Sunday, June 29, 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

How Much Gold Should Someone Own? Where and How To Own It?

Posted: 29 Jun 2014 10:48 PM PDT

Periodically I receive questions on gold ownership. How much should one own, and where?

Let's start with the first question:

How Much Gold Should Someone Own?

There is no fixed answer, but rather a general methodology that I like:

  • Do not invest outside your comfort zone.
  • Think in terms of percentages, not fixed amounts.
  • For some, 10% is too much, for others 30% is too little.
  • Some do not trust anything else and are willing to hold a huge percentage of their assets in gold 
  • If a 30% decline in value would give you sleepless nights, then whatever percentage you have is too much.
  • If you dislike investments that do not yield a dividend, then gold probably should not be a significant portion of your portfolio.
  • Even if you dislike investments that do not pay a dividend, it may be wise to consider putting 5% of your assets in gold to protect against a crisis.

For those who understand the reasons to own gold and will not panic over fluctuations, in my assessment, 20% is a reasonable starting point.

Finally, for those with a lot of credit card debt or other high interest debt, I suggest paying off all that debt before making any investments.

As to the second question:

How To Own It?

There are numerous choices.

  1. Gold Miners
  2. Physical Gold
  3. Gold ETFs
  4. Gold Funds

Gold miners are a leveraged play, and in the case of junior miners, a speculative play on gold. The bulk of one's gold assets should not be in this class.

Physical gold, ETFs, and Funds can overlap in various ways.

  • Gold mutual funds are generally plays on miners but some may also contain physical gold.
  • ETFs may be plays on miners or plays on physical gold.
  • ETFs may or may not contain audited gold.
  • ETFs may or may not allow delivery of physical gold.
  • Physical gold can be in your possession in the form of gold, bullion, or coins.
  • Physical gold may be in external storage in the form of gold, bullion, or coins.
  • External storage may be in in your country or in a foreign location.

Some want gold in their possession. I hold none of mine that way. I prefer audited gold, in vaults, spread around for safety. I also prefer bars or bullion over coins that have a higher markup.

For others, seeing is believing.

For those who don't trust governments as well as those who live in unstable countries, holding gold outside the country they live in is a good idea. 

Remember, if you do choose physical possession, you will need theft insurance or some other means of ensuring its safety. And if you have lots of physical gold, it's best not to tell anyone (for obvious reasons).

OUNZ Recommendation

Among the ETF choices, I highly recommend that investors consider the Merk GOLD TRUST, the deliverable GOLD ETF (OUNZ).

The Merk Gold Trust (the "Trust" or "OUNZ") provides investors with a convenient and cost-efficient way to buy and hold gold through an exchange traded product with the option to take physical delivery of gold.

The Trust's primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold bullion (physical gold) in exchange for their shares. The Trust's secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust's operations.

OUNZ may be a great choice for those ...

  • Who do not like dealing with wire transfers to buy or sell gold.
  • Who buy small quantities.
  • Who want to take physical delivery in the form of coins.
  • Who want an easy to understand ETF that contains audited gold.

Interested parties should download the Merk Gold Trust (OUNZ) Prospectus.

OUNZ is simply what it says it is: an investment in gold. You can buy/hold/sell on the NYSE, or you can take delivery of your gold. Its expense ratio is low (0.40%) and a share of OUNZ is approximately equal to 1/100 of a Fine Ounce of gold.

Taking possession in OUNZ does not trigger a tax event as you are simply taking possession of what you already own.

Unlike OUNZ, the Sprott Physical Gold Trust (PHYS) is a Canadian closed-end mutual fund that may trade above or below NAV.

Moreover, investors in PHYS may have to pay taxes when taking delivery; The prospectus states: "If any holder redeems his, her or its units for physical gold bullion …, the Trust will be treated as if it sold physical gold bullion for its fair market value in order to redeem the holder's units."

GoldMoney

Most readers know I have a relationship with GoldMoney and I still recommend that option as well. It is a great way to own gold.

GoldMoney contains audited, physical gold, in vaults in various countries. You can select the vault if you wish.   

However, GoldMoney does require dealing with wire transfers, which adds expenses when dealing with small amounts. Some may dislike the paperwork when opening an account.

Other Options

There are numerous ways to invest in gold. I mentioned two that I specifically like and the reasons I like them. Other choices may or may not be for you, based on your individual needs and preferences.

