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Why should the average investor diversify into gold coins right now?

*Dow Theory Letters, Richard Russell, September 27, 2006

“Gold — I’ve done a lot of thinking about gold and how the average investor should deal with gold. I’ve dealt with gold and my subscribers for 35 years, and I think I know a bit about how most people fare in gold bull markets. My experience is that a majority of subscribers are psychologically incapable of taking an early position in gold or gold shares and then riding the gold bull market to anywhere near its conclusion.

This subject is particularly important now, because I believe that the current bull market in gold will be huge, possibly bigger in percentages than the bull market of the 1970s. But problem — gold is probably the most emotional of all investments.

The reason is that gold presents a threat to the prevailing monetary system. If gold was to fully express itself, the system of fiat paper money would first come under suspicion, would next come under attack, and finally the system would be destroyed. This being the case, you can imagine the pressure and the propaganda that the Federal Reserve, the banking system and the government itself would bring to bear in order to halt a steady rise in real money — gold.

Ironically, the US mint now encourages people to buy gold. Currently the mint produces the American Eagle coin, which is an amalgam but which contains one ounce of gold. And this year, the mint is producing for the first time the new Buffalo gold coin, which is one ounce of pure gold. In other words, the US mint is currently in the process of distributing gold to the American public. And this is fine, because at it current price in dollars, gold is not a threat to the system.

But the question I want to deal with is this — what is the best way for my subscribers to deal with gold in a gold bull market? You may not agree with what I’m going to say next, but I’ll be talking from experience.

For psychological reasons, I believe most of my subscribers will do best by buying and holding actual gold in the form of gold coins. I say this for one particular reason. People feel most confident when they own something intrinsic. Why do people feel confident when they own a house? Because a house is solid, it’s something they can actually see and feel. Even though, in reality, the bank (via a mortgage) actually “owns” the house, a homeowner feels that it is his house. In the old days, we have the picture of a homeowner brandishing a shotgun and warning the evil banker with the dreaded mortgage to “get the hell off my land.”

In other words, actual possession is a powerful psychological weapon. Furthermore, when you own physical gold, it’s a job to sell it. Gold is heavy, you have to be careful with it, you have to carry it to your coin dealer to sell it. It’s a job. It’s just easier to sit with your gold, regardless of the current market price.

OK, you have the problem of storing the gold. Where to store it? Put it in a bank vault. Put in a safe somewhere. Bury it. You figure it out. But what I’m saying is that if you own the physical gold, the odds are that you are going to ride that gold through the entire bull market, scary corrections and all.

The problem I’ve found with gold ETFs, gold shares, gold futures, gold certificates — is that they’re all too easy to sell. And a gold bull market, perhaps more than any other bull market, will — somewhere along the line –frighten you into selling your gold. At least, that’s been my experience. As a matter of fact, my guess is that this gold bull market has already caused many of my subscribers to sell part or all of their gold, it’s just human nature.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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