Galland, Managing Director of Casey Research, interviews… David
With gold and gold stocks on a tear, does Casey Research still recommend
holding 1/3 of a portfolio in cash?
answer depends, of course, on what country you are currently sitting in. Were
I sitting in the eurozone, I would have already moved much of my safe-harbor
cash into the “resource” currencies such as Canada and
Norway… i.e., countries that are rich in the natural resources that the
world needs and will always need.
derrière were resting in a seat planted on U.S. soil, as it is, and I
didn’t plan on doing any significant overseas spending, then I would
feel relatively comfortable – for the time being, with a larger than
usual allocation to the dollar. But I would have been diversifying into the
resource currencies as well.
Hold the fort, dude – how can you write frequently about the demise of
the dollar and yet be “relatively comfortable” holding the stuff?
a nutshell, the monetary inflation, quantitative easing, and insane spending
of the U.S. government, emulated by countries around the globe, have set the
table for a large serving of currency depreciation down the road.
that depreciation begins to appear in the form of price appreciation,
we’ll look to trade our greenbacks for more in the way of tangibles
– probably more gold… maybe real estate in a good location,
location, location… maybe more silver… maybe deep-value energy
stocks… maybe antiques… maybe some of all of the above.
the time being – because price inflation is not out of control and
yields are so low – there is little real carrying cost to holding a
larger allocation to cash, and the flexibility and security of having cash is
a big plus.
What about gold and gold stocks today?
Gold is sound money. Always has been, probably always will be. In the sort of
crisis now underway – a crisis that to no small extent is now focused
on sovereign fiscal and monetary excesses – gold has a particularly
important role in protecting wealth.
don’t own it, start accumulating it, preferably on the inevitable dips.
If you do own it, hold it and consider accumulating it up to somewhere
between 20% and 30% of your portfolio, though the exact amount will depend on
factors such as your cash flow needs, personal debt obligations, your age and
work status, etc., that we can have no way of knowing.
the nuances in answering this question has to do with deciding what form of
gold to own. While we like physical gold held in a safe place, you
don’t want to go overboard, because things can happen. For instance,
robbery, or even a house fire that melts your wealth back into the dirt.
addition, at some point the gold bull market will end, and when it does, the
scramble to sell will likely overwhelm the coin dealers to the point where
they literally take their phones off the hook. That creates the potential for
big gaps down in the price between the time you decide to sell and are
actually able to sell. Mind you, I don’t see that being a concern
anytime soon – but it’s always worth keeping in the back of your
are a number of other bullion alternatives – a big positive being that
many are easy to buy, hold, and sell – including allocated and
unallocated gold accounts, electronic gold, gold ETFs, and so forth. Some are
better than others – and all are worth understanding before making
investments. Our Casey’s Gold & Resource Report is a good source for
this sort of info.
our recommendation is to hold your gold in a variety of investment vehicles
as that will mitigate the risks of having too many eggs in one basket.
to gold stocks, savvy investors will already be well positioned in the best
of the best. And will own many positions risk-free, having already recaptured
their original investment. If that is the situation you are in, and you
really understand the companies you are invested in, then at this point
either hanging in for the big upside or trading the surges and dips makes
sense. If you are new to the sector, I wouldn’t chase the stocks just
now – but rather put in stink bids – i.e., 10% to 20% below the
current market, and look to get filled on a correction.
are new to the gold stocks, or risk-averse, then look to build a portfolio of
large-cap gold stocks such as we cover in Casey’s Gold & Resource
Report. Those will attract a lot of attention from the public at large, and
from institutions, as the bull market gathers steam.
have experience with gold stocks, and a higher tolerance for risk, then you
may want to focus on the small-cap Canadian explorers and developers. Those
juniors have amazing volatility and, when the news is good, the upside can be
of the approach you take, don’t chase stocks as they move higher
– but look to build your portfolio on dips over the next few months.
idea is to get positioned before the underlying price of gold reaches a level
where the public starts to come into the sector in a big way – at which
point, if history is any guide, the early investors will make stunning
what price do the gold stocks catch fire?
Some years ago, we had someone spend the better part of a week in a musty storage
room full of old Canadian newspapers, paging through past issues and
recording the price and volumes of the gold stocks during the last big
run-up, in the 1970s. We then compared that data to the gold price in
inflation-adjusted dollars in order to determine the price when the broader
investment public began piling into the gold. The number worked out to about
$1,250 per ounce in today’s dollars. In other words, when gold
decisively takes out $1,250 an ounce and holds above that level, if history
is a guide, we may start seeing the average guy on the street – and the
institutions – pile into the stocks.
course, while interesting from an historical perspective, that analysis has
no scientific basis. The key point, therefore, is that during the last big
gold bull market the public wasn’t involved in the gold stocks when
they should have been – in the run-up phase – but rather only
piled in after the price of gold bullion soared, relatively late in the bull
market. So far, the average Joe and Jill are just not in this market. But
they will be.
