Fidelity's Joe Wickwire: Buy Gold Now

Last month, Wickwire gave some reasonable arguments as to why one should buy gold. “I believe, he said, “that now is a good time to take advantage of the negative sentiment short-term trading sentiment.” Is Wickwire right? Do you really need gold in your portfolio? Listen to our latest edition of the Market Report.

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market reportJoe Wickwire, research analyst and portfolio manager at Fidelity, said recently that "now is a good time" to buy gold

Last month at the LBMA Precious Metals Conference in Lima, Peru, Wickwire gave some reasonable arguments as to why you should buy gold. "I believe," he said, "that now is a good time to take advantage of the negative sentiment short-term trading sentiment." Wickwire also said that current market conditions are similar to what happened in 2001-2008 period when gold prices surged. Listen to Gold Specialists Will Hart and Jake Kennedy discuss Wickwire's comments.


Mark Alyn: This is the Market Report from the Birch Gold Group. Hi, I'm Mark Alyn. Joining me in studio, Will Hart and Jake Kennedy from the Birch Gold Group. Gentlemen, welcome back to the Market Report.

Will Hart: Thank you, Mark.

Jake Kennedy: Good morning, Mark.

Mark Alyn: Gentlemen, we're going to take a look at some things that one of the top trader and analysts at Fidelity, Joe Wickwire, said, and he's basically saying now is a good time to buy gold. So, let's talk about this. Here's his first quote. I'm going to read you a couple of quotes and I'm going to ask you to respond. According to Wickwire, he says, "I believe that now is a good time to take advantage of negative short-term trading sentiment." And to back that up, Zero Hedge says the following. "To fret of declines in price is to miss the point. Holding an allocation of physical gold adds a proportion of one's portfolio, ensures that if and when faith and paper and digital assets declines, and counter party and systemic risk returns one is hedged and one's wealth is protected."

This is the whole point of owning gold bullion?

Will Hart: Okay, so I mean I agree one hundred percent. The attitude of paper is what we've talked about in the past. It's percepted value. So, you know, we've seen German economies. We've seen countries around the globe. We watch their paper go up and down like a rock and go up like a balloon, and our dollar is possibly not far behind that. So, when you are shifting into a hard asset, like physical gold, that's been around for four thousand years, you're stepping out of that percepted value and you're going to something that, in my opinion, is a real value. And obviously Wickwire and others agree, and the list goes on of people who've agreed with that.

Mark Alyn: And that's really what you at the Birch Gold Group advocate; that having gold is used to protect wealth.

Will Hart: Creates a store of wealth. It's a hedge against inflation. When you convert - again, and I know we've talked about this in the past. You know, what $20 could buy you one hundred years ago versus $20 today is day and night difference. Twenty dollars one hundred years ago will buy you a suit. Twenty dollars today doesn't pay for the alterations on that suit. So, however, on the other hand, gold still will buy you what it could buy you throughout time.

Mark Alyn: Let's ask Jake Kennedy his opinion.

Jake Kennedy: Yeah, I agree definitely with what he's saying and the second quote too. I think it's important, if we just look at that quote, it says, "To fret over the declines is to miss the point," and so it's what we're finding right now. Oh, it's going up. It's going down. I'm not sure when to jump in. But the strategy they're talking about here is that, you know, there's never the best time to buy because no one's got a crystal ball. However, if you see, as he's talking about, risk in the marketplace, then it's always good time to be buying gold as an insurance policy against all the other assets you have in case tomorrow, you know, we have an '08 situation, you know, where markets start melting down for whatever reason, and a lot of people believe we're fairly close, you know, potentially to that as well.

Will Hart: Yeah, I mean, again, Mark, gold is not tied to one currency. It's not tied to one country. So, if our dollar, which of course is the big fear for everybody. If our dollar goes south or at least the value continues to decline, well, people who have precious metals know that what their dollar could buy when they bought the gold is still going to hold true; that gold will hold that value.

Mark Alyn: And gold is the international currency.

Jake Kennedy: Between central banks. Although everybody denies, you know, people like Ben Bernanke. He was asked if gold is a currency and he said no.

Will Hart: But then you ask Alan Greenspan and he says the opposite.

Jake Kennedy: Because it's not the company line right now to say that gold is a currency, yet central banks only trade between themselves. They pay their debts to each other in gold because they know that an American can just put ten billion dollars on a palate and send it to them, but it's just paper. What does it really mean? It's just printed and it means nothing, but gold, however, which has a finite amount of gold above the surface and below the surface, ultimately has become a true measure of wealth and that's what banks pay.

