You're Probably Underinvested in Gold | ETF Trends

By Frank Holmes, CEO and chief investment officer for U.S. Global Investors

The U.S. was founded 243 years ago, and in that time it’s amassed some $23 trillion in debt and counting. As staggering as this number is, it’s still less than half what Elizabeth Warren says her government-run “Medicare-for-all” program would cost… over only 10 years.

The Massachusetts senator and presidential contender made the announcement Friday morning, responding to critics who’ve demanded to see some details on her ambitious proposal. According to her campaign, the price tag to provide Medicare-style health care to every American would be “just under $52 trillion.”

To put things in perspective, that’s close to one-fifth of the total wealth in the entire world, which Credit Suisse estimated to stand at $280 trillion in 2017.

The $52 trillion is just the nominal price tag. It doesn’t take into account incidental costs, such as what to do about the estimated 2 million Americans who would lose their jobs should private insurance be eliminated. And because the plan would be covered in part by tax hikes on employers, the ultra-wealthy and financial transactions, companies may be less inclined to hire, and people may be less inclined to invest.

According to Sarah Bianchi, macro research analyst at Evercore ISI, even Democratic House Speaker Nancy Pelosi has strong reservations against the proposal because of its steep expense. An Affordable Care Act (ACA) improvement plan, she says, seems far more likely.

The 2020 election is only 12 months away. Early signs point to another term for Donald Trump, according to Moody’s Analytics presidential election model, which has a near-perfect record at predicting outcomes. But impeachment risks are mounting, and Warren is leading the Democratic polls.

I urge investors to prepare for potential market volatility and currency devaluation. Gold and gold stocks have historically been excellent diversifiers in such times, but new research from the World Gold Council (WGC) shows that most investors are radically underexposed to the yellow metal, even when they believe otherwise.

Gold: Efficient, Effective and Under-Represented

talked briefly about the WGC’s research about a month ago. The gist of the study is that investors may assume they have adequate exposure to gold because they’re invested in a fund that tracks a broad-based commodity index. The problem with this assumption is that most major commodity indices have a relatively small weighting in gold, and so their gold exposure is much smaller than they realized.

Gold Is Under-Represented in Major Commodities Indices
S&P GSCI Bloomberg Commodity Index
Energy 63% Energy 34%
Agriculture 15% Grains 20%
Livestock 7% Industrial Metals 18%
Industrial Metals 11% Precious Metals 16%
Precious Metals 4% Gold 12%
Gold 3.37% Softs 6%
Livestock 6%

Weights as of January 2019. Gold weighting is a sub weight of precious metals
Source: S&P Global, WGC, U.S. Global Investors

Weights as of June 2019. Gold weighting is a sub weight of precious metals
Source: Bloomberg, WGC, U.S. Global Investors


Take a look at the tables above. The S&P GSCI, which tracks 24 commodities, has only a 3.37 percent weighting in gold. The Bloomberg Commodity Index is slightly better, with a weighting of 12 percent. These percentages shrink even more when you consider that commodities, in general, represent a small portion of most investors’ portfolios.

“If you are buy-and-hold investor, if you are trying to create long-term strategies, the evidence overwhelmingly shows that gold is a more effective strategic asset than commodities alone,” explains the WGC’s director of investment research, Juan Carlos Artigas, who I had the opportunity to chat with recently.