Gold Ownership As A Lifestyle Decision

"It is related of the illustrious Sandy McHoots that when, on the occasion of winning the British Open Championship, he was interviewed by reporters from the leading daily papers as to his views on Tariff Reform, Bimetallism, the Trial by Jury System, and the Modern Crave for Dancing, all they could extract from him was the word 'Mphm!" Having uttered which he shouldered his bag and went home to tea. A great man. I wish there were more like him." - P.G. Wodehouse

Regulars to this newsletter will recognize the quote from Mr. Wodehouse gracing this issue's masthead. It's been there before -- almost always at summer's start -- and almost always with a reflection that perhaps we can learn something from Mr. McHoots. After all how much of what any one of us has to say about the current state of affairs matters much in the scheme of things? Even the Open champion has limited sway on the course of world events. So McHoots had solid justification for turning up his nose at the prospect of answering the media's inquiries.

Then there's the issue of summertime and whether or not the world can be put on hold while thoughts turn to the configuration of one's gold swing, landing the fly in precisely the right location on the stream, or simply counting waves at the seaside. To a large degree we side with the McHoots school on the issue of summertime, but we also know that summertime can produce its unpleasant market surprises – dark thunderstorms that travel across the investment landscape wreaking havoc far and wide.

Bank of America Merrill Lynch was thinking just that when it warned its clients of a "grim summer" ahead and that they should consider moving money out of stocks and bonds and into gold and cash. A good many others have issued similar warnings. "Open your computer or smartphone these days," says MarketWatch's Mitch Tuchman, "and the stock market warnings fly by in giant type — 'Summer Crash Imminent' and 'Sharp Correction Ahead'" blink at the top of nearly every investing website.

Though the temptation might be great to retreat unphased into the comforts of summertime, this might not be the year to do it. Of course, the best course of action is to diversify one's holdings in such a way that summer's pursuits need not suffer fully the consequences of that late afternoon window rattler. Stock market practioners generally agree with that apporach, but almost universally fail to mention the one item that truly gets the job done for its owners – a tidy cache of gold and silver coins.

A telephone call from an old client and friend

Along these lines, I had the happy occasion recently of receiving a telephone call from an old client and friend – a physician safely retired near the sea and alongside one of the South's oldest golf clubs. It was good to hear from this student of the markets – one of life's steady and thoughtful practitioners. McHoots probably would have counted Doc, as I will call him, a friend, since he thinks much like the character so skillfully described by Mr. Wodehouse. Back at the turn of the century, Doc foresaw much of what would happen economically in the United States and purchased what he considered enough gold to see him through it.

Vanity Fair's Matthew Hart offers this masterfully written overview of those early years of the 21st century:

"An ounce of gold cost $271 in 2001. Ten years later it reached $1,896 – an increase of almost 700 percent. On the way, it passed through some of the stormiest periods of recent history, when banks collapsed and currencies shivered. The gold price fed on these calamities. In a way, it came to stand for them: it was the re-discovered idol at a time when other gods were falling in a heap of subprime mortgages and credit default swaps and derivative products too complicated to even understand. Against these, gold shone with the placid certainty of received tradition. Honored through the ages, the standard of wealth, the original money, the safe haven. The value of gold was axiomatic. This view depends on a concept of gold as unchanging and unchanged—nature's hard asset."

t was in that time frame, when gold was stuck in the $300 to $400 per ounce price range, that Doc transferred roughly $500,000 of his net worth into gold coins. His goal, like most of our clientele, was not to become wealthy through gold ownership, but to protect the hard-earned wealth he had already attained. After we had exchanged the usual pleasantries, the conversation turned once again to the subject of gold and the reason for his call.

"I still have all the gold I purchased from you," he said simply. "Every ounce of it. It's now worth well-over $2,000,000. I want to thank you again for your book and your advice. It made a great difference to me as you may have gathered."

(Ed note: At the interim top – the $1896 Matthew Hart mentions above – Doc's holdings reached a value well over $3,000,000!)

"That," I said, "is the kind of story we enjoy hearing around here, Doc. I'm happy for you. Happy gold could help you like it did."

"We had some very interesting conversations back in the day," he said with a chuckle, "and gold did for me what we thought it would, what you said it would."

I mentioned to him that the book to which he referred, "The ABCs of Gold Investing - How to Protect and Build Your Wealth with Gold," was now in its third edition and still introducing people to the advantages of owning the metal and advising readers how to go about it. The conversation then drifted to other of life's pursuits for both of us and ultimately to the purpose of his telephone call – a fresh gold transaction. We completed our business and I left the conversation with a strong sense of satisfaction. We get a steady stream of phone calls like Doc's, but it is always good to hear real-life tales about gold's role in preserving our clients' assets.

The fact of the matter, though rarely discussed, is that gold ownership has as much to do with personal philosophy as it does finance and economics -- though by that I do not mean to diminish the importance of financial markets, or politics for that matter, in our everyday lives. Things, though, do need to be kept in perspective and gold helps toward that goal -- once one understands its true nature. In many ways, gold ownership, as Doc would likely attest, is a rational portfolio decision that suits the times, but it is also a life-style decision. As Richard Russell, the venerable purveyor of the Dow Theory Letters puts it, "I still sleep better at night knowing that I hold some gold. If or when everything else falls apart, gold will still be unquestioned wealth." And one that helps you spend a quiet summer enjoying family and friends no matter what happens on Wall Street or Washington D.C.