Do you need to be a goldbug to appreciate the benefits of owning precious metals? Maybe not.
Testifying before Congress just shortly before his death in 1912, famed banker J.P. Morgan said, “Gold and silver are money; everything else is credit.” Apparently, even hardcore bankers like Morgan had at least some regard for shiny objects.
Today, the argument for owning precious metals in client accounts seems reasonable.
Due to the Covid-19 crisis, the U.S. government quickly racked up a breathtaking $2 trillion of debt during the first six months of this year and another $2 trillion to $3 trillion of additional debt later this year is likely. National debt has spiked to more than $26 trillion and deficit spending is unfortunately here to stay. None of this includes the multi-trillion in unfunded obligations tied to Medicare and Social Security benefits. At some point, there will be a reckoning day.
This creates a favorable environment for owning precious metals.
The Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR) is one way to invest in this asset class. This $551 million fund is a 4-in-1 basket holding physical gold, silver, platinum and palladium. It has gained 6.25% year to date.
After a rough start to 2020, exchange-traded funds tied to precious metals, including the iShares Silver Trust (SLV) and the SPDR Gold Shares (GLD), are now in an uptrend. Both SLV and GLD trade above their 50- and 200-day moving average, a closely watched threshold that market technicians use to decipher price trends.
Meanwhile, the unease among the investing public is visible by how they’ve been hoarding dollars, or what gold bulls refer to as “fiat currency.” People are sitting on $4.6 trillion in money market funds—the highest mark since 1992, according to Refinitiv Lipper’s data through June 10, 2020.
Gold ETFs during the first quarter experienced their highest quarterly inflows in four years amid surging volatility in financial markets triggered by the coronavirus pandemic. Not only did gold hit an eight-year high relative to the U.S. dollar, but global gold demand surged to peak levels not seen since the second quarter of 2013, according to the World Gold Council.
The noteworthy benefits of holding gold via ETFs rather than its physical form include trading liquidity, flexibility and no storage or insurance costs. Adding precious metals to a diversified portfolio has never been easier. Furthermore, the ability to generate income on precious metals ETFs by selling covered call options is another seldom discussed benefit that adapts an income-less asset into one that generates cash flow. This is a particularly appealing feature for retirees and others with cash flow as a priority. Given the faltering state of fiscal affairs with the U.S. government, the thesis for owning precious metals will likely accelerate.