4 Four Reasons Financial Advisors May Not Recommend Gold & Silver Coins

At the time this article was published, Atlanta Gold & Coin regularly met clients who relied on financial advisors for investment decisions and their financial future. Those advisors often favored conventional holdings such as stocks, bonds, and real estate, while frequently avoiding alternative assets including gold and silver.

At publication, Indeed, many financial planners advised clients to remain on their existing path without having much familiarity with precious-metals assets such as the US silver coin market.

At the time of publication, staying the course could be sensible in some situations, since an impulsive change can later bring regret. However, the article cautioned that following a “set it and forget it” strategy without periodically reviewing the plan could also harm a person’s financial future.

Atlanta Gold & Coin was not presenting financial advice. Instead, this article set out four reasons most financial advisors might not recommend gold and silver coins as investments, and why the original article considered that omission a potential disservice to clients.

Traditional Investment Guidance

The American Dream.

Isn’t that an aim many people share?

At publication, For many people, that dream includes building financial wealth or reaching independence. To pursue it, people often turn to professionals for direction. The important part is choosing the right professional. Atlanta Gold & Coin had observed over the years that many financial-planning professionals continued to follow a more conventional model of investment guidance.

Traditional guidance often says a diversified portfolio “should” include stocks and bonds: the more aggressive the allocation, the greater its potential return and risk. By contrast, an allocation of 60/40 or 50/50 stocks to bonds was described as reducing overall risk, while also lowering overall returns. When this article was originally published, it suggested this approach might not have been the best fit for many people in that market.

The article argued that weaknesses in the traditional financial model became visible during the Great Recession of 2008 – 2009, when the stock market fell following the largest point decline in history to that point. It compared that event with the brief market crash in 2020 during the COVID-19 pandemic. At publication in 2022, it said market volatility was unfolding again.

How had that same strategy performed through the first half of 2022? The original article’s answer was: poorly for many investors. It reported that bonds had declined as much as, or more than, the overall stock market measured by the Dow and S&P 500. The Russell 2000 and Nasdaq indexes had performed worse than bonds; the article attributed this in part to their concentration in smaller and technology companies, which can be more volatile and struggle when interest rates are higher.

What, then, about cash?

At the time of publication, with a reported current inflation rate of 9.1%, the article said cash holdings had not performed especially well either. As for real estate, it characterized the market as the largest real-estate bubble in history and warned that an eventual burst was unlikely to end well.

The article said these choices covered most options financial advisors used. More experienced advisors might have recommended TIPS or I-Bonds, bond investments that partly hedge inflation. However, it noted that these bonds generally had to be held until maturity—typically five years or longer—to receive the returns. If cash was needed sooner, it said substantial penalties applied when investors tried to withdraw before the investments fully matured.

It also noted that these choices depended on government-issued Consumer Price Index figures, or CPI. At the time this article was published, it argued that CPI did not truly reflect the price increases people were experiencing at grocery stores and gas pumps.

At publication, The article acknowledged that the traditional model can work in a bull market, because a rising tide lifts all boats, but said it might warrant review as the economy officially entered a recession. It stated that the artificial boom created by printing more than $5 trillion dollars since 2020 appeared to be ending as the Federal Reserve tightened monetary policy.

The original article projected that the resulting decline could be as severe as the amount of money created and injected into the system. It warned this might produce the worst recession since the Great Depression, describing that prospect as especially troubling.

Portfolio Diversification

Diversification was mentioned earlier, but the article explained that it works only when asset classes are non-correlated—when they differ enough that their values move differently from the wider market.

Completely non-correlated assets move in opposite directions: as one rises, the other falls, and the reverse can also occur. The article described investing in non-correlated assets as a way to diversify a portfolio and help limit an investor’s exposure to losses as markets fluctuate.

During 2022, the article said stocks and bonds had fallen together. It concluded that their correlation was too similar to deliver the diversification needed to help investors weather a difficult market.

In practice, this meant that when one stock or bond moved higher or lower, other stocks or bonds also tended to move in the same direction and at a similar pace. Having every investment travel together—particularly when the direction is downward—was unlikely to be the outcome an investor wanted.

Generally, the article identified one benefit of investing in precious metals, especially gold and silver coins, as their tendency toward negative correlation with conventional investments, which can provide needed diversification. It said this could moderate part of a portfolio’s risk and potentially improve returns over the longer term.

