The Case for Gold Stocks Today

A Note From the Editorial Director: The Oxford Club’s allocation model advocates precious metals exposure in your portfolio.

And that’s not just because gold was recently up more than 25% and silver was recently up more than 45%.

According to Chief Investment Strategist Alex Green, your portfolio should always have at least a 5% allocation to metals and mining. How much you add from there depends on market conditions and your risk tolerance.

With interest rates plunging around the world and investors fearing they’re only going lower, gold is a hot topic among our Members.

That’s why we asked Alex to write a special essay on why and where you should invest in gold.

– Andrew Snyder

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There are seven key reasons why gold, “the barbarous relic,” has been sought after as a store of value for thousands of years.

1. Unlike stocks or bonds, it is tangible.
2. Unlike wheat, corn or rice, it is durable.
3. Unlike lead or copper, it is convenient.
4. Unlike real estate, it is invariable.
5. Unlike artwork, it is divisible.
6. Unlike aluminum or copper, the supply is greatly limited.
7. And unlike, say, molybdenum or rhodium, it has a long history of acceptance as money.

That said, I am not a gold bug.

And the physical metal, in my view, is a lousy long-term investment.

Yes, it has intrinsic value, unlike paper assets. It affords you a measure of privacy that you can’t get with most financial assets today. And the coins, in particular, are lovely to behold.

But if your coins are locked away in a safe deposit box, as they should be, you really can’t enjoy them much. In the meantime, they’re not drawing any interest or paying any dividends. And it’s costing you money each year to store or insure them.

Don’t get me wrong. I do own some physical gold, for the same reason I have a homeowners policy on my house. (I hope I never have to collect… but just in case.)

Of course, you could trade gold options or futures instead. But I don’t recommend it. The short-term price movements in gold are completely inscrutable. That’s something to consider when using leverage or buying a contract with a rapidly diminishing time premium.

However, despite the uncertainties that exist in the gold market, shares of gold producers have a place in every investor’s portfolio.

Why? They are a great diversifier. And they are a leveraged play on the price of the metal. If gold moves up 10%, for instance, blue chip gold shares generally rally 30% to 40%.

Right now, central banks around the world are using every weapon in their arsenals to revive economic growth, including negative interest rates.

I don’t need to tell you that the long-term effect of this – combined with runaway government spending – may well be inflationary.

And gold stocks are an excellent inflation hedge. Better still, they tend to move independently of both the stock and bond markets. Gold-related investments have a near-zero correlation with other assets.

So make sure you own gold shares in your portfolio.

Blue chip gold stocks are cheap and unloved right now, even though the metal has moved higher. They are a fine inflation hedge and a great portfolio diversifier.

And if institutional investors start climbing on board, these shares could move sharply higher in the weeks ahead.

Good investing,

Alex