Transcript of "The case for precious metals may 2012"
The Case for Precious Metals: What Role Should Gold and Silver Play in Your Portfolio? By Michael S. Finer and Gary M. Coon Major League Investments, Inc. June 7, 2012As Ralph Waldo Emerson wrote, "The desire of gold is not for gold. It is for the means of freedomand benefit." Emersons keen observation that since ancient times people have bought gold not simplyto own gold, but for what gold represents, certainly rings true for todays investment managers.Historically, gold has served both as a safe harbor during economic downturns and as a valuablehedge against inflation. Therefore, over the long-term, gold can be an effective tool for wealthpreservation.And yet, because gold has no earnings and does not pay dividends, an investment in gold is oftencategorized as "dead money." This traditional knock has particular merit in todays low interest rateenvironment. As Warren Buffett, one of the great investors of our time and a famous critic of gold,once quipped, "[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, diganother hole, bury it again and pay people to stand around guarding it. It has no utility. Anyonewatching from Mars would be scratching their head."So, after a decade-long run-up in price, no actual earnings, no yield or other way to return cash toinvestors, you might wonder whether its still possible to make money in gold. With respect to goldpositions, our robust technical analysis generally leads us to subscribe to the 13 ½ month cycles thattechnician Tom McClellan espouses. This cycle suggested as of the end of May 2012 that gold wasforming a bottoming pattern in the mid $1530 to $1570 range. Complementing technical timingconsiderations, factors like currency stability, geostrategic/political context, and demand for preciousmetals drive our investment decisions.Of course, gold is a complicated measure of value because gold also reflects the currency that it is
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