Saturday, March 21, 2015

CNBC's Jim Cramer Says What We Have Said Here

For some reason, the subject of owning gold becomes an emotional discussion for many people. Some people buy gold and then wait hoping for something horrible to happen so their gold will go up. Even worse, some people actually hope something horrible will happen so their gold will go up. Other people roll their eyes and act as if only a crazy person would ever buy gold. Our view here is that gold is simply a solid insurance policy to be used in a portfolio as a hedge. Silver can serve the same purpose for those who cannot afford to own any gold. 

There really is no reason for this to become an emotional topic based on extreme views. CNBC's Jim Cramer appears to agree as he recommends gold as part of a portfolio in this article. Below are a few quotes and then a followup comment.

. . . . .
"Cramer recommends gold because it tends to go up when everything else is going down. It is the investors' insurance against geopolitical events, uncertainty and inflation.
Granted, this may sound like a terrible idea since gold has not done anything spectacular in a few years. However just as you wouldn't own a home or car without insurance, you shouldn't have a portfolio without gold.
Do you get upset when your insurance doesn't go up in value? No. So, don't ridicule gold.
Owning gold is not about upside potential. It is about minimizing risk to the downside."
. . . . . 
My added comment:
Here Jim Cramer says basically the same thing we have said here on the blog. There is just no reason to turn owning gold into some kind of emotional battle. Gold has served a useful purpose as a reliable store of value for 1000's of years (silver too). Central Banks all over the world hold tons and tons of it in their official reserves as does the IMF. China is buying enormous amounts to increase its share of world gold reserves.
It's kind of silly to to act like people who own some gold or silver are somehow abnormal. This reaction probably stems from the caricature of people who like gold as all being doom and gloom "preppers" waiting for the world as we know it to come to an end. While those people do exist, they are not the majority of people who own gold by any means. As noted above, the leading financial institutions in the world all own lots of gold as do many high net worth investors all around the world. Not that long ago, both gold and silver coins were used as money in the US.
Gold and silver are simply forms of financial insurance just like Jim Cramer talks about above. It's good to have some in case you need it. You hope you never need it, but are glad to have some if you do. No one thinks its crazy to buy car insurance or insurance on their home. In most cases, the money spent on that insurance is never seen again. At least with gold and silver insurance, it always has some future intrinsic value. 
It's past time to stop acting like owning gold or silver is some strange behavior that only crazy people would consider. It's just a hedge or different form of insurance for most people who own it. People like Jim Rickards suggest that having 10% of a portfolio in gold makes sense for most people. Both gold and silver should be viewed as very long term holdings for most people, not short term trades. Much like an emergency cash fund you hold on to as a last resort.
And really, those who don't own any at all should think about buying some insurance themselves. We are living in a very unstable financial system. If you read this blog you know this is an easily verifiable fact that we have documented over and over here. The IMF and BIS have both warned repeatedly of the risks present in the existing financial system. People who ignore that reality are the ones not behaving rationally in our view here. If you never need it, that will be great. But if you do need it, you will wish you had some. 
ps - we feel like silver may work best for the average person as we wrote in this earlier blog article. In addition, silver can hold its value into the future whether there are financial system problems or not. There is no need to buy silver and then hope for something bad to happen.

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