James Rickards Suggests 10% of Portfolio in Gold
The price of gold sits at $1272 per ounce, the highest it has been since November 10th, 2016. June delivery for gold futures rose $3.90 to settle at $1278, after hitting almost $1282 earlier in the session. Geo-political pressures may fade but gold may be oversold on expectations over rate hikes.
Financial writer James Rickards is a regular commentator on finance, and is the author of The New York Times bestseller Currency Wars: The Making of the Next Global Crisis, published in 2011. In his newer book called The New Case for Gold, published in 2016, Rickards explains how holding gold could be useful during the next financial crisis. In an interview with Modern Wall Street, Rickards advises investors to hold 10% of their investable assets in gold.
— Modern Wall Street (@ModernWallSt) April 13, 2017
What he means by investable assets this is to ignore your home and business equity, and cars and collectibles. Then take the remaining investments you have and put 10% of that in physical gold. James is not a fan of paper gold or gold funds such as the GLD ETF. He also likes to hold some cash in the short run. Cash gives you options and keep you nimble so you can maneuver and pivot according to upcoming circumstances in the markets. By Rickard’s account, the United States will probably be in a recession by summer of this year.
Of course not everyone has the means to buy and secure physical precious metals. Finding a safe way to store them can come at a cost which can eat into returns over time. One way for most retail investors to gain exposure indirectly to the gold market is through gold mining stocks. Goldcorp Inc (NYSE:GG) is one of the largest producers of gold in North America. It has a strong balance sheet, and a relatively high-quality asset portfolio. With a dedicated management team, GG is trying hard to build a future of sustained prosperity for its shareholders.
Goldcorp produced 761,000 ounces of gold for the fourth quarter of 2016 and a total of 2,873,000 ounces for the year. This is lower compared to the 909,000 ounces and 3,464,000 ounces, respectively, for the previous year in 2015. The market cycle for mining companies is full of ups and downs so this is normal. What’s important when analyzing these corporations is the long term sustainability of their business model.
Goldcorp has one of the cheapest costs in the industry. The All in sustaining cash costs for the 4th quarter were $747 per ounce, and $856 per ounce for for the entire year of 2016. This compares favorably to $977 per ounce and $894 per ounce, respectively, in 2015. So at least Goldcorp knows how to reduce expenses to cut down on inefficiency. This had a net positive effect for the company because for the full year 2016, Goldcorp recorded net earnings of $162 million, or $0.19 per share, compared to a net loss of $4.2 billion, or (negative $5.08 per share) in 2015.
But dividend investors will need to look elsewhere because Goldcorp is not a dividend grower. Like other mining companies the dividend yield for GG can vary from year to year. For examples, dividends paid in 2016 totaled $97 million. But in 2015 $370 million in dividends were paid out to shareholders. Most analysts covering the stock believe Goldcorp is well positioned to deliver increasing shareholder value over the long run. Out of 16 calls, 8 recommends hold, 7 for buy, and 1 for strong buy. It’s hard to predict when the next market correction will come. But if James Rickards is right, then having at least some parts of our portfolio in gold may be a good insurance policy for some of us.