A reader asked for my take on the difference between owning currencies, gold and the gold miners. The reader notes that they seem to be similar in some aspects but different in others.I'm not sure there is a single all-encompassing answer to this, just opinion.
From the top down they provide similar protection to a diversified portfolio during periods slow decline or deterioration in the US.
I made a comment in this week's video that if you think Michael Panzer will end up being correct you probably should buy a lot of gold and foreign currency as the dollar would likely decline a lot from here against both. To be clear I do not draw the same conclusion that he does.
However I am not so sure that in the face of a terror attack the dollar would decline. The dollar used to be a flight to safety destination as it was in 2001 and during other quick and scary events. The money that would come into dollars would then go in to US treasuries. Gold also has history of going up in the face of real fear like that.
Over the last couple of years I have been less interested in the gold mining stocks compared to just using GLD (which I own for most clients). I made a switch from Anglo Gold (AU) into GLD a couple of years ago and am unlikely to go back to a miner anytime soon. Here I am differentiating between a gold miner versus a broad diversified miner of which I have two in my ownership universe or a narrow miner of something other than gold of which I have one or two on my radar but do not own.
Over the last year the metal has outperformed the Market Vectors Mining ETF (GDX) and Newmont Mining (NEM) but most of that has come in the last three months. It seems to me that at times the metal leads but that the miners also lead some of the time too. One theory you've probably seen is that the ease of trading GLD means the miners will now always lag the metal. I wouldn't bank on that one but if there is ever a terror event again or something else that causes that sort of fear it seems more obvious to me that GLD would be better than the miners.
Foreign currency exposure is not really (or should this be not yet) protection against panic save for the Swiss franc perhaps. I view currency exposure as a way to diversify cash and protect against deterioration not terror.
I have felt for a while that the dollar is on a slow path to having to share the role of world reserve currency and that it will eventually cede that role to something else (here is a link to a post on this subject I wrote three years ago). I don't know how long this will take or which currency will supplant the greenback but nothing in the last couple of years has changed my thinking.
If that pans out then some moderate exposure to foreign currency (or very short term debt) should make sense.
The picture is from the trail through the mountains just above downtown Juneau.
3 comments:
Roger, I noticed in perusing the monthly ETF returns that silver (SLV) has very strong momentum recently like GLD. In light of your comments today, I'm curious about your thoughts on SLV, if you would please. Thanks very much.
Silver is a much smaller market and unlike gold the industrial uses for silver means that it gets consumed unlike gold.
Proponents of silver will say that the industrial use aspect of silver makes it a better bet and makes it easier to understand but I tend to think that the silver market is more complicated otherwise it would have done better than it has.
that may seem like an odd statement but I think it speaks to the idea that the market also thinks it is more complicated than gold.
I have owned both gold and miners (personally and for clients) in the last few years. One nuance that I think people are unaware of are the tax differences (for those holding in taxable accounts). I wrote an article about it on my blog:
http://tinyurl.com/25278f
That was a while ago but the gist is simple. The ownership of GLD (and SLV) are treated as owning collectibles. Therefore the maximum tax rates are 28% even if held long term (as opposed to the standard 15%). I quoted the actual GLD prospectus in the article if you want to see the fine print.
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