Why Investing in Precious Metals and Energy is STILL the Way to Go


“I have put almost all of my eggs in one basket – precious metals, energy and agriculture – with the bulk being in precious metals. These are diversified only in that they span bullion, geography and the range of very large to the very early stage junior exploration companies. A third of my investments are either in individual stocks (or their long-term warrants should they have any) of which many of the companies are juniors and the other two thirds are in ETFs which invest in a range of larger-cap precious metals stocks.”

That is what I said in an article in 2005 and my rationale back then for doing what I did has stood the test of time and, I expect, will hold me in good stead whatever happens in the years to come. Let me explain why I put almost all my eggs in one basket and still think it is the only way to go. Also, please read my recent article on Kitco entitled “Confessions of a Conservative Investor” here.

From my perspective the economic and political risks on the U.S. and global horizon are even more serious than previously and, therefore, I still believe that the best way to preserve my equity, and secondarily, to grow it, is to invest in precious metals, energy and agriculture. Other sectors like the stock and bond markets are currently either overpriced by historical standards and/or highly vulnerable and, as such, the downside risk of precious metals, energy, agriculture and most base metals is far less than these alternatives.

What Will Make Investing in Specific Commodities a Continuing Winner

What will cause the system to implode, explode or go off on some tangent such as deflation or hyperinflation? A lot of events and circumstances could be the trigger, but I also think central bankers will continue to play for time along with their cheerleaders in the brokerage, corporate and banking sectors. It will probably be a sudden factor triggering yet others such as a leveraged hedge fund or sovereign debt collapse, unexpected military aggression or major terrorist activity (such as the sinking of a petrol ship coming through Hormuz or Malacca straits or perhaps even the Suez Canal.) Whatever unfolds will definitely cause currency gyrations and imbalances which will all cause public opinion and confidence to shrink dramatically. It is that last component which is the truly ugly part for which manipulation by the power brokers will be ineffective to counteract.

There is virtually nothing on the economic and political horizon to tell me that any country – anywhere – is changing course. The U.S. with all of its current policies, practices and scary economic and financial realities continues to operate as if it is business as usual. Moreover, there is absolutely nothing in terms of facts to suggest to me that the system will get any better. U.S. politicians, for example, only have a time horizon spanning to the next election – 6 years for Senators, 4 for the President and 2 for Congressmen. Keep in mind this is the maximum time horizon with the calendar always shortening. Their goal to is to be reelected, not make waves, always bribe the voter with their own, or borrowed, money and never ever tell the ignorant masses, or the fifty percent who actually vote, the ugly truth because they are sure to turn on the messenger.

Denial always trumps an acceptance of the truth even when one is endorsing a system designed to leave one’s kids with bad values and worse circumstances than we have now. The public will always opt for the pleasure of the moment rather than deny themselves for a better future for themselves and/or their kids. Proof is everywhere you look – home “owners’ with no equity in their homes and mega-sized debts to the banks, credit card debt often in the tens of thousands of dollars, new leased cars in the driveway, expensive holidays they can’t afford, shopping sprees with money they don’t have, little or no savings in their bank account, either no retirement savings plans at all or ones that are totally under-funded, all topped off by a major aversion to paying their fair share of taxes to maintain the benefits their various levels of government provide. Ah, the good life!

Conclusion

So how do I end this rant? Economic and political realities are grim and getting worse. There is scant evidence of any serious and realistic policy initiatives. If there were the public would reject them because it would invariably entail sacrifice and deferral of an enhanced lifestyle until some unspecified future date.

My best advice is to put almost all your eggs in a basket of precious metals, agricultural and energy assets, especially oil, in a mix of physical, individual stocks and/or their associated long-term warrants where available and exchange traded funds to preserve what monies you have and to make the most of the dire circumstances many “first world” nations find themselves in today – and will to a much greater degree in the months and years to come. The U.S., the UK, and most of Europe for that matter, get all the media attention but smug Canadians and Australians, and others too, are not immune to the political and economic/financial uncertainties that abound. Remember, many people hatched their future fortunes by judicious acquisitions in the 1930’s when everything looked bleak and it is not too late for you to take both protective and profitable action today.

I conclude this rant by asking two simple questions: “Have you invested to the maximum in precious metals, energy and agriculture assets and, in particular, in gold and silver based investments?” and “If not, what are you waiting for?”

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