[debeguiled]

I know it is a cliche, but what is wrong with gold?

I have been doing some reading over at the Permanent Portfolio Forum (http://gyroscopicinvesting.com/forum/gold/), and they make a good case for keeping a quarter of your assets in gold.

The guy explains the upside of gold at his blog:

http://www.crawlingroad.com/blog/2009/10...ation-faq/

Here are some of the relevant topics:

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Gold is a powerful asset that protects against inflation or threats of inflation. Gold also offers protection against problems that may threaten a currency or banking system. Finally, gold is an asset that is not someone else’s paper promise to you and can be physically controlled. In this sense it is what you’d call an “asset of last resort.”

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How does gold protect purchasing power?

In short: Gold is a compact form of wealth. It doesn’t change over time and can’t be over-printed by a government. It is impervious to debasement that plagues all paper currencies. Gold does not rack up massive debts and unfunded government liabilities. Gold does not care about political speeches or promises about the “Strength of the US Dollar.” Gold to a politician is like a Holy Cross to a Vampire. Gold stands on its own.

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Isn’t gold only owned by gold bugs who think the world is coming to an end?

Sadly, this reputation has developed. Anything can be taken to extremes. People who advocate 100% ownership of gold are taking on huge risks just as people who advocate owning 100% stocks are. Gold has risks just as any asset does and you need to be aware of these risks and work with them intelligently.

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What kind of gold should I own in the Permanent Portfolio?

The ideal is to own physical gold bullion stored somewhere secure such as a safe deposit box where it is protected against theft and insured. The other ideal is to have it in segregated storage in a bank overseas for geographic diversification.

Gold is special in the portfolio and you want to have as few pieces of paper and people between you and the asset as possible. Harry Browne would go even further and suggest that the gold portion of the Permanent Portfolio be stored at a bank outside of the country in some place like Switzerland for safe keeping. This would protect you from possible government actions that may seize the wealth of the citizens or protect against man-made or natural disasters that affect the regional finance system.

However this is becoming much more difficult for US Citizens to do. Perhaps a warning in and of itself.

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What kind of gold should I buy?

If you are looking to have physical possession stored somewhere secure then you should use bullion coins. These are things like American Eagles, Canadian Maple Leafs or South African Krugerrands in the one ounce size. The sizes less than one ounce have a high premium attached to them vs. the gold content and should be avoided unless you have no other options due to budget reasons.

Other options include Austrian Philharmonics, Chinese Pandas, Australian coins, British Sovereigns, etc. But these are less popular and less recognized as the Eagles, Maple Leafs and Krugerrand.

I recommend you buy American Eagles, Krugerrands or Canadian Maple Leafs with American Eagles being slightly more preferred if you live in the US.

What kind of coins should I avoid?

Any type of numismatic (collectible), rare or antique coins. Also avoid all coins that are not from a recognized source as stated above such as privately minted “commemorative” coins.

Why avoid numismatic coins?

Numismatic coins derive much of their value not from the metal content, but from their collector value. So they are not as reliable store of wealth as they have a huge subjective value attached to them by collectors.
What about one ounce gold bullion bars?

These are less recognized by most people and come in tamper proof packaging that makes verifying them harder. It is best to just use the one ounce bullion coins as they are easily recognized and are a familiar form.

What about silver?

Silver is more of an industrial metal rather than a monetary metal. It is not as reliable as gold for protection against currency problems. Keeping some junk silver coins around for emergencies may not be a bad idea, but it shouldn’t be your primary hard asset in the portfolio over gold.

There are many choices if you want to hold your gold in storage overseas for geographical diversification. This is the one he recommends.

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What about the Perth Mint?

The Perth Mint is run by the Government of Western Australia and offers many different gold buying programs guaranteed by the government. For small accounts (about $10,000 USD) you need to work with select US brokers and there are markups involved with entry and exit fees (about 2% to buy and 1% to sell). A blog reader adds that you can open an account directly if you have enough money and bypass the US brokers. Fees may apply there as well for buying and selling depending on your account size.

The Perth Mint deals with gold certificates for claims on gold that they are holding. You can also request physical delivery of your purchases. They offer unallocated storage for no fees or allocated storage for about 1.5% expense ratio a year. This is much higher than the 0.40% from a gold ETF, but if you want to own gold that is in segregated storage in another country it is a viable option. Not only this, but the accounts are also guaranteed by the Government of Western Australia (S&P AAA rated) and insured by Lloyd’s of London. Overall, this option has many positives for those not looking to keep gold themselves, but don’t want to use ETFs or the other gold storage services. See their website for more information.

There is more at his blog, and this is just something I have been researching, so I am not personally vouching for any of this stuff, other than the fact that it makes sense to me.

You can keep two million dollars in gold in a shoebox. Not good for crossing borders legally, but very portable.