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Protect Your Portfolio through Precious Metals and Foreign Currency

Glen O. Kirsch, Executive Vice President of Asset Strategies International, discusses portfolio protection through currency diversification and other international investment alternatives.

Special Briefing...Glen O. Kirsch...Portfolio Protection

Gold Analysis

1. The new-millennium move in precious metals is being driven by factors more diverse than in the past; the international dimension of the move signals the fact that more is involved than political or economic concerns in a single country.
2. The demand stems from a combination of newfound wealth from places such as India; pent-up demand released by the relaxation of import-export controls and renewed interest in gold for traditional reasons in places such as Japan.
3. The market now is healthier than the frothy, emotionally driven market in the late 1970s and early 1980s; positive market factors are fundamental - such as basic weakness in the US dollar, which bodes well for precious metals and foreign currencies.

Outlook for the US Dollar

1. Jim Rogers' prediction of a significantly weakened dollar and a roar to the upside for commodities in general is plausible.
2. Over the last two years, the US dollar has dropped about 15%, a substantial move largely ignored by the press; that decline marks a 50% retracement in about 18 months of the 30% rise in the US dollar between 1995 and 2000.
3. Investors who decide that the direction of the dollar over the next 2-5 years will be down should consider investments that will benefit on the international playing field.
4. Japanese investors are looking for protection by turning to precious metals and foreign currencies; Japan has tried unsuccessfully for 10 years to recover using interest rates, real estate, and securities - a parallel situation has evolved in the US with interest rates.
5. If Japanese investors start to liquidate T-bills out of fear that US interest rates will go down more, the impact on the US would be dramatic; the Japanese move into metals has been strong.
6. For more information click Overseas Asset Protection.

US Dollar Projections and Impact

1. The future for the US dollar will have major impact on foreign currencies and the precious metals; the surrounding economics for the dollar do not look good.
2. The US dollar was way overbought in the second half of the 1990s; interest rates are being used as a tool to control the US economy; money supply has been pumped up dramatically, but whether inflation or control will result in unknown.
3. The balance of trade is clearly out of whack - three straight years over a trillion dollars; lowering the US dollar to make US exports more competitive is the only way to resolve that situation.
4. The Swiss franc peaked in 1995 at US $0.91; it bottomed in 2000 at $0.54; today it is about $0.70, so there is room on the upside for a substantial move.
5. A depreciation in the US dollar of another 25% would translate into the Swiss franc returning to its previous levels and gold rising to US $450-500; the percentage rise for silver would probably be even greater; platinum (already moving into the high end of its range) would still ride the benefit of gold and silver.
6. Downward pressure on the US dollar should continue for the next two to five years, keeping values rising for gold and foreign currencies.
7. For more information click Foreign Exchange.

Purchasing Metals for a Core Position

1. Futures and options are a high-risk environment that is not well suited for the general public; physical possession of metals is appropriate for core holdings/emergency money/financial insurance.
2. Certificates - a document of ownership of physical metal that someone is securing on your behalf - are sensible for large portfolios to save the inconvenience of shipping and storing metal.
3. Bullion coins (gold, platinum) are a good choice for physical holdings because they are well recognized, divisible and do not require assaying; old US silver coins, sold in $1,000 face-value bags, are an excellent medium.
4. Beyond a basic holding in coins that are kept nearby, certificates for gold, silver, platinum or palladium offer convenience for additional holdings.
5. The Perth Mint Certificate Program is an outstanding source for metals certificates; the documents, issued by the government of Western Australia, are the only government-guaranteed certificates in the world; impeccable credentials for the issuers of certificates are imperative.
6. The Perth Mint Program allows diversification among metals, choice of coin or bullion and low minimums of US $10,000 (with $5,000 increments); available as "allocated" and "unallocated" - the unallocated certificates involve no storage charges.
7. For more information click Precious Metals Certificate Programs.

The Privacy Issue

1. There is no reporting requirement for buying precious metals, but liquidation of certain types of merchandise is reportable on a Form 1099B.
2. Certificate programs with the flexibility of buying coins or bullion are not deemed foreign bank accounts that require reporting upon enrolling; however, opening a bank account in a foreign country is reportable, plus using it to store precious metals is reportable.
3. For more information click Foreign Exchange and Precious Metals Certificate Programs.

