How Much Gold Is The Proper Amount?

Jeff Clark at Casey Research believes strongly that now is the time for gold and silver.

He believes the following:

If 10% of your total investable assets (i.e., excluding equity in your primary residence) aren’t held in various forms of gold and silver, we at Casey Research think your portfolio is at risk.

Whether that is the right percentage or not is really not determinable except by your individual needs, risk tolerance, etc. That is, it is a personal decision. Furthermore, your portfolio is at risk in these times regardless of what is in it. When the purchasing power of the currency cannot be trusted, there are no safe or low-risk assets.

His rationale for gold and silver is sound:

Both the US and Canadian dollar, after adjusting for their respective CPIs, have lost about a quarter of their purchasing power just since 2000. Concurrently, gold has increased dramatically in buying power, far outpacing the effects of inflation.

I believe that fiat currencies are in danger of truly plunging, perhaps even collapsing.  That is why I hold gold and silver greatly in excess of Mr. Clark’s recommended level.

My reasoning has to do with our current situation — both political and economic. The political class has put themselves into a hole from which they cannot  escape. It is too late to remedy matters via proper economics, at least within a political context. As a result, the political class intends to keep the game going for as long as they can. That will be done by sacrificing the currency in an effort to make people believe that the economy is not worsening. It truly is and it will continue to do so. There is no way to avoid this reality eventually. But it may be hidden for a while by credit creation.

For a view similar to mine, see Why China is Dumping the Dollar — And Why You Should Read Up on The Weimar Republic. It provides some background on where we have been, the acceleration in trends and where we are headed. We may already be in the end-game of hyperinflation, although the effects have not shown up in prices yet.

If my expectations are correct, we are headed for massive inflation, perhaps even hyperinflation. Most assets will not keep pace with inflation, at least in real terms. That is why I have so little in dollar denominated assets. Other fiat currencies are likely not to fair any better which is why tangible assets like gold, silver and other hard assets might be a reasonable place to ride through what could be a monstrous storm.

On numerous occasions I have stated that the period we are in is not one where one should concentrate on increasing one’s portfolio. When this finally ends the big winners are apt to be the ones who have lost the least purchasing power. Keeping score in nominal dollars is likely to be meaningless. Gold tends to hold its purchasing power regardless of what happens to fiat currency.

Mr. Clark apparently believes the same thing, although is a bit more cautious in his pronouncement (I added the emboldening):

Regardless of what you think will happen over the remainder of this decade, one thing seems virtually certain: the value of paper money will be affected, perhaps dramatically. Even if the economy slips into deflation, the deflation wouldn’t last long. A panicked Fed would print to the max and set off a wild rise in prices. This is why we’re convinced currency dilution will not only continue but accelerate.

Read Mr. Clark’s piece to properly understand his position.

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3 Comments

  1. If someone were diagnosed with a terminal illness, he would be prudent to, “get his affairs in order”.
    God has mercifully given us warning of the impending death of our currency and only a fool would hesitate to make appropriate preparations.
    Beans, bullets, bandages and as much REAL money as can be acquired in whatever time remains.

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