It is prudent to diversify your portfolio and invest in physical gold because your debts will weigh on equity multiples, cash values, real estate and real bond returns.
Would you agree that the world’s financial system is in desperate trouble due to irresponsible debts?
If these investors who have been prescient in seeing the cycle so far are right and gold goes to $8,000, then the 90% of your current wealth that you didn’t invest in gold will probably decrease in value to maybe 50%, given the stresses that will be manifest. Under that scenario, with just 10% of one’s current net worth diversified into gold at $1,600, an investor will have maintained 100% of his current net worth.
Now let’s consider the opposite scenario and that the gold price falls by 50% from $1600 to $800. This would put gold down to its fully loaded extraction costs when financing, government compliance, mine closures, etc. are included.
If gold moves from $1,600 to $800 investors would lose 5% of their current net worth …but that will mean that something wonderful has happened in the world. Under such a scenario it is likely conservative to believe that the 90% of one’s wealth not invested in gold would probably appreciate by at least 25% from today’s levels. Using that potential framework, the net portfolio will have appreciated in value by 20% despite gold’s theoretical 50% haircut.
As a rational investor, you buy home insurance, auto insurance, health insurance and life insurance each year, even though the statistical tables tell you that you’ll have nothing to show for it at year’s end! On the flip side, the statistical tables tell you that it is critical to diversify some of your wealth into gold and silver today because our debts will weigh on equity multiples, cash values, real estate and real bond returns. And if neither of these two extremes occur, you probably will still look back on your decision to diversify into gold as prudent, if not profitable, given the problems that face us today.