I think where we do see a void is in monetary alternatives. The Fed is mismanaging our currency and the [European Central Bank] is not exactly a stable alternative in terms of the euro. So for individuals -- and we're seeing a growing trend with central banks -- it has defined a monetary alternative to the dollar. And to some degree we're seeing that move in the direction of gold says CEO David McAlvany tells Hard Asset Investor.
We continue to see central bank purchases on the rise, and nonofficial purchases from the Chinese. Our contacts in Hong Kong, expect between 30 and 40 tons per month coming through Hong Kong for central bank purchases. So that's to us a compelling case for a move higher in gold over the intermediate and long term. And for the average investor, that does mean that silver is going to come along for the ride. It tends to follow along in fits and starts, much more speculative in that regard, but probably the better value between the two for the individual investor.
Hard Assets Investor: So as a wealth manager -- which is your business -- gold is your No. 1 area right now that you would be putting a client's assets into?
McAlvany: I think we're still in that strange place of sitting on the fence between a healthy cash position -- a very neglected asset class in my opinion -- and a healthy metals position, which would be allocated partially to gold and partially to silver, with the expectation that silver's probably the outperformer over, say, an 18- to 24-month period. So, not a short term trade, so to say.
But that ratio of gold to silver, 53-to-1, has come down from close to 60 earlier in the year. And for it to settle into the 40's would be normal, outperforming gold on the way.
Hard Assets Investor: If your view is that people are going to continue to move into gold for safety, for protection, or on the belief that central banks are going to have to continue what they're doing, and somehow that's going to debase or devalue the currencies, why not just go all into gold then?
McAlvany: Well, I think there is still the issue of deflationary snaps affecting individual asset classes. That could be asset-backed, mortgage-backed, commercial mortgage-backed securities -- pockets of vulnerability still there. Keep in mind we went over the last 30 years from $5 trillion in liabilities to a system that has $54 trillion in credit growth or liability.
So this is where we do see at some point there will be a step back. We don't know when, or to what degree or even what asset classes are involved in maintaining a cash balance we think is prudent. But certainly a healthy, a heavy emphasis on the metals to us is essential. You hit the nail on the head. It's not necessarily the growth process, but it is as an inflation or deflation hedge. It always has been an insurance component. And that's where it should be identified as an insurance component. A monetary alternative would be the other way of looking at it.
We continue to see central bank purchases on the rise, and nonofficial purchases from the Chinese. Our contacts in Hong Kong, expect between 30 and 40 tons per month coming through Hong Kong for central bank purchases. So that's to us a compelling case for a move higher in gold over the intermediate and long term. And for the average investor, that does mean that silver is going to come along for the ride. It tends to follow along in fits and starts, much more speculative in that regard, but probably the better value between the two for the individual investor.
Hard Assets Investor: So as a wealth manager -- which is your business -- gold is your No. 1 area right now that you would be putting a client's assets into?
McAlvany: I think we're still in that strange place of sitting on the fence between a healthy cash position -- a very neglected asset class in my opinion -- and a healthy metals position, which would be allocated partially to gold and partially to silver, with the expectation that silver's probably the outperformer over, say, an 18- to 24-month period. So, not a short term trade, so to say.
But that ratio of gold to silver, 53-to-1, has come down from close to 60 earlier in the year. And for it to settle into the 40's would be normal, outperforming gold on the way.
Hard Assets Investor: If your view is that people are going to continue to move into gold for safety, for protection, or on the belief that central banks are going to have to continue what they're doing, and somehow that's going to debase or devalue the currencies, why not just go all into gold then?
McAlvany: Well, I think there is still the issue of deflationary snaps affecting individual asset classes. That could be asset-backed, mortgage-backed, commercial mortgage-backed securities -- pockets of vulnerability still there. Keep in mind we went over the last 30 years from $5 trillion in liabilities to a system that has $54 trillion in credit growth or liability.
So this is where we do see at some point there will be a step back. We don't know when, or to what degree or even what asset classes are involved in maintaining a cash balance we think is prudent. But certainly a healthy, a heavy emphasis on the metals to us is essential. You hit the nail on the head. It's not necessarily the growth process, but it is as an inflation or deflation hedge. It always has been an insurance component. And that's where it should be identified as an insurance component. A monetary alternative would be the other way of looking at it.
More information can be found online at http://www.goldbullionadvisors.com
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