• BFI Capital

“50% of my net worth is in gold…” Is that crazy, or not?

On May 1st, in a Bloomberg interview, Egyptian billionaire Naguib Sawiris admitted that he was concerned about global markets and that half of his wealth is now invested in physical gold. As might be expected, the surprised interviewer’s instant question was: “Shouldn’t you diversify a little more…?”

In the interview, Mr. Sawiris says that he believes gold prices will rally further, reaching $1,800 per ounce from just above $1,300 now, while “overvalued” stock markets could crash soon.

A number of big investors have noted similar concerns recently. They see warning signs indicating significant turbulence ahead in the markets, but most of them are still holding their positions. Egyptian billionaire Naguib Sawiris is taking action: He’s put half of his $5.7 billion net worth into gold!

It is worth noting that the Sawiris family is not a bunch of lunatics. To the contrary, they have built their wealth with entrepreneurial savvy and skill. The father of Naguib Sawiris, Onsi Sawiris, founded Orascom Construction, a global engineering and construction contractor, while his brother, Samih Sawiris, is a well-known business man and investor in Switzerland. His real estate project in Andermatt is known across the country. His reputation is solid.

Are you concerned about financial markets?

When someone like Naguib Sawiris puts half of his net worth into gold, you should take heed. We have reached a crossroad. For manifold reasons, financial markets ahead promise to be sluggish and bumpy at best, catastrophic at worst.

If you are concerned about the health of our world’s financial system, you need to prepare. Gold – and, to a lesser degree, silver – ownership needs to be part of your wealth preservation plan. If you already own precious metals, that is good. However, it is equally important that you own it THE RIGHT WAY.

How you invest in gold or silver depends very much on your belief system and your objectives. If you are not concerned about the current economic climate and the state of the international financial system, then you may be much less critical of HOW you invest in gold. Perhaps investing in a gold ETF might appear sufficient in that case. However, don’t be fooled; it will not protect your wealth.

You own gold. Are you sure?

We often talk with many investors who say that they own physical gold and silver, to which we habitually respond with the question, “are you sure?”. If your answer is “no”, please read on. If your answer is ‘yes’, then we’ll ask again: are you sure???

If you “own gold” in the various forms of metals claim accounts or certificates offered by banks, or if you own a “gold-backed” ETF, or an unallocated account with an online bullion dealer, you DO NOT OWN ANY GOLD.

Sorry to burst your bubble, but if you are not invested in physically-allocated gold, stored physically and safely in a location you have selected, you are merely vesting your trust and the fate of your investment in a financial institution and its capability to sell and/or deliver the metals that you have a claim to (you don’t really own the metals in these scenarios) whenever you give the order. And, under normal market conditions, your assumptions may generally be valid.

If you are interested in a high-turnover, in-and-out metals trading strategy, you may indeed be better off using ETFs, or possibly one of the other ’digital’, internet-based precious metals programs abundantly available today. Since you are with such programs, at best, investing in fractions of bullion bars or more often in unallocated ownership, claims, or ETFs that are not entirely – if even at all - backed by precious metals, the transactions will obviously be quicker, effectuated by the click of your mouse.

However, if you are like us, then you will want to ensure yourself of true, allocated, direct ownership. If you want to protect yourself from a crisis during which gold and silver prices shoot up and the availability of physical metals will be limited or non-existent, or when the financial system stalls and selling precious metals through the banking world simply won’t work, then GLD and the like will not do... They won’t even come close.

George Bernard Shaw summed up the essence of this in the following quote:

“A choice must be made between the natural stability of gold and the honesty and intelligence of the members of government – with all due respect for these gentlemen, I advise you, as long as the capitalist system lasts, vote for gold.”

Gold is a safe-haven asset. During times of crisis, gold will not behave like other investments. It offers a “chaos hedge” for your wealth. Mr. Sawiris understands this. And yes, he’s perfectly fine with his level of diversification. Is that crazy or not?