Jeff Clark

Do you own enough gold and silver for what lies ahead?

If 10% of your total investable assets (i.e., excluding equity in your primary residence) aren’t held in various forms of gold and silver, we at Casey Research think your portfolio is at risk.

After speaking at the Cambridge House conference last month and talking with many attendees, I came away convinced that most investors fall into one of two categories: those who hold an abundance of gold and silver (which tends to be physical forms only), and those with little or none. While both groups need to diversify, I’m a little more concerned about the second group. Here’s why.

Regardless of what you think will happen over the remainder of this decade, one thing seems virtually certain: the value of paper money will be affected, perhaps dramatically. Even if the economy slipped into deflation, the deflation wouldn’t last long. A panicked Fed would print to the max and set off a wild rise in prices. This is why we’re convinced currency dilution will not only continue but accelerate.

Let’s take a look at what’s happened so far with the value of our currency vs. gold, after accounting for the loss in purchasing power.

Value of Wealth Saved in Paper Money vs. Gold

Both the US and Canadian dollar, after adjusting for their respective CPIs, have lost about a quarter of their purchasing power just since 2000. Concurrently, gold has increased dramatically in buying power, far outpacing the effects of inflation.

This is the core reason why I’m convinced we should hold our savings in gold and silver instead of dollars.

Mayan prophecies aside, many of our panelists last month, including most of the senior Casey staff, believe economic, monetary, and fiscal pressures could come to a head this year. The massive build-up of global debt, continued reckless deficit spending, and the lack of sound political leadership to reverse either trend point to a potentially ugly tipping point. What happens to our investments if we enter another recession or — gulp — a depression?

Here’s an updated snapshot of the gold price during each recession since 1955.

Gold Performance During Recessions

Clearly, one should not assume that gold will perform poorly during a recession. Even in the crash of 2008, gold still ended the year with a 5% gain. And with the amount of currency dilution we’ve undergone since that time, it seems more likely gold will rise in any economic contraction than fall. Indeed, if the response of government to a recession is more money printing, precious metals will be a critical asset to have in your possession.

Even if the gold price ends up flat or down this year, the CPI won’t. Gold’s enduring purchasing power is why we hold the metal.

How about gold stocks?

Gold Stocks During the 1970s Recessions

In spite of the debilitating 1970s that suffered from stagflation, price controls, three recessions, and the Vietnam war, gold producers rose over 600% while the S&P was basically flat. And that includes a roughly 65% fire-sale correction, much like we saw in 2008. To be clear, gold and silver stocks won’t be immune to selloffs if a recession or worse temporarily clobbers our industry. But in the end, we’re convinced they will prevail.

Don’t lose patience with, or confidence in, your gold holdings. What happens to the price over any short period of time is only one chapter in the book of this bull market, and we think you’ll be happy by the time that last chapter is written.

Regards,

Jeff Clark,
for The Daily Reckoning

Jeff Clark

Having worked on his family's gold claims in California and Arizona, as well as a mine in a place to remain nameless, Jeff's research and writing skills are utilized in his role as editor and one of the primary writers of Casey's Gold & Resource Report.

Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making Casey's Gold & Resource Report the best precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn't escape coverage.

  • CT

    Still beating the same old dead horse?

  • Chuck

    That dead horse has run pretty well for 12 yrs.

  • Bob the Yob

    That old nag sure has some staying power CT…….what happened missed out early when the going was good ?

  • http://www.westcoastladybugs.com RUSS SMITH

    Hi!, Patrons Of Daily Reconing Et Al:

    Promises, promises years on end with no end in sight! My portfolio is highly leverged with over 13,000,000 shares of gold miners for about 2 years of frustrating patience, as so many contrarian writers have continued to promise respite from their downtrend over that time but now it seems like the most ardent optimistic speculator types have given them up for bullion either as the raw metal itself or through gold ETFs but my slant has always been aimed at the raw shortage that’s gradually over time taking up all the physical slack from every angle we can imagine which only the miners in the end can fill as all gaps in trading are filled eventually someday somehow. My account is down around 86% as of today, May 04, 2012. I continue to allow my open trade equity to swing this way and that without taking any actions, in hopes that such news writers as Jeff here will someday soon be correct but then we may still have to undergo another recession first with no end of the excuses in sight; while the real physical shortage in raw bullion continues to gap higher. Price alone will not bring raw bullion onto the market until somebody does some diggeing and usually that’s the gold miners isn’t it? So far though my plan to not hold depreciating physical dollars but gold shares instead has received the reception of a dead duck with the loss of $ purchasing power plus the 86% loss in the physical pricing for the gold shares but I’m hanging on still like a tick on a good, red blooed hound. How long before the payoff takes hold so that gold stock holders can move forward with their profits attempting to do themselves and our Nation some good; while the bailout babies cry, wimper and receive their continuous instant gratifications I or nobody else knows. Just remain patient and persistant is what they tell me. One of my friends always told me that he could see gold stocks taking off but not in our lifetimes to do us any good and he has subsequently died last September 27, 2012 God rest his soul. The clocks are ticking away this idle wait time and they stand still for no given reasons. We have money for war, for education, for sparce wages, counties, states that have gone broke but those of us believing in the resurrection of our money after encourageing gold producers by investing in them for the real money that we know eventually will be needed/required to once and for all rescue our country from recessions/depressions using Constitutionally sound money are told to wait way out there in the actiation lobby while the Helicopter Ben Bernankes of our world subtily through stealth steal all our purchasing power is irreslutely sndured til?

    RUSS SMITH, CALIFORNIA
    resmith@wcisp.com

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