As 2013 reached a conclusion, I started to make some adjustments in my retirement savings. I want to step through the path of the big change.
At the beginning of 2013, the main investment analysts that I listen to had convinced me to begin adding precious metals to my retirement portfolio. In particular, I decided to begin adding gold to my portfolio. To do that I began a program to buy GLD, the gold ETF, on a regular basis. I receive 26 paychecks a year and added to the account 21 times during the year and split the purchase five times. My target is to get to 5% of my portfolio in gold. I ended up at just under 2%.
The reason behind the addition of gold was to provide insurance to the portfolio in case the Federal Reserve lost control of the economy. I was becoming greatly concerned about the potential for severe inflation if the ending of their asset purchase program was mishandled.
As the year went along, I watched the price of gold drop from about $1,600 per ounce to begin the year to about $1,200 per ounce by the end of the year. I was starting to read several commentators wondering about potential manipulation of the price for two reasons. First, the price of gold is set twice a day by a few banks in a manner that is eerily reminiscent of the method LIBOR was set before the manipulation of that market was exposed. Second, demand for gold seems to be much higher than supply, especially if you look at purchases by China and India. While China seems to be buying and storing gold, India went so far as to put trade restrictions on the importation of gold. It sure seems like there is some smoke here and the rest of the story will come out over the next year or two when some clever people find the fire.
As we approached the end of the year, I came across David Collum’s interview on Peak Prosperity. While also mentioning the potential for price manipulation, he also indicated there is something funny with the GLD ETF. Combine that with Grant William’s analysis where there appears to be more people who can claim gold than actual gold and I began to question my decision at the beginning of the year. The conclusion I came to was that I owned an ETF and not the physical asset of gold itself. As a result, I have sold my GLD holdings on December 31st. My plan now is to buy physical gold and keep it secure and within my possession.
For 2014, I have a goal of saving 20% of my expected income. That is divided up as shown in the table on the right. While 9% will be going into purchases of gold, the total value within the portfolio will be dependent upon the price. I was not expecting the price to drop 25% during 2013 and I do not know what the price will do during 2014. The purpose of the purchase is for insurance, and if the price continues to fall, I will simply be able to buy more ounces with my dollars.