts. Because I am aware of the facts, I believe that it is my obligation to share with everyone that is willing to hear the truth and how one can benefit from these unprecedented actions by an unelected select few that know better than the free market. The Federal Reserve and Keynesian Economists do not know better than the Free Market, history will repeat and defeat those few that believe they are elite.
Let’s get Ready to Rumble . . .
My thesis regarding how to construct a precious metals portfolio (Insurance, Core, Growth, Speculation): http://sprottglobal.com/natural-resource-investing/investment-university/mining-investment-college-video-1/. I like to hold my insurance between 15%-25%, and under normal circumstances 10%, but there is too much volatility geopolitically and economically.
Of the 4 major metals Gold, Silver, Platinum, and Palladium I submit to the following:
FACT: Gold and Silver are money. Platinum and Palladium have relatively little roles in monetary history. I regard utility of the metal a primary factor in my decision, quantity second. I love all 4 and they are below the cost of production, rare, unloved, undervalued, unappreciated, and on sale.
- Insurance (bullion): Limited, Null allocation.
- Core: High, I prefer the Senior/Major mining Companies
- Growth: High, I prefer the Prospect Generators
- Speculation: Moderate, Discovery/Junior Mining Companies for the Speculation portion of my portfolio.
*Why limited, null on insurance (bullion)? I strongly advocate gold bullion holding, but I plan to do so at a later time (explained in Silver). I believe in using the leverage offered via Dumb Mass Psychology (say that fast). When Joe Six Pack wakes up realizes he needs gold he will contact his broker and purchase mining shares and or more specifically ETF’s such as ‘GLD’. Why, because his broker/financial planner don’t get a commission when an investor purchases bullion from a coin dealer. Also, most investors are not aware that coin dealers exist. I am astounded by how many investors do not know that they can purchase bullion locally at a coin shop.
Anything with Gold in the nomenclature of a mining company will be thrown into the stratosphere. Currently, there are still mining companies that need to be purged from the industry but the leverage that can be obtained by purchasing the best of the best right now in a market that is 83% lower than it was 4 years ago is a no brainer. Because gold is the most expensive out the of the four metals and has very little industrial use I like using the miners. Also, gold is not very divisible. Gold is great for large purchases. I am keenly aware that mining companies are not gold and that I will NOT receive bullion when I sell but rather currency. I will sell my holdings and pay off the mortgages on my real estate holdings.*
- Insurance (bullion): Highest allocation
- Core: Moderate Senior/Major Mining Companies
- Growth: Limited Prospect Generators
- Speculation: Limited Discovery/Junior Mining Companies
*Silver is the least expensive and when, not if, gold moves so does Silver but more violently. I like the divisibility of Silver for day to day transactions. An investor can purchase vast quantities of Silver compared to Gold, Platinum, and Palladium. I like the fact Silver is money and has 2nd highest industrial application usage behind petroleum. When the Silver:Gold ratio revert back to their historical means I will be looking to convey my Silver bullion into Gold bullion. Gold bullion holders and Coin Dealers will like the rate of returns of Silver but most likely will not accept currency for the sale of Gold bullion. Traditional investors have little regard, knowledge of monetary history and do not recognize the valuation proposition of Silver. Investors may have some familiarity with Gold but virtually none when it comes to Silver.*
Platinum & Palladium (My Favorite)
- Insurance (bullion): Moderate/High
- Core: Moderate Senior/Major Mining Companies
- Growth: Null
- Speculation: High Discovery/Junior Mining Companies
*Platinum and Palladium (PGM’s), I view in higher regard than Gold. Yes, I said it. Why, Platinum is approximately 30 times more rare than Gold! But the fact that Platinum is 30 times more rare than gold means nothing. The primary valuation factor is UTILITY! ! ! Platinum and Palladium are used in catalytic converters. So once they are used they go up in smoke. PGM’s are not mined ubiquitously. The primary facilitators for PGM’s are Russia, South Africa, and Zimbabwe. Geopolitically, these aren’t the most stable of places. The cost to bring Platinum out of the ground is roughly $1,700 and spot as of this writing is below $1,200, which is below the price of Gold! Remember, it is 30 times more rare than Gold and holds a very important industrial use. Palladium recently has been determined to exhibit the same utility as Platinum. Palladium is less expensive, noticed I didn’t say cheap. Cheap infers lower quality and lower cost. Palladium is less expensive than Platinum. China has declared war on smog! China just preceded the U.S. as being the #1 consumer of cars, but only 3 out 10 Chinese adults own cars versus 9 out of 10 U.S. adults. The number of car owners will increase for China as their economy continues expand and have a more dominant influence globally. * (Credit: Rick Rule)
Gold is for the Nations
Silver is for the People
Platinum is for the Nobility
All the metals are recommended to be a part of your portfolio. It is my sincerest wish that you consider the valuation proposition that each offers in your quest to become a generational steward. Please do look at the links provided and listen/view some of the correspondence I have presented. Remember: they call it precious for a reason, and your family is of more value than any precious metal, so protect them.
Proven & Probable
The featured image is by: Mark Herpel