The same principle applies to another investment with low or negative correlation relative to traditional investments.

The article stated that, although many financial advisors disliked acknowledging it, evidence led them to recognize gold and silver as diversifiers for many traditional portfolios. It also said the metals performed well when the dollar weakened or was devalued. Looking at the prior two recessions—if 2020 is considered a recession—it reported that gold and silver rose as the Federal Reserve expanded the monetary base by printing more money.

The article explained that when the Federal Reserve followed loose monetary policy and added money to the system, the dollar tended to weaken and precious-metals prices tended to rise, with the reverse also possible. When it tightened policy by raising interest rates and removing system liquidity, the dollar tended to strengthen while gold and silver pulled back.

At the time this article was originally published, the Federal Reserve was pursuing tighter monetary policy, though the article said that could change soon because economists anticipated negative growth in the second quarter of 2022. It said that outcome would technically mean a recession because the first quarter of 2022 had recorded negative growth of 1.6%.

At publication, The article considered it highly unlikely that the Fed would continue raising interest rates during a recession. In its view, doing so would have devastating consequences for the economy.

Instead, the article considered a reversal more likely, with the Fed loosening monetary policy toward the end of that year. In theory, it said, this would weaken the dollar and raise precious-metals values.

The article pointed to historical periods in which it said gold performed strongly during high inflation and/or an accommodative monetary policy. As one example, it said gold rose from $35 per ounce to $800 per ounce in the 1970’s amid high inflation. It further reported that gold bottomed at $692 in September 2008, then reached $1,900 three years later, in September 2011, while the Federal Reserve’s balance sheet expanded from $800 billion to $4 trillion.

The original article described its most recent example as having occurred in the preceding few years. It reported gold bottoming at $1,472 in March 2020 and then reaching an all-time high of $2,075 by August 2020, largely because of unprecedented monetary stimulus from the Federal Reserve.

The article said that adding gold and silver would not have produced positive investment returns during that year’s first half, but likely could have moderated some risk and reduced the overall loss.

At publication, It also predicted that these metals would likely provide needed diversification during the uncertain second half of that year.

Gold and Silver Investments

Suppose an investment advisor recognized gold and silver as worthwhile asset classes for a portfolio. The article described that as a useful first step, then asked what the advisor would specifically recommend. Atlanta Gold & Coin had found that advisors often suggested ETFs or mutual funds to their clients.

At publication, Although the article expressed no general objection to ETFs or mutual funds, it said they might not be the strongest choices for someone seeking to add gold and silver to a portfolio.

One concern was that many of these recommendations relied on derivative contracts and substantial leverage. The article explained that leveraged investments add risk and are usually not fully supported by an underlying asset. For example, it said GLD and SLV were ETFs tracking gold and silver prices, but did not hold sufficient physical gold and silver to support all contracts issued.

Put another way, the article said not every GLD ETF holder could exchange it for physical gold.

The degree of leverage in these investments changes over time, though financial media had previously reported ratios exceeding 100 to 1. Put differently, an issuer might hold only 1 ounce in physical gold or silver for every 100 ounces of contracts it had issued. These paper contracts involved considerable risk and, at the time this article was published, depended on continued confidence in the system.

If panic occurred and holders sought physical gold and silver to settle contracts when the metal was unavailable, these investments could collapse and leave investors holding nothing of value.

Gold and silver mutual funds and ETFs presented another possible concern: they were generally denominated in dollars. For someone trying to hedge against a weakening dollar, that structure could work against the goal. In addition, as noted earlier, closing an ETF or mutual-fund position generally did not allow an investor to take delivery of physical gold or silver. For a person seeking a tangible dollar hedge, this likely was not the most suitable option.

Atlanta Gold & Coin’s view in this original article was that investors should consider physical precious-metals investments, including gold and silver coins. Earlier articles had discussed several popular gold coins and silver coins. The article described gold and silver as among the few investments without counterparty risk. That risk is the possibility that the other party to an agreement will not meet its obligation and may default.

When physical gold, silver coins, or bullion are held in a person’s possession, that particular counterparty concern no longer applies.

Physical gold and silver can cost somewhat more because premiums and storage need consideration, but the article characterized them as less risky and potentially more reassuring to own.