Will Hart: Well, yeah, and Mark, keep in mind that to print a trillion dollars, well, what is the cost? It's the cost of the ink and the paper, and that's pretty darn cheap. If they wanted, they could print a trillion dollars with a blink of an eye. However, you want to pull a trillion dollars worth of gold out. Well, guess what. It's going to cost the average mining company here in the United States anywhere between $1,200 to $1,300 to dig that gold out of the ground.

Jake Kennedy: Per ounce.

Will Hart: Per ounce. So, we're talking about moving thousands and thousands of tons of dirt to find these tiny, little gold flakes. So, it's arduous. It's time consuming. It's costly.

Mark Alyn: Let's take another look at some of Joe Wickwire's comments recently. "In comparing the surge in gold price from 2001 to 2008 to current conditions, today is quite similar. There are negative, real interest rates while countries are using currency as a policy tool to support nominal growth at the expense of real growth. And on top of that, supply from the gold industry is starting to come down."

Will Hart: Yeah, well, as I just mentioned, the cost to produce gold is more than the cost of gold, so you're going to run into a situation where a lot of mining companies in the United States are actually pulling back. They're shutting down operations. They're laying off miners because it doesn't make sense to mine something and lose money when you go to sell it. So, what's happening? We're having less gold entering the market and demand is greater than ever. I mean that spells right there a good opportunity for metals.

Mark Alyn: And gold is still at about four, five-year low.

Will Hart: Yeah, it's at a four-year low.

Jake Kennedy: And it's interesting what he says here. He says, "Comparing the surge in price from 2001 to 2008 to current conditions." Now, I've looked at the charts for gold right up until the crash of '08, and the three months running up to the stock market crash in October of 2008, gold dropped about 30 percent in value, but you know, how and why people didn't quite understand at the time because everything was booming and, you know, above surface, but under the surface is a real whole lot of trouble and that's why gold was coming down for various reasons. But as soon as the crash happened, three weeks in October, where the markets dropped about 30 percent actually, shortly afterwards, for the following year, gold jumped 58 percent back up and over the following two years, it was up one hundred percent.

It doubled in value because what people were doing, and he talked about it here. He refers to it as paper assets, counterparty risk, digital assets, so on and so forth. These were problems back in '08, and they're even more true today, but what people did then and I think what will happen moving forward if these experts are right is that people are going to see the risk associated with digital assets, paper assets, and they're going to start moving huge amounts of money from paper assets to gold, as they did in '08, and I think more so because I think we may have issues according to Peter Schiff with the dollar as well. So, the stocks might not be safe. Bonds might not be safe. The dollar might not be safe. So, what is safe? Well, physical gold, and it's going to be very hard to come by if everybody starts trying to buy it.

Mark Alyn: The cost of gold currently, as Will just said, is at a four-year low. If we don't have as much gold to have, it would seem to be that the price would go up.

Jake Kennedy: That's what you would think, but the crazy thing is, is we've really never been busier and from our friends in the industry, it's sort of same across the field because we'll deal with physical metals and people are seeing this drop in price and this four-year low as the absolute best time right now to come into the market, into the physical market, maybe selling GLD funds or paper gold, selling other overvalued assets. You know, some people believe the stocks are very overvalued right now and they're moving into undervalued assets. You know, it's Investing 101, and so they're buying physical gold hand over fist, and you see the reports from the U.S. Mint. We've got shortages there. We've got shortages at all the refineries. We have shortages, shortages in physical metals because people are buying, buying, buying.

Mark Alyn: Will, you had a thought.

Will Hart: Yeah. Jake mentioned Peter Schiff. I mean you've got to think back. Peter Schiff, in 2008, prior to the market correction in 2008, and I say correction as a nice word of saying crash. He wrote a book saying that this was going to happen. Of course he was laughed at. People thought, "What are you talking about? The economy. We're doing great," and all these strange things were happening. S&P 500 was at historic high. Gold was being pulled way down, and we call that the classic slingshot effect. And sure enough, what happened? The market crashed and people lost 40 percent of their portfolios. Gold, as Jake mentioned, shot up 58 percent.

That's a 98 percent swing. From a 40 percent drop in the stock market and a 58 percent gain in gold, 98 percent. So, now, what is Peter Schiff saying? He says it's going to happen again, except this time it's going to be worse. The experts are saying this next market correction is going to be 50 to 60 percent. So, what does that mean for gold? Like you mentioned earlier, Mark, we're already seeing mining companies shutting down because the cost is below production, so why would they want to lose money, so maybe less gold out there or at least that's able to be grabbed up. And who knows if this market does correct like the experts say? Where is gold going to go? I have no idea.

