Rabbi,
Thanks for your temperate and concerned response.
I started thinking about investing some of my mom's money in gold- and writing checks for it- as soon as I started helping her manage things, in 1998 as I said earlier. At that time I considered gold bullion at a spot price of $300/oz or below a screaming buy, and bought as much as her finances (and her nerves) could handle, along with bags of 'junk' US silver coins. I also bought her some lower graded MS61- MS63 PCGS/NGC numismatic gold coins as well (I really like Saint Gaudens double eagles, but Liberties are more collectible).
That has proven to be a worthwhile move across the board so far, I have not taken profits on any of her physical holdings and do not plan to do so for a good while yet. The physical holdings serve more of a role as insurance in her overall portfolio rather than as investments in the traditional sense of the word. There was a time not too long ago when reputable financial advisors suggested their clients have a certain percentage- usually 5- 10%- invested in physical gold and silver to play the role of fail- safe. That approach is nowadays almost completely passe' but IMHO is still a wise decision. In fact I prefer a higher percentage than that myself, which is likely no surprise.
Most of her money has been kept in Treasuries or various CDs. I have used several different currencies via Everbank's foreigh currency CDs ascurrency trends have changed through the years. We had a good run with the Euro for a bit, then switched to New Zealand dollars for a good while to take advantage of their proximity to the burgeoning Chinese market. The NZ$ CDs offered interest rates of 5%APR or better plus currency appreciation over time of about 60%, and as a plus they are FDIC insured. As New Zealand's currency problems became apparent recently I shifted those CDs to Australian dollar CDs or to Commodity CDs.
Having taken care of her physical metals, I opened an account for her with Rick Rule's Global Resource Investments, a full service brokerage firm specializing in natural resources. This account was intended to handle the speculative portion of her portfolio, and the mining stocks definitely qualify as speculative. That was in 2002, and spot prices on gold were still holding below the $300 line. Prices on a lot of junior mining companies were below a dollar per share, there was little or no widespread interest in gold or gold mining. In other words, prices were low. As in "Buy low." My broker is a university trained mining engineer with feet-on-the-rocks experience, and I asked for and took his best advice (still do, too). We bought into several companies, bringing her GRI portfolio to a total of ten stocks of various sorts. Among those we bought MDVAF in January 2003 and KGILF in February 2003.
The "rules" say that on specs like these, you hope it doubles, then sell half, recoup your initial investment and reinvest that elsewhere to broaden your portfolio, meanwhile holding half the original stock as a paid-for freebie. But I waited. I waited until the end of February of this year in fact, and then sold all the Virginia Gold and Kirkland Lake Gold shares. Virginia went from $.823 to $11.175 in that time, and Kirkland went from $1.48 to $5.435. Other holdings went up 2X or 3X- in fact most of them did- but they are still there waiting. I had held the entire portfolio through one roller coaster decline and recovery in the mining shares, and did not want to do it again. We dropped those two from the portfolio, and used the profits to add four new items and increased holdings in one stock that had been bought into earlier in a small way. With a little luck- and that is always a consideration when digging in the dirt is concerned- we'll have found another Virginia in the making. If not, having 3000 shares of a $.75 stock zero out on you is far less painful than, say, what happened to the people who bought into Enron or the dotcoms at near market highs assuming there was nowhere to go but up. But having 3000 shares of a dollar stock go to $10 or $15 is nice.
The original investment in that account has a bit more than trebled since 2002. Granted not all of that is gold stocks, some of it is energy and other resource companies. But it's still enough to keep the accountant clucking and figuring- and to make my mom wonder if the broker is doing something dishonest. She can't believe anyone can make that much money and not be doing something illegal.
So, what does the future hold? I'm betting on continued and broadening military conflict, increasing trade deficits, increasing debt of all kinds, a declining (spotty at first) real estate market, continued inflation (especially with no more M-3 reports) and 'Helicopter Ben' Bernanke at the helm of the Fed, rising energy costs, growing antagonism against the US, and a continued rise to new highs in precious metals prices as well as the prices of pretty much any other 'real stuff' like energy and food you care to name. Could I be wrong? Sure. Might it cost me money to be wrong? Certainly. Does it scare me? Not as much as having everything in dollar denominated investments would, not at all.
Why do I think this way? Well, I never studied economics for one thing, I got to choose which economists I wanted to read (and none of them were named Keynes). As I said, I studied history, and spent most of my working career as a reference librarian and most of that at various Army libraries. So I got to know a lot of people on the bleeding edge, and since about half of that time was in the special operations community I got to know a lot of people doing the not-officially-reported stuff. Yeah, I know. Nobody in America can keep a secret. In fact there ARE no secrets, everybody knows everything.
As a result of the cumulative experiences of the past 30 years, I have a decided tendency not to trust the government and especially where money is concerned, not to trust the media especially where truth is concerned, not to be very much impressed with what is popular or faddish. I don't watch TV, I read. A lot. A WHOLE lot. I used to have whole libraries at my disposal, now I can do even better with a keyboard and a handful of subscriptions paid for on my own. I started using computers professionally in 1975 and have worked hard at keeping up with the practical applications of the technology. It's amazing. It's FUN.
And done right, it's profitable too.
I also think that eventually this current economic cycle based on 'things' will come to a close and a new cycle based on paper (well, these days it'll be digits) will begin. When that becomes evident I will shift out of things and into digits. But not right now. Right now there is more money to be made with more safety in stuff- the RIGHT stuff- than in digits. But that too will eventually change again...
lpl/nc
