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The Case for Gold
Throughout history, gold has represented wealth and power. The value of gold has withstood the test of time and today remains (increasingly) an essential part of the foreign exchange reserves of almost every nation.

It is interesting to note that the world’s central banks still hold approximately 60% of the world’s above ground bullion. Major banks and brokerage firms trade gold, silver and platinum at their currency desks, and not their commodity desks.

This picture represents actual BMG BullionBars held for clients in the central vault of ScotiaMocatta, Toronto, Canada. These bars are allocated and insured, and clients receive individual deeds for each bar owned. Allocated and insured bars are not part of bank capital.
“Is gold a commodity, a currency or a store of value? Though the correct answer is all three, it is primarily a currency and a store of value and is a hedge against paper money and inflation: as a currency and a store of value, gold has stood the test of many centuries. As a commodity, gold has little intrinsic worth because of limited industrial use.”

“I believe the dollar’s status as a store of value has been greatly diminished over the past decade. It will never regain the outstanding reputation it had 50 years ago. In light of this, gold bullion will gradually re-emerge as an accepted alternative asset and investment.”

Anthony Fell
Chairman, RBC Capital Markets
2006 LBMA Conference in Switzerland
This 2006 quotation is prescient based on the credit crisis experience of 2008. As we know countries around the globe have since borrowed and printed massive sums of money in an effort to stimulate their respective economies. Increasingly concerns over the real value of fiat currency are emerging.

We agree with Anthony Fell and additionally view gold as a portfolio insurance strategy. Gold and other precious metals can play an important role in wealth preservation, and portfolio construction for three fundamental reasons:

Gold is viewed as a safe haven in times of financial and geo/political uncertainty.

Gold has historically provided a hedge against inflation and currency devaluation (printing of money).

Gold and precious metal prices provide useful diversification because values tend to be negatively correlated to the traditional asset classes of stocks, bonds, and cash.

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