"If you don't own gold, you don't know history…"
Those words were uttered recently by Ray Dalio, the billionaire founder of Bridgewater Associates, the single-largest hedge fund on the planet, with a whopping $170 billion in assets.
Dalio has produced almost 15% annually for over two decades, and now he's warning anyone paying attention that it's time to own some gold. He believes there's just too much risk in not owning gold today.
Let's take that concern for risk and turn it into our profit. Here's how…
Fund Luminaries Say It's Time to Own Gold
Dalio delivered his view on gold in a recent interview at the Council on Foreign Relations. Essentially, he said that throughout history gold has been a currency, and even today, "…we have dollars, we have euros, we have yen, and we have gold."
He went on to explain that it can be viewed as a financial barometer and as an alternative to cash. Also, Dalio sees gold as an important hedge to other parts of a portfolio – that is, the investor's traditional financial assets.
His target for a gold allocation is about 10%, and when prompted as to whether he owns any gold, he replied, "Oh yeah, I do."
And Dalio's not alone…
Another highly successful hedge fund manager is Paul Singer. He runs the $24 billion Elliott Management Fund, which has averaged 14% annually from the late 1970s through 2012.
Like Dalio, Singer is concerned about the precarious state of the world's financial system. He's researched the debt levels taken on by numerous countries, and he knows many will never be able to repay that debt without seriously debasing their currencies. As a result, Singer, like Dalio, strongly recommends that investors hold some gold as a protection against the next crisis.
Another hedge fund guru who is singing the praises of gold is John Paulson, the founder and president of Paulson & Co., an investment management firm with $18 billion in assets under management. Paulson made his way into the financial history books thanks to what many now call the "greatest trade ever."
By shorting the subprime mortgage market before the housing crisis, Paulson & Co. Inc. generated a $15 billion gain. Then, in 2009 and 2010, Paulson went big – into gold.
"As an investor, I became very concerned about having my assets denominated in U.S. dollars, Paulson said. "So I looked for another currency in which to denominate my assets in. I feel that gold is the best currency.
Just recently Paulson & Co. upped its holdings of the SPDR Gold Trust (ETF) (NYSE Arca: GLD) to 21.8 million shares, worth some $2.5 billion. That one holding represents a significant 13.88% of the firm's assets under management.
Of course, any discussion of highly successful investors, and gold, would be incomplete without mentioning Warren Buffett.
Buffett likes to disparage gold, calling it a useless and unproductive asset. He prefers instead businesses that produce the things and services that people need and want. Fair enough. But Buffett ignores that gold is, simply stated, insurance. And there are periods when that insurance becomes extremely valuable, often when nearly everything else is tanking.
Oh, and for the record, Dalio thinks Buffett's wrong too. When Dalio was asked recently on CNBC's Squawk Box, "Warren Buffett won't touch gold, do you think he's wrong?" he replied, "I think he's making a big mistake."
Yet a millennia of history has proven gold to be both money and a great hedge in times of crisis, as I've frequently written for both here and directly to our constantly updating "Headline News" at moneymorning.com.
And I do expect further crises ahead.
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About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.
Any names to watch in the mid tier gold producers??
The point is made twice, that the current SP of Goldcorp, is the same as it was when gold was 1/3 the price. The inference is that somehow this makes the stock a better investment, or at least reinforces the case that it is a good investment.
Would you like to confirm, in the interests of serving those who do not know better that the current gold price and the "value " of Goldcorp are not actually relevant except in terms of the valuation of gold reserves on its books, and the profits (value) of the company shares depend on far more variables such as the difference between market price and cost to mine, the number of shares in issue. For instance your figures clearly indicate that the current cost to mine gold is now double the market price of gold at 2005 prices. To conflate the two metrics is, IMHO, not valid without further clarification.
From such a perceptive and thoughtful analyst/author I am surprised that such an elementary howler found its way into "print". Any thoughts?
I remain your avid reader,
Regards Warwick
Hello Warwick,
You're right, and your point is well taken.
I could have gone into more detail, but in the interest of article length I
did omit some. I would point out though, that as production costs
are double the gold price of 2005, the current gold price is nearly triple that
of 2005 levels, with Goldcorp's production costs now set to decline. Remember too
Goldcorp's reserves have grown considerably since then.