by Kenneth J. Gerbino
Gold has always been a hedge against inflations, depressions and monetary instability, therefore gold mining stocks should be in everyone’s portfolio.
When Kreditanstalt in Austria went bankrupt in 1931, the ripple effect eventually took down many of the major banks in Europe and the U.S., and with them 95% of the wealthiest families in the U.S. The stock market continued to crash and most of the banks closed. It was a ripple effect felt all over the world. Most were wiped out but people with gold survived. Homestake Mining in 1926 was $40 per share. In 1935, at the depth of the depression, it was $544!
A lot of people could be severely impacted in the next 10 years as huge debt levels, money supply increases and all the derivative speculations create dislocations ikn the economy. Why even take a chance if an economic accident had even a 100 to 1 probability? You should be smart and hedge your wealth.
Gold mining stocks protect you against the unthinkable while offering the possibility of a good rate of return over the long run and an investment in a growth industry.
The valuations of stocks and bonds and real estate, etc., go up and down but when the underlying fundamental money supply and confidence in that money gets shaken and just a small portion of people try to cash out, anyone who is leveraged or has what they think is a $500,000 stock portfolio, could very easily wake up someday and see that stock portfolio at $100,000. It will be worth something but how much is a whole different story.
Gold and gold mining stocks protect you from extreme economic scenarios since it is the only monetary asset that keeps its value when things are falling apart. The example of Homestake Mining going up dramatically during the Depression illustrates this fact, or the Swiss franc (which had 120% gold backing) tripling in value in the early 1970s when the U.S. stock market collapsed.
People and institutions may someday try to find something else that can be used as a currency, and that will be gold. Therefore, they will bid up the price of gold (or gold mining stocks) and they will discard "paper" which they have no confidence in. When there is no confidence in a country's currency, the piece of paper is worth a lot less. Assets that have been bid up based on all this money also get revalued (stocks and real estate).
Throughout all of history, the integrity and trust in gold as a means of exchange, a store of value and a monetary asset has always endured.
A portfolio of gold mining stocks is an insurance policy. But this portfolio also has a solid investment thesis resting upon the supply/demand fundamentals for gold jewelry and other gold fabrication. Jewelry demand alone in the past has exceeded mine supply by a wide margin. In Asia, new-found prosperity with the fall of Communism and the freeing up of markets has allowed over 50% of the world's population to begin to acquire gold jewelry, both as savings and adornment. This figure will increase steadily as well.
It is because of this above scenario that I would suggest you invest in a professionally managed portfolio of gold mining stocks. The truth of the matter is, a financial accident may never happen, but it might, and it could start anywhere at anytime.
Regardless, gold is the king. So why be scared when you can be smart. Having at least 10% of your net worth in gold mining stocks could protect you. You can go on with your life knowing you have some financial insurance in an asset class that's been around for thousands of years.
The decision is yours and this article is not meant to alarm you but to arm you with some knowledge and understanding and an idea for monetary insurance with some good old fashion advice. Tuck some money away for a rainy day...but make it real money...gold or gold assets (mining stocks). There is insanity going on globally regarding economics.
This does not mean that economic activity will cease -- on the contrary, productivity and people getting up in the morning and going to work will take place, but many will drive to work with their $1 million portfolio shaved down to $200,000. If you owned an equal number of NYSE, Amex and OTC stocks as recently as 1974, that is exactly how bad it was, an 80% drop (revaluation) in stock prices.
What could happen (and I hope it never does) is that you could give up everything you worked your entire life for and have to start over. It won't be the end of the world but it could be the end of your wealth. 10% in gold stocks gives you a lot of protection for the other 90% of your wealth and allows you to benefit in a growth industry as well. It's that simple.
Gold works in a deflation/credit collapse/banking crisis/devaluation scenario. Gold also works in an inflationary environment. Any extremes in any of the above scenarios, historically or in the modern era, always saw gold and gold mining shares shine.
Kenneth J. Gerbino
Kenneth J. Gerbino
9595 Wilshire Boulevard
Beverly Hills, CA 90212
Phone: (310) 550-6304
Fax: (310) 550-0814
Kenneth J. Gerbino & Company
9595 Wilshire Boulevard, Suite 303
Beverly Hills, California 90212
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