The “Keystone” of Your Plan B

“Jeff, Jeff—you got a minute? I need to know… something.”

The question came in almost-hushed tones.

I was sitting at my table at the International Living Fast Track Europe conference in southern Portugal last weekend.

I looked up to see an older woman in sunglasses looking at me…

“What’s up?” I asked.

She looked around, almost furtively. Where was this going, I wondered.

Turns out it was going someplace fairly common in my world.

“What kind of gold do I need to own? Where do I own it? And do you really think I’m going to need it?”

The answer I offered this older woman in sunglasses, might answer some questions that you, dear reader, also have…

Hence today’s dispatch…

Let’s address the last point first: Do I really think anyone needs to own gold?

Yes.

Yes, I do.

Unequivocally.

America is barreling toward a debt crisis.

I won’t rehash all my arguments here… this is something I regularly reference in these Field Notes dispatches and in my monthly Global Intelligence newsletter.  

In short: There is no simple solution to America’s $35 trillion debt—to which an extra $1 trillion is now being added every 100 days…

Moreover, the dollar is likely to fall victim to the country’s divisive political system. US politicians right now would rather score points with partisan voters than protect America’s financial position in the world.

Foreign and domestic investors will continue to sell off dollars—at a faster and faster pace—as America’s politicians continue to put infighting ahead of solving America’s problems. That means the dollar’s value is headed off a cliff…

Even if I am wrong about all of that, there’s still really not much downside to owning gold…

Inflation will continue to erode the dollar’s value. And gold will continue to trudge higher, or at least remain in its current range at $2,000 to $2,400 per ounce, because gold investors see the metal as the antidote to the ever-decaying value of a greenback.

If, however, I am right about America’s looming debt and dollar crisis, then gold sees sharply higher prices at some point not too far in the future. I regularly say the 2027/28 timeframe, but it could just as well be 2030.

Either way, gold surges well above its current levels…

How high it goes is a topic for another day…

For now, let’s answer my inquisitor’s first two questions: “What kind of gold do I need to own? Where do I own it?”

The best way for me to answer that is to share with you how I’ve positioned my personal portfolio…

I own gold in three different ways:

1. Physical Gold… But Not Gold Eagles

These are raw bullion coins once used in global trade and general commerce in the 19th and early 20th centuries. Think: old French francs, or Austrian ducats, and the like.

The gold I own ranges in size from a tenth of an ounce to just over one ounce.

Why old coins instead of, say, modern American gold eagles?

Just in case.

Back in 1933, the US government confiscated gold to save the dollar from collapse. Bullion was confiscated but not numismatic gold—i.e. collectible coins.

I am not saying gold will be confiscated again. But the fact that it happened once is proof positive that it can happen…

If it does happen, I want old gold coins that are collectibles… just in case similar rules apply.

I keep most of my gold coins in a safe-deposit box at a bank.

But I also hold coins at BullionStar (BullionStar.com) in Singapore. Through that precious metals dealer, I can buy the gold and silver I want to own, and then store it directly with BullionStar. And I can log into my account any time and see the actual coins I own in the vault, along with the documentation proving my ownership.

Singapore operates a highly regulated financial system, and if confiscation ever did happen again in the US, there’s no way Uncle Sam will be able to reach into my account and demand that the metals be sent to D.C.

2. Gold ETFs… But Not Just Any ETF

The only reason I own these is because I cannot own physical gold in my retirement accounts and brokerage accounts.

But I own a very specific kind of gold exchange traded fund…

See, the biggest gold ETF, known by its symbol GLD, represents a risk in my view.

Too many gold ETFs are involved in borrowing and lending gold amongst themselves and the custodians and sub-custodians they rely on.

If ever we come upon a moment where a financial crisis sees gold prices shoot higher quickly, the often informal borrowing and lending agreements common in the gold space will very likely see the chain break.

Somewhere in the system, a borrower will not be able to make good on replacing the suddenly pricier gold they borrowed and loaned out. And the entire system is going to convulse. Certain gold ETFs will be collapsing in price even as gold prices race higher.

So, I own gold ETFs that do not allow borrowing and lending to occur.

They simply sit on their gold, stored in ultra-secure vaults in various places around the world. If gold spikes, well, the ETF’s value spikes because the company owns all its gold in hand.

You can own gold ETFs in traditional brokerage accounts, or retirement accounts such as an IRA.

Some 401(k)s will offer a gold ETF as well, though it’s typically the one I don’t want to own. In that case, I’ve created a “brokerage link” to my 401(k) that lets me use my account to go “off the reservation,” so to speak, and buy assets like stocks and bonds and such that you find available in a traditional brokerage account.

3. Gold Mining Stocks

Miners are a leveraged play on gold prices.

They own hundreds of thousands, if not millions of ounces of gold in the ground.

Moreover, their cost structure is largely fixed. The only real variables are the cost of energy, and the amount of royalties and taxes they will pay relative to the profits they earn.

Thus, as gold prices go up, the value of gold they mine flows to the bottom line almost uninterrupted. So earnings shoot higher. Which means stock prices and dividends shoot higher.

I’ve use this example before… Back in the Great Depression, one of the best stocks you could have owned was Homestake Mining, the biggest miner on the stock exchange at that point. Gold prices did well in that period, and Homestake’s shares soared, and so did the company’s annual dividends.

So, I want to have exposure to mining stocks as a leverage play on rising gold prices…

As with ETFs, you can own in your brokerage accounts and retirement accounts. You won’t find access to mining stocks in a 401(k) unless you have a brokerage link—though you might find a gold-miner mutual fund in some 401(k) plans, and those aren’t terribly bad.

And that is the answer to: “What kind of gold do I need to own? Where do I own it? And do you really think I’m going to need it?”