HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
We are in a bull market in hard assets, including commodities, collectables and the precious metals (but not including real estate), and a bear market in financial assets (see comments on bonds and interest rates below), that I believe will last until 2015-2020. As with all markets, there will be corrections along the way. In fact, I would view these as an opportunity to add to your positions in the precious metals.
I again recommend you have at least a 10% position in the precious metals (more if you are comfortable with it), and your core position be physical gold in your personal possession (kept at the bank in a safe deposit box).
I will devote this issue to purchasing physical gold and silver. When I spoke at the Williamsburg Cardiology Conference earlier this month, how best to purchase physical gold was the most common question. I have also recently heard from several people I have not spoken to in some time who knew I was a precious metals bull and had the same question.
Here are the issues to consider:
1) US-minted Gold Eagles vs. non-US coins.
Stephen Davidson at Blanchard & Co. provided me with this information. “These gold products are subject to a 1099 upon the sale of 25 oz or more in a “rolling” calendar year: Canadian Maple Leaf, South African Kruggerrand, Mexican gold onza, and one kilo bars.
These are not reported by Blanchard (either buying or selling): Gold American Eagles, British Sovereigns, Swiss 20 Francs and French 20 Francs. Pre-1933 gold also falls into this category “(see more below on this issue).
RMD recommendation: A slight edge to the US-minted and other coins not requiring reporting. However, I am not dogmatic on this; in the end, an ounce of gold is an ounce of gold. Buy whatever you are comfortable with.
1A) One ounce vs. smaller coins. The markup on a smaller coin is proportionally higher than on a 1 oz coin, thus it is more “efficient” to buy the one oz. But, because the smaller coin is less expensive, it is more liquid. I think it is quite reasonable to have some amount of your physical gold in coins less than one ounce.
2) Silver. The advantages of silver are that it won’t be confiscated, because of the lower absolute value in comparison to gold it is more liquid, and in a precious metals bull market, silver has a greater relative appreciation than gold.
The disadvantage of silver in comparison to gold is its bulk. Silver is just not a storehouse of wealth. Although the markup of silver bars (10 oz, 100 oz) is less per ounce than one ounce coins, there is little doubt in my mind that ten one ounce coins would be much more widely accepted than one ten ounce bar of silver.
RMD recommendation: It is reasonable and desirable to have some silver (esp if gold is out of your price range), but it is not a storehouse of wealth. Its bulk will limit how much you can practically own (and carry). For most people, I would avoid the bars and stick to coins.
3) Pre-1933 gold. In 1933, Roosevelt called-in the gold (In truth, it was confiscated. From 1792 until 1933, the dollar was fixed at $20.66 to an ounce of gold. After the government had its hands on the gold, Roosevelt “re-valued” it to $35 per ounce, an instant 69% loss for all of those law-abiding citizens who did as they were told).
Could the gold be called-in again? Does a wild bear…..?
Pre-1933 gold would presumably not be called in because of its numismatic value. Roosevelt’s Executive Order in 1933 exempted “gold coins having a recognized special value to collectors of rare and unusual coins”. (But remember, whenever the government makes the rules, it can change them).
Because of this, pre-1933 gold now trades at a premium to the current bullion gold coins. For example, as of Friday, with “spot” gold (the current price) at $1,378 per ounce, a one-ounce US Gold Eagle was $1,447 and an AU (about un-circulated) Liberty Head $20 gold piece (contains about .96 oz of gold—$20 divided by $20.66) goes for $1,720, about a 23% premium over the Gold Eagle.
RMD recommendation: This is the main point of this letter: Is that premium worth it? Should you buy some pre-1933 gold? Currently, about 5% of my physical gold is pre-1933. I am not going to add to it.
This I believe is the operant point: if things get so hairy that the gold is called-in, having pre-1933 gold will be only a small solace to your pain. If you are so concerned that your wealth could be confiscated, I submit that, as recommended by many of the presenters at the last Barron’s Art of Successful Investing Conference, your best option is to have money, especially physical gold, outside of the US. I will devote one of the January issues to this topic.
Note also that the confiscation of your wealth need not be strong-armed and blatant. (Younger son Michael gave me this idea). Rather, it could be more straight-forward and completely lawful: Just tax the heck out of everything. You need look no farther than the Obama Health Care Bill to see the inventive ways that the government can take your money.
Five years ago, such talk of what kind of gold you should buy and the idea of having money outside the country would have been labeled by the vast majority of people as fringe, survivalist ranting. As more and more regular people have legitimate concerns about the economic policies of our government, the fragility of our financial system, and the very viability of paper money, these are now very real questions.
RMD
Randall Forsyth is one of my favorite Barron’s columnists. In today’s issue, he says “In one of the swiftest and most vicious selloffs in recent memory, yields have shot up…At the beginning of October, the 10-year Treasury reached a low of 2.385%. Thursday, the ten-year yield hit3.568%, a level half again its October low.
RMD comment: the bond vigilantes have returned. Investors are requiring a greater return to hold dollars. I suggest: 1) Decrease your allocation to fixed-income, 2) Keep the maturity short, and 3) Allocate more money to the precious metals and stocks.
A friend knows a man who owns 4 pawn shops in a large Midwest town (not Columbia). The owner said he recently had his greatest week ever. Between the shops, he bought $1M of gold—and realized a $650K profit.
RMD comment: I again recommend you don’t sell your gold for scrap. It’s a jip. There are so many ads on the TV and in the newspapers because it is so profitable. In fact, I would make an argument that rather than buy pre-1933 gold, you buy gold jewelry. It is certainly portable wealth and won’t be confiscated. The Indians especially store a good amount of their personal wealth in gold jewelry.
I saw a new dentist last week. On the intake form was the question “If you could change one thing about your smile, what would it be?”
RMD answer: “A more handsome face”.
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