At the time this article was written, gold and silver prices had retreated because Wall Street expected the Federal Reserve to keep fighting inflation through interest-rate increases and bond sales.

At the time of publication, the dollar stood at a 20 year high against the Euro and a 24 year high against the Yen, a situation the article said was unlikely to last. It also argued, as discussed above, that the Federal Reserve would probably reverse direction during a recession.

In other words, the article considered it much more likely that policymakers would reopen the monetary spigots and try to inflate their way out of the recession it suggested might already be underway.

Another point raised was that gold and silver prices at publication were not far above mining costs. The article interpreted that as limited downside risk and meaningful upside potential. If prices fell much further, it reasoned, mining companies would stop producing, tightening supply and putting upward pressure on demand and prices.

At publication, The article also anticipated that central banks, including the Central Bank of Russia and The People’s Bank of China, would continue increasing gold holdings while gold was described as on sale, which it said could limit downside risk.

Assets Under Management

Over the years, Atlanta Gold & Coin had candid conversations with financial advisors, and some acknowledged that clients could be better served by owning gold and silver coins. If so, why might they not suggest it? The article identified a possible reason: reducing assets under management, or AUM. This matters because many advisors and planners are paid based on AUM. For example, an advisor with $1 million managed at an annual expense of 1% – 2% would receive fees of $10,000 – $20,000.

But if that advisor recommended clients place one quarter of their investments into gold and silver, the advisor’s fee would fall by 25%.

The article offered this as one reason advisors may have been more inclined to suggest ETFs and mutual funds. Those choices kept the amount managed for clients unchanged, avoiding a possible reduction in advisor fees. It also referenced the book “Where are the Customers Yachts.” , about an out-of-town New York visitor who admired brokers’ and bankers’ yachts, then innocently asked where the customers’ yachts were.

The story was presented as a sharp reminder that financial planners, brokers, and bankers receive payment regardless, while many clients may struggle financially. The original article said the book was worth reading.

At the time of publication, Atlanta Gold & Coin had recently met with many customers seeking to cash out stock investments and adopt a more defensive position in anticipation of a financial downturn.

At the time of publication, one longtime customer told Atlanta Gold & Coin she had lost $400,000 in the stock market. She said this happened AFTER she had told her financial advisor she wanted less risk, but he persuaded her to remain fully invested. The article hoped a temporary market rise, or bear-market rally, would let her reduce losses. It also noted that an advisor would not earn a fee when clients were out of the market and holding cash.

Again, the article described this as an inherent conflict of interest and an unfortunate one, arguing that some wealth managers may place their own interests ahead of clients’ interests.

On a related point, Atlanta Gold & Coin had previously met a customer who was also an investment advisor. That person said her firm encouraged annuity sales because they were among its highest-margin investments. Although she disagreed with the approach, she said those were her instructions, and the article speculated that the firm likely had monthly quotas to satisfy.

The article also cautioned against broad generalizations: some good financial advisors existed.

In particular, it described as valuable advisors who understood Austrian economics, boom-and-bust cycles, demand created artificially through monetary stimulus, stock-market valuation, and physical gold and silver’s role in a portfolio. The article characterized this as the kind of advisor a person would want managing a portfolio, while observing that such individuals appeared uncommon.

The article therefore suggested that readers would need to act independently, depart from the crowd, and take measures intended to protect themselves.

Summary

In closing, Atlanta Gold & Coin had outlined several reasons a financial advisor might be unlikely to recommend investment in gold and silver coins. The article said advisors often follow conventional investment guidance, which works until it does not.

As the article noted, stocks and bonds can decline together, bringing the discussion back to diversification. Proper diversification, it said, requires asset classes with low or negative correlation to core holdings. That can include nontraditional investments such as gold and silver.

The article also reviewed several gold and silver investments and explained why it recommended avoiding ETFs and mutual funds. It characterized them as leveraged investments carrying counterparty risk that might not deliver the protection or return an investor ultimately sought.

Finally, the article asked readers to consider assets under management and why a financial advisor might resist a client cashing out stock and bond holdings for physical gold and silver or a more defensive cash position.

The original article expressed hope that the discussion had been useful. It also stated that Atlanta Gold & Coin was not an investment advisor, while inviting readers at publication to discuss the advantages and disadvantages of different physical gold and silver investments and expressing interest in earning their business.

When this article was originally published, readers were invited to call that day at 678-515-5763!