Central-bank actions and overall economic conditions are making gold an increasingly attractive investment, as SMI executive editor Mark Biller explained yesterday's MoneyWise Live from Moody Radio.

To listen to a portion of the program, click the play button below — or, if you prefer, scroll down for the transcript.

(And for more radio appearances by members of the SMI team, visit our Resources page.)

MoneyWise Live, with hosts Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT. 


Transcript

Steve Moore:  Y'know, investors are like most people only more so — they don't like uncertainty, and in turbulent times they really do look for stability. Does gold provide that security? Host Rob West sits down with investing expert, Mark Biller to find out. And then it's your calls at 880-525-7000. I'm Steve Moore. Investing in gold. That's next right here on MoneyWise Live. (theme music ends)

Well, Rob, Mark Biller, our good friend, is also the executive editor at soundmindinvesting.org — where they've been thinking a lot about gold lately.

Rob West:  Well, that's true, Steve. SMI has not one, but two articles about gold in their newsletter this month. We'd encourage you to check them out more information on how to do that in just a moment. But, Mark, great to have you back with us again.

Mark Biller:  Well, thanks guys. It's good to be back.

Rob West:  Mark, why the interest in gold at SMI? Is it perhaps because gold and other precious metals are on people's minds these days or some other reason?

Mark Biller:  Yeah, well, the main reason that SMI readers specifically are focused on goals right now is one of our main strategies moved us into gold in a pretty significant way back at the end of January. That turned out to be a great hedge against the chaos that was about to unfold in the stock market. But to answer your broader question, Rob, investors in general have become a lot more interested in gold and precious metals this year. And that's partly because of what we might call the "fear trade" — and partly also, because of the massive government response to this economic crisis we've had, which has some inflationary implications for the future. And gold has always been a really good inflation hedge.

Rob West:  Well, let's unpack a bit of what you just said. You mentioned the phrase, the "fear trade." I'd love for you to talk a bit about that — and then, perhaps, how the average investor tends to look at gold.

Mark Biller:  Yeah, sure. Well, you know, a lot of investors tend to flock to gold whenever fear rises in the markets and that's because gold has this convenient 4,000 year history of handling pretty much everything as humans can throw at it and still ending up standing at the end. So whenever things get dicey, people get scared — as they did, obviously the spring when the COVID crisis and the bear market we're ramping up — that always spurs a lot of interest in gold. And in more technical terms, we call gold an "uncorrelated asset" because it tends to perform differently than most other financial asset classes, like stocks and bonds. And that kind of diversification is exactly what investors want whenever the financial markets get scary.

Rob West:  And obviously there's more to it than just the "fear trade," if you will. You mentioned — you all specifically at SMI — were buying gold before the recent market turmoil even started. So talk to us for a moment about what drives the price of gold, and why some people are especially optimistic about it right now.

Mark Biller:  Gold has really been in an uptrend. There's been the strengthening underlying trend since late 2018. And that's what our SMI mechanical process were picking up on earlier this year. What's happened in response to this COVID and bear-market crisis, this has really been kind of a big amplifier — an accelerant, if you will — of some trends that were already in place. And specifically, I'm talking about the massive amount of new debt that governments have taken on in response to the crisis. That, plus all the new liquidity that central banks like our Fed have been pumping into the markets, that really kicked off last September — again, before COVID.

So we're seeing this acceleration of these trends that were already in place. And that debt, the expansion of the money supply, all these actions end up lowering the value of money that's already in circulation. That's this "debasing of the dollar" that you hear about sometimes. And that makes real assets like gold that hold their value really attractive. You know, as the dollar becomes less valuable, a fixed standard, like gold becomes more value.

Rob West:  Yeah, it makes a lot of sense. Well, we'll have time to unpack this — plus your questions on gold —  right around the corner.


Rob West:  Mark, we're talking today about gold — and you've covered a bit of why someone would be interested in gold while there's been a lot of price action and gold and new investment on the part of those trying to respond to this incredible Fed action and monetary stimulus, all as a result of the response to COVID. We did see another first today — in fact, just a couple of hours ago, the Fed made a major announcement with regard to something they had alluded to previously, but they're actually going to start buying corporate debt. Talk about how unprecedented this is and the implications perhaps.

