Buy Gold? No, 'Accumulate It'
Friday, 12/05/2014 11:38
If you "get gold" but are waiting for a new price drop first, read on...
THERE's a subset of investors who see the big picture for gold, believe in the fundamental case, and have the means to buy, but are holding off because they think gold is headed lower,
writes Jeff Clark at Casey Research's Big Gold newsletter.
By waiting, they believe they'll get a better price.
With all due respect to those of you in that camp, I think that's a mistake.
If one is convinced gold will be cheaper a week or a month from now, it might seem prudent to wait to buy. But obviously no one knows if gold is headed lower or if it's already bottomed. So don't kid yourself: you may or may not get a better price.
And premiums don't stay the same. The US Mint raised the price it charges authorized silver purchasers by a substantial 50¢ after that metal's last big retreat. The price retail silver buyers received was not as attractive as they thought it would be.
But these issues miss the bigger point. Here's what I think is perhaps a better way to view the subject, along with a solid strategy to handle the dilemma...
"A Dollar is worth only 70¢ now," my dad once told me as we worked in the back yard. "And they say it'll only be worth 50¢ in a few years."
It was the mid-1970s. I was helping my dad build a dirt road to our barn, and he wasn't happy. Not about the hard work or humidity, but from what was happening to the Dollar. Inflation was starting to kick into high gear, grabbing headlines that even a girl-chasing teenager could understand.
I remember being appalled by the thought of going to the store and having the clerk demand $1.30 for an item marked $1. Knowing what I know now, my thinking wasn't that far off.
Our local paper ran a story of a blue-collar worker who had stuffed wads of Dollars into the back of his gun cabinet early in his working life. The money was discovered by the family after his death. While saving money is good, the duck-hunter equivalent of "Family Mattress Bank & Trust" won't keep your money from depreciating; the stash of $10s and $20s had lost over half its purchasing power since he'd hidden it some 30 years earlier.
About the same time the gun locker was being lined with legal tender, both of my grandfathers – unbeknownst to me at the time – bought some gold and silver coins for me and likewise stored them away. I inherited them a few years ago – and the purchasing power of the coins is still the same as it was 30 years ago, despite the price fluctuations along the way.
If gold were an investment, it might be prudent to see if you can get a better price. But it's not. It's lifestyle insurance. It's an alternate currency that will withstand the inevitable fallout of government excess, the start of which grows closer by the day. It is purchasing-power protection – protection that you and I may use sooner than we'd like.
You might argue that you always try to get the best price when you buy auto insurance and life insurance. That's true – but the difference is that you shop among different brokers for the best price; you don't put off the decision because you read somewhere the insurance industry might lower its rates at some point in the future.
So, what to do?
Neither you nor I nor anyone else knows exactly when the very best price for gold will occur. Since gold is an increasingly critical form of insurance in today's world, the thing to do is to take a portion of your Dollars earmarked for gold and buy some now at the current low, but keep some powder dry for the next potential dip.
That way you've got a good price in case the bottom is in, but you still have some cash available if the price falls lower. Then buy another tranche next week or next month or quarter – whatever suits your cash flow and financial plan – but make it a regular occurrence until you have the full allotment you want.
I cringe when I hear people say they're waiting for a better price. What if the market takes off higher or simply stops falling – then what?
Don't look to buy all at once. Buy in tranches. It's how large investors, institutions, and central banks (and Casey Research editors) buy.
If you haven't already, start your accumulation plan today. In a short period, you'll have a nice stash of hard assets purchased via Dollar cost averaging – i.e., at the best cost basis you could hope to achieve.
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