high do you think gold will rise?
our recent Crisis & Opportunities Summit, an attendee asked how high we
thought the dollar price of gold would reach in this bull market.
response was that there really is no way of actually forecasting that number,
for the simple reason that, in a fiat currency regime, the underlying unit of
valuation is so intangible. Let’s say you lived in Zimbabwe some years
ago and owned an ounce of gold. One day your ounce might be worth 1,000 of
the local currency units. A year later, it might be 1,000,000. Or even
the U.S. is no Zimbabwe – at least not yet – its currency is just
as intangible, for the simple reason that the government can print the stuff
pretty much at will. To say that gold will go to $5,000 in the current crisis
is really just another way of saying that the dollar currency unit will fall
by some significant degree. But, given the uncertainty in the economy and the
unknown of what actions the government and the Fed might take next, we really
can’t know how much purchasing power the currency unit will lose in the
months and years just ahead.
date, the government has been extraordinarily – breathtakingly –
willing to abuse the dollar. They have largely gotten away with it so far,
but that certainly doesn’t mean they will get away with it forever.
When the time comes for the piper to be paid, we suspect he’ll be paid
pennies on the dollar… which could easily result in gold trading for
$3,000, $5,000, $10,000 per ounce – but, who knows, maybe even
point is, given the choice between dollars and gold, you are far more likely
to preserve your wealth over the duration of this crisis with gold.
the gold bull market getting old? How much longer can it last?
Having been around and actively involved in hard assets – as the editor
of “Gold Newsletter” and the conference director of the New
Orleans Conference – during the last big gold bull, I hope I can
provide some useful perspective.
instance, I can well recall when, in late 1979, all of the many gurus of the
day were predicting gold would keep going higher and higher still. Well, as
we all know, it didn’t.
interesting about this time around is that there is almost no scenario we can
envision that is going to kick the legs out from under the gold market
– at least not anytime soon. In contrast, in the late 1970s, the gold
bulls coulda/shoulda seen that the Fed had a lot of room to act – i.e.,
by pushing up interest rates – in order to tackle the price inflation
that was the key driving force in the soaring gold prices of the time.
the situation is profoundly different. Starting with the fact that this is,
at the core, a debt crisis. And the one thing you can’t do in a debt
crisis is to encourage interest rates to rise. Look no further than Greece
for that lesson.
have an unprecedented monetary inflation, truly out-of-control sovereign
spending and debt, unprecedented levels of private debt, unprecedented trade
deficits, a massively overbuilt and overpriced post-bubble real estate
market, and, importantly, near historically low interest rates.
have to ask ourselves – other than continuing to exercise its powers of
fiat money creation – what ammunition does the government have at its
disposal to address the structural problems of today’s economy? And, of
course, actually creating more money and more debt isn’t addressing the
structural problems, it is compounding them.
course, the government can default on their sovereign obligations – an
option I think we’ll see Greece and others of the PIIGS take, and
probably fairly soon.
can also continue to inflate, which we expect them all to do.
they can… no, actually, I think that about sums it up: default or
inflate. In either scenario, gold is going to be seen as the ultimate safe
Won’t the government see gold as a threat to its fiat currency and try
to do something about it?
course, governments might try any number of stunts that could affect gold.
For example, raising margin requirements to curb playing the markets with
leverage, or even attempting outright confiscation.
can do is to monitor the situation closely and try to anticipate their next
moves in order to get out of the way. A number of people I know have opened
safety deposit accounts in other countries as one way to hedge their bets
against confiscation. Others have bought numismatics – but be careful
on that front, because that can increase illiquidity.
not out of the question, in my view, that before this is over, we could see a
revaluation of gold in order to re-link the U.S. dollar to it – because
sooner or later, as the crisis reaches its climax, something is going to
replace the fiat currencies – but at this stage it’s impossible
to guess what that will look like. If we did see a return to a gold standard,
then the government could actually be responsible for sending gold up by many
to the present, at this point I can’t see anything that is going to
derail this bull market – but I do see a whole lot of things with the
potential to send it into the stratosphere.
Thank you for your time.
pleasure. Always happy to be of help.
You’re kind of strange, talking to yourself and everything. You know
Sometimes I wonder.
are starting to get the picture – many precious metals sellers in
Europe are now finding themselves out of stock – but most Americans are
still woefully clueless when it comes to the safe-haven value of gold. And
timing can be most important. Read our FREE report How Do I Know When to Buy?
Receive it here http://www.caseyresearch.com/crpmkt/WhentoBuy.php
Managing Editor, The Casey Report
David Galland is the managing editor of The Casey
Report, the flagship publication of Casey Research, for over 28 years
providing individual investors with unbiased research and recommendations
designed to help them navigate the ever-changing tides of investment markets.