Mark Biller:  Yeah, so this news originally broke back on Good Friday, and it really kind of rocked the market at that time because the Federal Reserve has never really before or come into the financial markets and done specific firm-by-firm investing before. And technically they're not really doing that now. They're having some independent managers do this buying on their behalf and they're loosely targeting an index to kind of spread this money around. But it's kind of disconcerting for people that have been in the financial markets for their whole careers to see an 800-pound gorilla like the Fed come in and now it's not just independent allocating of money between firms by the market. You've got this big actor and it feels like they are to a greater degree determining winners losers. So that's been a big deal. The idea that the Fed money is behind the bond market. That's really the big picture message that's come out of this.

And so back on Good Friday when they first announced that they were going to be doing any of this — and then again today at two o'clock when they announced they were going to be kicking off the direct lending to specific corporations — both times both the bond market and the stock market got up pretty significant kick higher. And so that has, of course, you know, whenever that type of thing happens, the more cynical type of interpretation is, you know, last week was the first significant trouble that the stock market has had since late March. We opened with a pretty significant down — stock market down close to 2% this morning — and, lo and behold, here comes a new yet another new Fed announcement that they're going to be pumping money into the bond market. And off goes to the stock market to, I guess, about a half-percent gain today. So, you know, a little suspicious on the timing.

But that's kinda what's going on with the Fed in the bond market. And of course what we're talking about today with gold, you know, it's  all of these repeated interventions by the Fed, just pumping more and more and more liquidity and money into the system that makes people that watch gold think gold is really in the catbird seat here because the Fed just can't seem to resist the temptation of adding more and more liquidity to the system, which just makes gold more valuable by comparison.

Rob West:  Well, it's incredible and unprecedented — and you pick the word for what this is. But clearly the Fed has said we will use every tool at our disposal and they're displaying that in their actions, not to mention the fact that Fed chairman Powell said recently, we're not even thinking about thinking about raising rates. I mean, he's clearly said we are here to support this market in this economy, and we're watching that in full effect.

Let's get back to gold for a second though, because it's not all up in the sense that there have to be some downsides here that folks need to consider. So why would we want to be cautious about buying gold?

Mark Biller:  Yeah, absolutely. Well, the main reason be cautious about precious metals is they are a very volatile asset class. And we don't have to look back very far to see really pronounced examples of that. So, from 2011 to 2015, the price of gold fell from about $1,800 announced to just over $1,000 dollars an ounce. So it almost got cut in half over that roughly four year period.

And now more recently having run back up to about $1,700 an ounce, some people have been looking for a pullback in gold and, you know, to be fair, since the economic news started getting a little bit better and the stock market has recovered over the last eight to 10 weeks, the gold price has been kind of in a range, a narrow range. So it's ascent has kind of, at least for now, topped out as the economic and stock market picture have brightened. Now, is that temporary? We'll have to wait and see.

But it does raise the point that there are potential risks to gold on each side of the economic-recovery story. So on the one hand, if things get really good really quickly, that "fear trade" just disappears and investors go back to focusing on everything other than gold. On the other hand, if things go poorly enough on the economic recovery side, down the road, gold also has a nasty habit of sometimes falling right alongside with stocks in the short term. So if we were to see another sell-off in stocks, that's another possible downside.

So there are always risks. You have to keep in mind with gold and precious metals.

Steve Moore:  Mark, the things that we talk about, the principles, the scenarios that we talk about when it comes to gold and investing, does it also apply to silver and maybe other precious metals?

Mark Biller:  Yeah, it does, Steve. I think the way to think about silver in relation to gold is silver is kind of like gold on steroids, most of the time. So whatever gold is going to do, Silver's going to do that "plus x" or "times two," you know, whatever you want to think of.

Now, it's not quite that simple because silver does respond more to the underlying economic cycle. Silver has more industrial uses that the real economy uses silver for than gold does. So sometimes you see it moving more with the economy. Whereas gold is trading on a little bit different type of factor, but I think that over the broader term, that relationship tends to hold where, you know, if gold hiccups silver can really take a dive. And on the other side, when gold really runs, silver will often perform even better during that period. It's a more speculative version, so I would encourage people to be that much more careful with silver, because it can be that much more volatile.

Rob West:  In just a moment, Mark, we'll talk about the best ways to invest in gold if a person wants to, but given the conversation we've had thus far, I don't want folks to think we're encouraging them to trade gold, move in and move out, trying to capture short term moves in the market. Obviously we're all about your all about longterm investments, which is what you were doing when you said SMI took an allocation in gold for your portfolios. So talk about how to think about gold as a part of your portfolio and not get caught up in this trap of, "I need to catch gold now and write it up quickly and jump out." That's really not the idea.