Protective Strategies Against a decline in the US Dollar

1. Opening a bank account abroad gives an investor a supermarket of services; beyond normal banking functions, foreign banks offer foreign currency CDs, foreign securities and precious metals; foreign bank accounts valued above $10,000 are reportable on a taxpayer's Form 1040 and TD90.
2. Annuity programs (particularly Swiss annuities) are popular as a more sophisticated foreign currency investment vehicle with the added benefit of life-income guarantees, no-load features, and asset protection.
3. A third option is funds management, whereby an independent money manager makes decisions on the international playing field for your foreign bank account.
4. An investor's choice is sometimes dictated by the minimums; for annuities, US $20,000; for bank accounts, US $15,000; for funds management, US $250,000; all of these products are available for both personal funds and IRA funds.
5. IRA accounts are often quite sizeable and require protection as much as personal accounts; the international vehicles are not prohibited to IRA accounts if there is a proper trustee set up to administer them - ASI assists clients with internationalizing IRA funds.
6. Another area of ASI's expertise is assisting clients with the transfer and conversion of US funds (through electronic funds transfers - EFTs) from domestic sources to foreign ones and vice versa.
7. For more information click Overseas Asset Protection.

Fees for Investments

1. The cost for the metals depends on the size of the transaction and the form of the purchase - nobody can buy gold at spot. For one-ounce gold coins in units of 10 to 100 ounces, expect to pay 5% over spot.
2. Currency transfers of funds abroad are a function of the dollar amount - as the amount increases, cost is tiered down from about 1.5% to 0.5%.
3. For more information click Foreign Exchange and Precious Metals Certificate Programs.

Metals Allocation

1. Kirsch commonly sees allocations of 5%-15% of net worth in diversified metals; he recommends that a 40% portion be held locally and 60% be held abroad.
2. Based on current precious metals valuations, the metals allocation might be 50% silver (currently undervalued), 30% gold and 20% platinum (at the high end of its range).
3. For more information click Precious Metals Certificate Programs.

Numismatics

1. People often purchase numismatics for the wrong reason - i.e. for potential gain instead of as a hobby; more dealers make money than clients because knowledge of this specific area is required for success.
2. Numismatics can be a good investment, dependent on good timing and good selection of merchandise; the general rule that the scarcer something is, the greater its potential for appreciation is not always true in numismatics.
3. For more information click Numismatics.

Gold Shares

1. Diversification should be a key element in managing a portfolio - diversification reduces risk and enhances profitability; gold shares offer an opportunity for diversification.
2. Gold shares have a history of being a good investment, but they are an investment in a company, not an investment in gold; look for good management and good reserves that can be removed profitably.
3. Usually gold shares lead the metals; leverage is involved that usually means higher percentages; in the financial pyramid for a portfolio, gold shares, meant to trade for profit, should appear further up than the baseline, core holdings.
4. Not that unlike a stock certificate, a Perth certificate is a guaranteed warehouse receipt for actual metal held on your behalf; you may request delivery or liquidate your merchandise at any time.

Tax Swaps

1. Wash rules do not apply to commodities as they do to securities; you can buy a commodity, immediately sell it and buy it back - without any restrictive holding periods.
2. ASI does tax swaps on preferential commission rates for bullion, numismatics and currencies; if the value of a client's commodity declines, the commodity can be sold and immediately repurchased to capture the tax loss; the strategy is a way to reap economic benefit from holding a commodity for a period of time.
3. For more information click Precious Metals Tax Swaps.

Reasons for Internationalizing Investments

1. Opening foreign accounts for concealment is passé; investors today are interested in insulating their portfolio against US dollar depreciation and in accessing products and markets not readily available domestically.
2. In the case of metals, there is a history of confiscation in the US; geographic diversification of one's holdings is prudent; a Perth certificate provides that diversification at no additional cost (at less cost than taking delivery at home).
3. No changes in US reporting requirements are on the horizon; cash transactions and the sale of certain metals are already reportable.
4. For more information click Foreign Exchange and Precious Metals Certificate Programs.

Steps for Going Abroad

1. ASI has helped clients globalize assets since its inception; the company focuses directly on using the metals and currency markets.
2. ASI has contacts abroad who can lend clients greater support as appropriate in areas such as banking, insurance and money management by helping them complete paperwork, comply with reporting, etc.; the facilitators supply expertise on areas that are often misunderstood.
3. The importance of the partners is paramount because being completely comfortable with what you do is very important - don't entrust your money and information to just anyone.
4. For more information click Overseas Protection.

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