Why I've Changed My Mind on Gold

It took a while, but finally I've come around...

Written by Jimmy Mengel
Posted July 30, 2020

I’m not a gold bug...

I've always operated by the old Mark Twain quote that the definition of a gold mine is “a hole in the ground with a liar standing at the top.”

When I used to think of gold investing, I imagined an old prospector panning for it in a shallow creek, wearing a ragged hat and muddy overalls. I pictured end-of-the-world preppers screaming about burying gold in your backyard before the government came for it. Hucksters on infomercials screaming “The dollar is collapsing, buy gold now!” rang in my ears.

It all sounded far too hyperbolic for me.

That’s because I’ve always been quite the opposite; I invest primarily in dividend-paying stocks that have shown nothing but growth for decades. I own companies that I know and understand. That philosophy keeps me safe at night and ensures that I don’t have to always be waiting for a major catastrophe or current devaluation in order to post a profit.

Perhaps I’ve been too naive to think that things could get bad enough where gold would be the single best investment you could make.

But things have changed this year — and they changed quickly.

And it’s made me a believer...

Now, my “safe”, investments have worked wonderfully over the past decade. It's pretty easy to make money during the biggest bull market run in history. We are currently witnessing the most upheaval in the stock market since 2009.

From the coronavirus lockdowns to massive Fed intervention, to the U.S. dollar decline, all the way to rising U.S.-China tensions, it's clear that gold was going to break out. But how much should an investor own in something so historically volatile?

The “Godfather of Gold”, George Milling-Stanley, is urging investors to set aside 10% of their portfolio for precious metals. He helped create the SPDR Gold Trust (GLD) in 2004, which is now the world’s largest gold exchange-traded fund with over $50 billion in assets.

In an interview with CNBC, he made his case:

We all tend to focus on one thing, but there is a lot more to the equation. Some think gold is just an inflation hedge. In my view, gold is a hedge against the unexpected, whether it is a hedge against macroeconomics, or geopolitical like wars or pestilence. It has always been protection against the unexpected, whatever that might be. Gold tends to perform whenever anything unexpected happens.

Now you may be saying, of course a guy who makes his living investing in gold would recommend having a huge part of your portfolio in it. To a man with a hammer, everything looks like a nail, right?

Well, it isn't just gold bugs who are calling for investors to put far more of their capital into precious metals.

Some legacy market movers like UBS and Morgan Stanley have actually gone on record, telling their clients that they should seriously increase exposure to gold.

I'm not sure if you realize what a big deal this is. If you had argued for 5% even a few years ago, you would have been laughed out of the room. Now a 10% allocation has been deemed reasonable by the powers that be.

Considering that the gold market in total is worth under $5 trillion, the big boost in demand could be a self-fulfilling prophecy for prices as any inflows from the bond and equity markets — which are estimated around a combined $200 trillion — have a huge impact on the tiny gold market.

It really is a perfect storm...

Now, gold still doesn’t pay a dividend. It’s unbelievably hard to identify a decent gold miner. And yes, there are still plenty of liars making millions by sitting at the top of that large, empty hole in the ground.

Unlike some bull markets, you can't just throw a dart and expect to cash in.

So, while I was reluctant, I came hat in hand to my colleague Nick Hodge for some gold buying advice. I've seen how many triple-digit returns he's gotten in the last few months and started to get rather jealous.

My only regret was that I didn't ask him sooner — every play he recommended is exploding. They are far and away the best performers in my portfolio right now.

If you haven't acted yet, there is still time.

Nick told me that on August 31, a critical announcement will reveal the biggest gold mine in America, which could send the tiny miner that owns it down a path to quick, triple-digit gains.

He'll tell you all about it himself right here.


Jimmy Mengel

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Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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