Mark Alyn: Well, this is a good time to bring this in, I think. Again, according to Fidelity's Joe Wickwire, "It's important to remember that a little gold goes a long way. If you had five to ten percent allocation in your portfolio from 2000 to 2010, you wouldn't have suffered a lost decade."

Jake Kennedy: And that's a very interested thing. It's all about diversification because most people think that diversified - I speak to a lot of people. Oh, my broker has me diversified in all these funds and stocks. And you know, if you take a sort of bigger picture, you're in stocks and funds. That's not true diversification. So, if you took - and this is what they're saying here. Let's say you had a $100,000 stock portfolio in 2000 and in 2000 you took $10,000 and moved it into gold, well, between 2000 and 2010, gold was up five hundred percent. And with the ups and downs in the market, the market has pretty much stayed flat, which is why they call it a lost decade. No one made any money. If you just sat in the S&P 500 mutual fund, it went up. It came down. You came out even at the end of the decade.

Mark Alyn: At the same time, at the end of that decade, your buying power would've been less than at the beginning.

Jake Kennedy: Well, that's another issue as well. You're down 38 percent, but most people don't grasp that. They just see the money they have in the bank and they say, "Well, I've still got $100,000." Yes, but what does it buy you? A lot less. 38 percent less. So, if you put $10,000 in gold and ten years later that's worth $50,000, and your portfolio in stocks is still worth $90,000, well, now you have a portfolio that is worth 90 plus 50. $140,000. So, everyone who stayed in stocks still had $100,000, but people who diversified into gold had $140,000. Now, who doesn't want a 40 percent better return on their portfolio?

That's looking back of course, but moving forward, you know, if the experts are even a half or a quarter right and we have all these things happen that they say are going to happen, I think having anything in gold is going to, as the guys at Fidelity say, hedge your wealth and keep your money protected, or at least what you put into it so that overall your portfolio doesn't take that big hit. Part of it does, but part of it hopefully moves much higher and protects you against rising costs, inflation, dollar devaluation, and all the stuff that people are worried about.

Will Hart: Diversification. That's the key issue. I mean Jake is one hundred percent right. You know, you have to look at your portfolio and understand your dollars are being attacked from devaluation and inflation. You need to protect, based on what the experts are saying, a hard asset, something that can offset that devaluation. So, it's a teeter-totter. One is going to go down. When one goes down, one goes up, so you want to kind of keep that balance.

Mark Alyn: Here's a quote from an article in Zero Hedge. "Wickwire emphasized that while precious metals may respond to market volatility in the short-term, in the longer-term the fundamentals are sound. As many as 40 percent of mining companies cannot turn a profit," and this is what you guys have been saying, "with prices below $1,250 an ounce. We can extrapolate, therefore, that if prices do not rise from where they are now, many mining companies will fold and this will lead to a supply crunch and consequent rising prices."

Will Hart: Yeah. Well, I remember years back, when the orange industry had - there was such a bountiful amount of oranges that in order to keep the prices, they'd let their oranges rot. Do you remember that, Mark?

Mark Alyn: Yeah, I sure do. And they've done it with milk too.

Will Hart: Absolutely, when there's an abundance of something, but now let's go the other route. When there is not enough of something, well, we know the price is going to be pushed up. When Florida had that big freeze and a lot of their orange crops were lost, well, the very few oranges out there - guess what. You go to grocery and you're like: "How much is it for a pound of oranges?" I mean it was ridiculous. So, when you see these prices pulling down this low to where mining companies are saying, "What's the point? We're losing money. We're going to work and lose money. I don't think so." So, again, a lot of them are running on fumes, a lot of them have closed down, and I think we're going to see that eventually catch up on the price.

Mark Alyn: Gentlemen, we're out of time. Thank you very much. We look forward to talking with you on our next Market Report.

If you would like some information from the Birch Gold Group, call them at (800) 355-2116. We also welcome your emails and questions, and that's easy to do by going to Info@www.birchgold.com. You can also visit the website, which is www.birchgold.com. There is just a ton of information on gold and financial markets there that will help to educate you on why gold belongs in your portfolio. That's www.birchgold.com, and I'm going to give the number again. If you call this number, you'll be connected with a Gold Specialist, who can answer specifically your questions. Call (800) 355-2116. I'm Mark Alyn. This has been the Market Report from the Birch Gold Group. We'll see you next time.

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