Mark Biller:  Yeah, that's a great point. We're not trying to create gold traders here by any means. But, you know, for an individual who's managing their own investments, maybe their own 401(k), that kind of thing, a small allocation to gold that you keep over time — I'm talking about maybe 1%-to-5% of a portfolio — can really have a nice volatility dampening effect on the overall portfolio. Again, because it's going to walk out of step with the other things in that portfolio.

And there's some really easy ways to add that type of exposure, which I think we're going to get into here in a bit. And then beyond that, you really would need something more like the SMI strategies if you're wanting to do more than that, because then Ayou are going to be talking about increasing and decreasing your exposure over time.


Steve Moore:  If you haven't checked us out online, you might want to do that when you have a moment — we're pretty impressed with our own website and you just might be as well. And you'll find this at moneywiselive.org — lots of free, great information and resources there. Again, you might want to look at when you have a few minutes: moneywise live.org.

Mark Biller with us today, discussing investing. And whenever we discuss investing inevitably the topic comes up regarding gold and silver, precious metals, things like that. And so we're chatting about that at the beginning — but anything today investing related. Call right now: 800-525-7000. Orlando, Florida — hi, Randy! What's your question?

Caller:  Hey guys, how you doing today?

Steve Moore:  Great, thanks.

Caller:  Thank you for your program. I've got a question. I have at this time no debt. I was able to save a lot through my life, but also my parents passed away a few years and left quite a bit of money for their children. They invested very well, great for their children. And through the years, they really taught me, as well as my brothers and sisters, how to invest and prepare for the time that you're going to this earth. And one day we'll be with Christ. So right now, uh, I have money set aside to do — I've already got investments, but I've never bought gold before. I had a friend who dealt with gold and he had gold nuggets, he had gold coins, a bunch of different things. So I guess my question is this, how do I get started into adding gold into my portfolio? I mean, I know it sounds simple — like just buy gold...

Rob West:  Well, there actually are a number of ways, Randy. I'm glad you asked this question. Mark, your thoughts, the various ways to buy gold.

Mark Biller:  Yeah, that's a great question, Randy. And there are really two main tracks that people can follow for this. Um, the easiest way for most people to add some gold exposure to a portfolio is by just using an ETF, an exchange-traded fund. It's like a mutual fund that trades like a stock. There are ETFs that track the price of gold.

The biggest one of those is: ticker symbol GLD — for gold. And it can be bought and sold just like any other stock or ETF. And the reason that I lead with that first is just because it's so easy for someone who already has an investing account — because it's just like adding another mutual fund to their account. They don't have to do anything fancy, anything special. They can just add the amount of gold exposure — again, whether that's like 1% or 5%, somewhere in between — they can just add that to their existing portfolio and they're done. And that will track the price of gold over time.

Now for somebody like you, Randy, that maybe is thinking much longer term — and maybe even thinking about investments that you can leave to your family — you also have the option to add a more or less permanent allocation to gold by buying physical gold. And that would be — normally we would recommend someone going down that path consider buying gold bullion coins over time. Now, we've got an article in our June newsletter about how to do that. You can do that through local coin shops. You can carefully investigate online options. There are some good ones, there's some bad ones. You have to be a little bit careful online, but you can buy gold coins online. And that's a very efficient way to accumulate a small amount of gold as well.

Now you wouldn't want to have a ton of gold hanging around the house for obvious reasons, but for most people, if they're talking about a small allocation in their portfolio — you know, having a half-dozen to a dozen gold coins, either in a home safe or in a safety deposit box at the local bank — that's a very doable option.

And again, we've got an article that goes into more detail on how to do that for people that are interested in that specifically. But those are two pretty easy paths that you can use to get started.

Rob West:  Yeah. I love the fact that we have the ETF now, because you really can track that underlying price of gold, which is what most people want to do, as opposed to those taking physical possession of the gold, which can involve a premium, both on the buy and the sell — not to mention securing it.

Mark, your articles are a great resource in this area. So Steve will tell us how to get to those, but just want to say, thanks for stopping by today. This has been really helpful.

Steve Moore:  Mark, thank you very much. God bless you, brother. Those articles, A Winning Approach to Owning Gold and a video, A Conversation About Owning Gold. You find it at soundmindinvesting.org. Check 'em out.