I’m going to set aside 10% of most portfolios for precious metals-related stocks and ETF’s and keep them in the portfolio’s separate from and in addition to my standard methodology allocations beginning yesterday, Friday, June 7. This is an increase from the approximately 5% I had been setting aside before.
When almost all investors are betting on the same thing (currently against gold and foreign currencies), there are no more people to join that trend, and a reversal is near. Here is the quote in yesterday’s daily analysis.
It appears that there is an opportunity developing that comes along only once every 10-20 years. Gold and precious metals have been falling since August of 2011, and have been bouncing in an 8% range for the last 8 weeks. Mining stocks are historically very volatile and have done even worse, falling about 60% from their highs in 2011. They also have begun to “bounce along” a possible bottom. At the same time, our Federal Reserve has created many more US dollars, and our deficits continue to reach historic highs daily with no end in sight. So the mining stocks are at the prices of the 2008 crash lows, but there are many more dollars in existence than there were then. While sentiment continues to worsen, the precious metals prices have stopped falling.
Ironically, the big news today causing this sentiment concerns the Federal Reserve possibly beginning to “taper” the $85,000,000,000 monthly purchases of US Treasuries and Mortgage-backed Securities with freshly created US dollars. No one seems to notice that the “taper”, if it does occur, simply slows down the pace at which the Fed is printing money. There is no talk of an end to the money-printing at all. Simultaneously, our recent “sequester” did not reduce our national debt, it simply slowed the pace of annual increases in our debt!
Russia, China, India, Iran, Australia and other countries have been entering into agreements that allow them to bypass the US dollar as the worlds reserve currency, and some are now buying gold and natural resources with the US dollars they have in their reserves. On Thursday this week, the US dollar index dropped -1.2% … in one day!
I don’t know when, but this trend of US dollar strength cannot go on for long with our financial balance sheet worsening, and our economy moving in slow motion. So, I am making this move both as a long-term investment and as a hedge to protect the purchasing power of your life savings against some sudden dislocation in the US dollar. We may be early, but a sudden move by the markets or our government to devalue the dollar could leave me without the opportunity to protect you.
Now, let me talk about what could “go wrong” with this idea. I could be early. The US could roll over into recession, causing a crash in stocks and bonds. In that event gold and our mining stocks could fall too. My plan, if that occurs, is just to ride it out with this 10% and follow the methodology with the other 90% of your portfolios. Precious metals and the other related assets could begin a new down-trend. I plan to ride that out also. These investments fluctuate as much as 5% in a day, so your total portfolio values will have much more day-to-day fluctuation than you have seen in the past. However, after much thought and prayer, I strongly believe the hidden risk of not doing this now is much greater than the obvious risks inherent in watching your account values drop for a few weeks or months if I am too early.