Optimism #92 - September 4, 2025
Dear clients and friends,The subject of owning gold does not keep me up at night, but I do think about it.
I am not sounding any alarm or anything.
Considering what is going on south of the border politically, plus the debt being accumulated by Canadian and US governments, I will admit that it makes me wonder.
Out of caution should we own some physical gold?
I am not typically a gold investor. I have never owned anything to do with gold, although a client with a mine did send me a nugget once. That was cool. (Thank you John)
It’s not a business and it doesn’t pay a dividend. Further, it has not historically been a good investment compared to our dividend stocks.
However, we might be wise to own a bit, as insurance. I would not expect to make money from it. The goal is to protect ourselves from what we financial people refer to as ‘tail risk’.
Some say it’s the risk that is left over once you think you have thought of everything.
Wikipedia says:
Tail risk, sometimes called "fat tail risk", is the financial risk of an asset or portfolio of assets moving more than three standard deviations from its current price, above the risk of a normal distribution. Tail risks include low-probability events arising at both ends of a normal distribution curve, also known as tail events.[1] However, as investors are generally more concerned with unexpected losses rather than gains, a debate about tail risk is focused on the left tail. Prudent asset managers are typically cautious with the tail involving losses which could damage or ruin portfolios, and not the beneficial tail of outsized gains.[2]
Many of your portfolios hold shares of quality gold companies. Maybe that is sufficient? Further, even through the great depression, dividends were paid by top quality companies. So maybe we are immune to a three standard deviation event?
Some of you have gold plated pensions that fully fund your retirement needs so you may exclude yourselves from this discussion?
I remember as a young lad when gold spiked in the late 1970s or early 1980s. I was about ten years old or so. Other than that I only know what I read.
If you think it’s a good idea, then the question becomes how much? My answer is maybe 1% to 2% of your total investment value.
Gold is impractical. You have to store it. Probably a safety deposit box is best?
We will discuss during your fall reviews. I am happy to chat sooner if you prefer.
Enjoy the rest of this beautiful summer.
Derek Moran
