We face a challenging environment. After interest rates have fallen for decades, investors are forced to choose between earning insufficient returns in bonds or speculating on asset prices. Retirees may not be able to sustain their lifestyle. Institutions may not be able to remain solvent.
In addition, debt levels have skyrocketed, and there is a growing risk of default. So, many people look to the safety of hard assets such as real estate and fine art. A hard asset is not anyone else’s liability. It cannot default. However, most hard assets are not financial assets. Most are illiquid even under good market conditions.
Other people—a smaller group for now—own gold. Gold is the only financial asset that is not someone else’s liability. Gold’s tight bid-ask spread is evidence that it is a liquid asset (see this article for a discussion about spreads). When you buy in, you do not incur high costs. Perhaps more importantly, when you sell your position you do not lose much. Think of real estate by comparison, for example you pay a real estate agent’s commission.
There is a problem with both forms of conventional gold ownership options: holding gold and investing in gold mining. To hold the metal (including exchange traded funds and futures), there is a recurring cost of storage and insurance. This is a negative yield in gold terms (though if the price of gold rises faster, there is a gain in dollar terms). You are losing gold, like water dripping through a leaky faucet down the drain.
On the other hand, the mining companies offer the potential of high returns along with the reality of high risk. In recent years, they have delivered on the risk, but not so much the returns.
We believe that everyone should hold some gold coins as insurance against unexpected events or expenses (similar to holding physical cash). However, gold does not grow. It is not a long-term wealth accumulation strategy. Gold is money, and you cannot become rich by merely holding money.
Monetary Metals® is the Gold Yield Marketplace™. We offer investments, that is, a Yield on Gold, Paid in Gold®. This provides investors exposure to gold’s unique attributes plus a real yield that grows gold ounces held.
In our gold fixed income investments, we aim to provide a fixed return with low risk of loss.