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Bullish on Bullion: Reasons to Buy Physical Gold Now

By John Persinos on April 28, 2017

It’s time to give the “gold bugs” their due.

In this newsletter in recent weeks, I’ve been recommending various gold-backed exchange-traded funds (ETFs) and gold miners. In response, I regularly get letters (sometimes heated ones) from the hard-money crowd, who think of paper dollars as worthless “fiat money” and physical gold as “real money.” These yellow-metal zealots don’t even trust gold ETFs or miners; they insist on the tangible asset.

As one reader writes:

“Gold ETFs can be good investments, but they confer many risks. For example, you must rely on a counterparty to make good on your investment. If the fund’s management, structure or chain of custody break down during a crisis, your money is at risk.” — Thomas H.

The chances of those events occurring are scant, but Tom raises an interesting point. The major motivation for owning gold is protection from risk, but a gold ETF or mining stock is part of the financial system you’re trying to hedge against.

While I don’t consider myself a gold bug, today’s worsening dangers make it worth considering the purchase of physical bullion. Below, I examine convenient ways to purchase the Midas Metal. As an alternative, I also highlight an under-the-radar gold play that could be poised for outsized potential.

Ticking time bomb…

The newspaper sitting in the driveway every morning is starting to resemble a ticking bomb. What explosive headline will confront you today? Face it: the dust will never settle during a Trump administration. And when uncertainty rules the news cycle, investors flee to the safe haven of gold.

This issue, I focus on the advantages of owning bullion. Why physical gold? Here are three key reasons:

1) The yellow metal maintains its intrinsic value despite a government’s ability to back its currency. If your country’s currency implodes and becomes worthless, you’ll still be able to spend your physical gold.

2) Gold is universally accepted around the world, without the need to convert it into the local currency. It can be bartered anyplace at anytime.

3) If there’s ever an economic crisis and banks freeze individual accounts, a physical gold investment can always be accessed.

The Trump era is undeniably turbulent, with a stock market correction and perhaps economic recession looming in the wings. Gold will be responsive this year to the ubiquitous threat of terrorism, right-wing nationalism and continued disarray in Washington, DC.

The conditions that are favorable for gold will prove fatal for overvalued stocks that are looking for a trigger to tumble. Gold also is a time-tested hedge against inflation, which is showing signs of new life.

The yellow metal is proven protection against crises. During the Great Recession of 2007-09, the worst economic downturn since the 1930s, gold prices rallied from $840 per ounce at the end of 2007 to over $1,200 by the end of 2008, even though inflation over this period stayed in check.

Remember, diversification is crucial to any investment strategy. As a fraught 2017 unfolds, consider re-balancing your portfolio to accommodate the likely economic, business and market volatility ahead. You can hedge your bets, with physical bullion.

Consider these six reputable dealers:

American Precious Metals Exchange Based in Oklahoma City, Oklahoma, APMEX carries a broad selection of pre-1933 classic U.S. gold coins.

Asset Strategies International Headquartered in Rockville, Maryland, ASI also offers convenient options for you to store gold beyond U.S. borders.

Camino Coin Based in Burlingame, California, Camino has been in business for more than a century.

David Hall Rare Coins Based in Newport Beach, California and in business since 1977, DHRC deals in gem-quality coins, including gold rarities. The firm can assist you in building collections that make an enjoyable hobby.

EverBank Headquartered in Jacksonville, Florida, EverBank traces its origins to the 1960s. In 2006, Everbank started offering vaulted gold online to private investors.

Kitco With offices in New York, Montreal, and Hong Kong, this Canada-based company buys and sells precious metals such as gold, copper and silver. It also operates a website for gold news, commentary and market information.

Gold seedlings…

I’ve recommended gold mining stocks in recent issues, such as Goldcorp (NYSE: GG), a low-cost producer with a solid balance sheet. But there’s an interesting gold play in the news that bears attention.

The ancient Chinese philosopher Lao Tzu said: “To see things in the seed, that is genius.”

Which brings me to Dataram (NSDQ: DRAM), a relatively small maker of IT memory systems. This New Jersey-based company is on the verge of acquiring Nevada-based U.S. Gold Corp., as part of its strategy for diversification and organic growth through acquisition. If the Gold Corp. acquisition pans out, as appears likely, Dataram’s share price is likely to soar.

Dataram’s management announced on April 6 that shareholders had approved the merger, which is expected to close in 60-90 days.

Dataram develops, manufactures, and markets memory products used in enterprise servers and workstations around the world. Clients include Cisco Systems (NSDQ: CSCO), IBM (NYSE: IBM), Oracle (NYSE: ORCL), Intel (NSDQ: INTC), and Advanced Micro Devices (NSDQ: AMD).

Privately held U.S. Gold Corp. is developing two potentially prolific gold plays in Nevada and Wyoming. Exploration geologist Dave Mathewson recently joined U.S. Gold as vice president and head of exploration. Mathewson is a legend in the gold industry — he’s considered the Babe Ruth of gold exploration. His home runs include discovering several rich deposits when he was head of the Nevada exploration team at Newmont Mining (NYSE: NEM).

His work also led to the consolidation of lucrative discoveries when he was at Gold Standard Ventures (NYSE: GSV), which engages in the acquisition and exploration of gold-bearing mineral resource properties in Nevada. Over the past two years, GSV stock has soared more than 270%.

Gold Standard Ventures’ market capitalization now stands at $396.48 million; the development of the projects that account for most of this valuation was spearheaded by Mathewson during his tenure with GSV.

If Mathewson is successful in his endeavors for Dataram (and his track record suggests he will be), the potential upside for DRAM shares is huge. If you’re an aggressive investor with a strong appetite for risk, DRAM could reward you with a big payoff in an overvalued market where big payoffs are increasingly scarce.

If you’re risk-averse and nervous about this shaky stock market, consider two of my previous gold recommendations, which provide safer exposure to gold: the SPDR Gold Shares ETF (NYSE: GLD), with net assets of $33.3 billion, and junior miner Goldcorp, with a market cap of $12.5 billion.

Got any questions or comments? Gold is a hot-button topic that typically triggers a lot of mail; I expect to hear from many of you. Send me a letter: — John Persinos

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  1. avatar
    nazimucom Reply May 4, 2017 at 8:18 AM EDT

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  2. avatar
    MWhite Reply April 28, 2017 at 5:37 PM EDT

    “If you’re risk-averse and nervous about this shaky stock market, consider two of my previous gold recommendations, which provide safer exposure to gold: the SPDR Gold Shares ETF (NYSE: GLD)…”

    I’ve been trying to do my due diligence into the SPDR Gold Trust (GLD). Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn’t help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I’m reading:

    “Did anyone try calling the GLD hotline at 866▪320▪4053 in search of numerical details on GLD’s insurance? The prospectus vaguely states “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” When I asked about how much of the gold was insured, the representative proceeded to act as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.”

    “I remember there was a well documented visit by CNBC’s Bob Pisani to GLD’s gold vault. This visit was organized by GLD’s management to prove the existence of GLD’s gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”

  3. avatar
    Rick W. Reply April 28, 2017 at 8:37 AM EDT

    Hi John,
    I don’t see GG as a junior miner based on market value. According to the VanEck web site as of 3/31/2017, the GDX portfolio which is a senior miner portfolio, holds GG with a market value of $754,384,483.
    GDXJ, the junior miner portfolio, shows AGI as its largest holding with a market value of $320,172,714. GG was not included in the portfolio holdings. Please clarify your thinking here if you would. Thank you.