Why not start with 100% gold in your portfolio?

CEO puts forward contrarian view and says holding only precious metals until correction is over is a strategy worth considering

Why not start with 100% gold in your portfolio?

Gold is flying, thrown back into the spotlight as investors seek a safe haven and huge stimulus packages raise fears of inflation.

A renowned gold bull believes biases mean most advisors are still ignoring precious metals as an asset class because they do not pay interest or dividends and, therefore, analysts can’t apply their models to evaluate price.

Nick Barisheff, founder, president and CEO of Bullion Management Group Inc., put forward a “totally contrarian viewpoint”. He believes that instead of talking about allocating 10-20% of your portfolio to gold, start with 100%.

“If you determine that you should liquidate your gold, then you need to be sure that you will get more gold ounces in return than the gold ounces you are investing, at a reasonable level of risk,” he said. “If that isn’t the case, then it doesn’t make sense to sell your gold, invest it in a financial asset and get less gold back.”

Barisheff argued that, because the average age of a portfolio manager is currently 50 years old, they will have had no direct knowledge or experience of the gold bull market of the 1970s and only remember the bear market that lasted between 1980 and 2002.

During that time they experienced the tech bubble and crash when many investors lost up to 70% of their portfolios, and the 2008 real estate crisis when people lost homes and well-established REITs, such as the Dundee Dream Office REIT, lost 84% in one year.

Now we have the COVID-19 pandemic. In March, the S&P 500 declined by 34% and the TSX by 37% but thanks to central banks printing an enormous amount of new money and the world’s governments incurring massive amounts of debt, the markets have corrected to previous highs.

Barisheff warned that the markets, by all traditional measures, are more overvalued than ever before, and all the major currencies have been devalued. Step forward gold.

“Many experts believe that the next leg down will be worse than 1929,” he said. “What investors, financial advisors and portfolio managers, as well as pension funds, seem to be missing is that since 2000, there has been a paradigm shift, and gold has risen on average 10% per year. 

“Since 2000, gold has been the best-performing asset class in six of the 20 years. Most portfolios would be lucky to have averaged a 5% return, and most pension funds require a 6% annual return to meet pension obligations. They would have done much better if they had simply held gold bullion.”

In his view, the most pronounced example of gold’s performance compared to equities is the comparison to Warren Buffett’s company, Berkshire Hathaway. Barisheff believes that, since gold has outperformed Berkshire, it is highly unlikely most financial advisors, portfolio managers or pension funds will outperform gold. “In fact, the vast majority do not even outperform their indexes,” he said.

“With GDP poised to decline further because of the COVID-19 shutdowns, the enormous amount of currency that the world’s governments will have to borrow for financial aid and the endless printing of currency by the world’s central banks, it is very likely that the price of precious metals will rise significantly in the next few years. Apart from not losing money during the correction, investors should consider the strategy of only holding gold and silver until the correction completes.

“The opportunity will then be to redeploy some of the increased precious metals holdings into stocks, bonds and real estate at major discounts. At that time, it will be worth taking some gold or silver bullion out of the vault and investing at close to a bottom.”