There is no absolute right or wrong, just a set of choices, some better than others.

Disclosure

I have a relationship with Merk as well as Goldmoney. I choose my relationships carefully. However, you still need to conduct your own due diligence.

Disclaimer
The material must be preceded or accompanied by a prospectus. Before investing you should carefully consider the Merk Gold Trust's ("Trust") investment objectives, risks, charges and expenses.
Investing involves risk, including possible loss of principal. The Trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for the purposes of the Commodity Exchange Act. Shares of the Trust are not subject to the same regulatory requirements as mutual funds. Because shares of the Trust are intended to reflect the price of the gold held in the Trust, the market price of the shares is subject to fluctuations similar to those affecting gold prices. Additionally, shares of the Trust are bought and sold at market price, not at net asset value ("NAV"). Brokerage commissions will reduce returns.

The request for redemption of shares for gold is subject to a number of risks including but not limited to the potential for the price of gold to decline during the time between the submission of the request and delivery. Delivery may take a considerable amount of time depending on your location.

Commodities and commodity-index linked securities may be affected by changes in overall market movements and other factors such as weather, disease, embargoes or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities.

Trust shares trade like stocks, are subject to investment risk and will fluctuate in market value. The value of Trust shares relates directly to the value of the gold held by the Trust (less its expenses) and fluctuations in the price of gold could materially and adversely affect an investment in the shares. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by them. The Trust does not generate any income and as the Trust regularly issues shares to pay for the Sponsor's ongoing expenses, the amount of gold represented by each Share will decline over time. Investing involves risk and you could lose money on an investment in the Trust. For a more complete discussion of the risk factors relative to the Trust, carefully read the prospectus.

The sponsor of the Trust is Merk Investments LLC (the "Sponsor"). Foreside Fund Services, LLC, provides marketing services to the Trust.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

What Would be the Effect of a Substantial Hike in the Minimum Wage?

Posted: 29 Jun 2014 07:36 PM PDT

In response to 100% of U.S. Employment Growth Since 2000 Went to Immigrants, reader Mike wonders what effect a rise in minimum wage would have.

Mike Writes ...
Hi Mish.

Thanks for a very interesting post. I hope the mainstream media will pick up on this.

Here's a question for you: Do you think a rise in the minimum wage would bring more citizens into the workforce and and reduce the welfare rolls?

By the way, I am against laws that restrict the free will of consenting adults, employers and employees alike. But I am curious about the results of a substantial hike in the minimum wage.

Best,
Mike
Predicting the Results

It is not easy to predict the precise results. People on both sides of the debate cite studies that purportedly support their point of view.

Nonetheless we can say certain things, even if we do not know the final result.

A hike in the minimum wage would:

  1. Encourage more people to seek work whether there is work or not. Thus, the participation rate would rise putting upward pressure on the unemployment rate.
  2. Encourage businesses to outsource or seek other means of reducing head count such as employing software or hardware robots.
  3. Encourage more immigration if businesses cannot find ways to reduce headcount.
  4. Ultimately, businesses would have to hike prices, accept lower profit margins, or find other ways to reduce costs.
  5. If businesses chose to hike prices it would put upward pressure on price inflation. In turn, unions would demand still more wage hikes.
  6. If businesses chose to eat the costs, it would put negative pressures on the stock market.

With so many possibilities, some of them conflicting, it is impossible to predict the precise results. Regardless, interference in the free market is not a good thing. Thus, the overall result of a hike in minimum wage must be negative, regardless of what minimum wage advocates suggest.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Meet "Ray" Your Valet Parking Robot

Posted: 29 Jun 2014 11:16 AM PDT

US News has an interesting article on using robots to park cars at an airport in  Duesseldorf, Germany.

You can schedule an appointment with "Ray", your parking robot, via smartphone or simply by leaving your car in a designated spot.

"Ray" Your Parking Robot



AP Photo/dpa, Federico Gambarini

US News comments on the "Uncanny Valet"

  • Ray can carry any standard car weighing up to 3 metric tons (3.31 tons) 
  • 249 parking spaces are reserved for robots
  • The service costs 29 euros a day and targets business travelers but is open to anyone

Ray's forklift method (with the car turned off) circumvents the need for an exchange of keys with a human attendant. I suspect this will quickly catch on at any airport or auto garage offering valet parking.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Posted by Blogku at 11:39 PM

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