Whenever I write about gold, I can be certain of two things.
First and foremost, I know that readership will be exceptionally high. The interest in gold, silver and other precious metals is as intense as I've ever seen.
And, second, I can be sure that, in the days that follow, I'll receive a slew of e-mails, phone calls and letters from folks asking some variation of the same three questions:
- What are the chances that the federal government will confiscate my gold?
- Can I put gold in my IRA?
- And how much gold should I hold?
The bottom line is that a lot of folks are investing in gold for the first time.
To give those newcomers a unique (and informed) perspective on these questions, I picked up the phone and called industry colleague Rich Checkan at Asset Strategies International (ASI), a precious-metals and foreign-exchange dealer that operates out of Rockville, Maryland … just down the highway from our own offices here in Baltimore.
ASI is a veteran player, having just celebrated its 30th anniversary, so I was certain that Rich and his staffers would have something of value to say on these topics.
On that point, I was right.
Here's an excerpt of my interview with ASI.
(Q): Rich, one of the questions I get asked most frequently has to do with confiscation – the Roosevelt Administration Executive Order of 1933 that required folks to turn over most of their gold coins, gold bullion and gold certificates in return for paper currency. There's a big concern that this will happen again – especially given the big deficits, massive debt load and challenges that Washington now has to deal with. What's your view on that?
Rich Checkan (A): It's very interesting Bill … we just hosted our 30th Anniversary Seminar – which we titled "Finding Certainty in Uncertain Times." Despite the high attendance, nobody asked if gold, silver and other precious metals were going to appreciate in the months and years to come – that was a foregone conclusion because of the challenges you've just cited.
But the question of confiscation was very high on their list and, as you say, seems to be a very real concern of investors in general.
Now, I believe confiscation unlikely for a number of reasons.
First, the major economic concern in 1933 was deflation, not inflation, and the U.S. dollar was still tied to gold. We were not able to simply print more money to fund increased governmental spending, so the U.S. government took in the gold, handed you dollars and achieved the goal of increasing the monetary base.
A second reason I believe this is that the cost would also be enormous at this point. In 1933, the government had some control over the value of gold – in fact, if you study your history you'll see that the government actually raised the price of gold soon after taking it all in. Washington doesn't have that luxury … that latitude … today. If the federal government took every ounce of gold from every American, it would still be a traded commonality that might rise or fall.
Further, the amount of gold Americans hold would not be enough to be of any benefit either. If we took every ounce of gold from every American right now and put it in the U.S. Treasury, we wouldn't even put a dent in the current debt, which has resulted from decades of fiscal irresponsibility at the hands of both parties.
What you can tell your subscribers, Bill, is that a much more likely concern is exchange controls – a policy where the citizens of a country cannot purchase assets outside the country and assets in any other currency than their base, domestic currency. Why? Forcing citizens to invest in assets denominated in the domestic currency creates artificial demand, which can drive the currency up in the short term.
(Q): What can an investor do about that?
Rich Checkan (A): As we tell our clients: Do today what you may not be able to do tomorrow. In short, if you intend to establish a financial foothold offshore, the time to so do is before the opportunity vanishes.
(Q): Rich, another query I get quite frequently from my Private Briefing subscribers is: "Can I put gold in my IRA?" What's your response to that?
Rich Checkan (A): The answer – which is perhaps the biggest surprise to many of our clients, as well – is a resounding "Yes."
However, the truth is most IRA custodians just aren't able, or willing, to offer physical storage of precious metals. Instead, they often steer you towards options that maximize their own profit.
But here's the good news: There are many methods of investing your IRA into precious metals. Two that are particularly worth mentioning are the Perth Mint Certificate Program (PMCP) and Domestic Storage.
Let's take a look at them both.
The Perth Mint Certificate Program (PMCP) offers one of the safest, most cost-effective means to invest your IRA into precious metals and diversify it offshore at the same time. It's the oldest, continually operating mint in the world, and it has the benefit of being owned by the AAA-rated government of Western Australia.
One advantage is the low commission: 2.25% to buy and 1.25% to sell. Another advantage is free storage for gold or platinum. Silver does currently carry a low storage fee of 0.95% per year. The minimum purchase to open an account at the Perth Mint is $10,000 (USD), which can be divided between gold, silver and platinum. Metals stored at Perth are insured for 100% of their current market value at all times and are guaranteed by the government of Western Australia.
The Perth Mint also has a depository program (PMDP) with a minimum balance of $50,000 to open an account. However, the depository program is structured more like a statement of account, similar to a banking arrangement. It was designed for hedge funds and the like and is geared more toward institutional investors.
The certificate program, on the other hand, was designed from the start to be a retail program – geared to individual investors both large and small.
(Q): What about domestic storage?
Rich Checkan (A): If you are more comfortable storing your metals closer to home, you can choose domestic storage through your IRA custodian at an approved depository. Keep in mind, however, that there are some restrictions. You will need to purchase specific coins or bars, which meet criteria put in place to ensure quality. In general, IRAs will only hold pure or near-pure precious metals. You can even choose to take delivery of your physical metal as a distribution at any time, to include when you reach the age where Required Minimum Distributions (RMDs) are required.
(Q): The last question we get here a lot is pretty straightforward: Investors ask us what percentage of their portfolios should be focused on gold. What's your view on that?
Rich Checkan (A): As you know, Bill, we here at ASI are not financial advisors. That said, the three decades we've spent in this industry does give us a unique view. For instance, the World Gold Council (WGC) will tell you that, statistically speaking, "portfolios containing gold are generally more robust and less volatile than those that do not." WGC research has demonstrated – and many advisors agree – that holding around 10% of your entire net worth in gold – as "insurance" – smooths out volatility and protects your holdings from the worst periods in the overall market.
In addition to your "core holdings" or wealth insurance, many advisors suggest an additional 10% to 15% of investible assets with a for-profit motive as a hedge against the current market conditions – thanks to low interest rates, the threat of rising inflation and [Fed Chairman] Ben Bernanke printing as much money as he can as fast as he can.
As to how much should be invested in each specific metal, the answer is really best left to the individual investor … their emotional makeup and their tolerance for risk. In other words, they need to create the mix that lets them best sleep at night.
For wealth insurance, that mix is typically either all gold or mostly gold with some 90% (purity) U.S. silver coins for divisibility.
For the appreciation-oriented precious-metals allocation, many investors are very comfortable with a mix ASI has long favored: 40% in gold, 40% in silver and 20% in platinum. In the past few years, palladium has become an increasingly interesting story and may serve a portfolio as well within that 20% platinum allocation.
Why the variety? One simple adage will answer that: Don't put all of your eggs in one basket. That's why ASI has long been saying not to put all of your money in one currency, one country or one asset class.
(Q): Any final thoughts?
Rich Checkan (A): More than ever – given the Fed's QE proclivity for printing, the anemic interest rates investors face, and the impending fiscal cliff – gold and other precious metals figure to play a role in successful portfolios like they never have before.
[Editor's Note: Our thanks to Rich Checkan at Asset Strategies International for taking the time to talk with us. I thought this was the best interview we've done all year. It just goes to show you how far Bill will go to get to the bottom of the story. If you'd like to learn more about Bill's Private Briefing click here. It's always a fabulous and profitable read]
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.