I would normally view a book with such a title with considerable skepticism even though, as the previous blog post reveals, I’ve long been a believer in having a 5 to 10% position in some combination of gold or precious metals stocks, mutual funds or ETFs, or the underlying physical metals (coins or bullion bars).

• For more on Chevreau’s take on buying gold, listen to his recent chat with 680 News’ Mike Eppel:

But $10,000 as the price of a single ounce of gold? That’s almost a seven-fold rise from the most recent post-correction price of $1,460. There are at least two reasons why I even dignify the idea with a blog post. The first is I’ve known the author—Bullion Management Group founder Nick Barisheff—since the turn of the century. I followed with interest his four-year struggle to create an RRSP-eligible mutual fund that held not just gold bullion but also equal amounts of silver and platinum. It finally saw the light of day in 2002.

The second is that I’d also watched the development of this manuscript over the years and note with interest that it has finally been published by perhaps the most credible North American publisher out there in the field of financial non-fiction: Wiley (in this case, John Wiley & Sons Canada). Furthermore, Wiley has chosen to publish this as a hard-cover edition at a suggested retail price of $39.95. That’s at the upper end of the range for such books and I note the irony that such a price is slightly over the $35 price of an ounce of gold that held throughout a large part of the early 20th century.

There’s little doubt that Barisheff has immersed himself in at least a decade’s worth of research on this subject, which is one reason that slowly but surely he has become a go-to source for journalists writing on the topic of gold and precious metals. Of course, journalists normally seek out at least two sources on any topic, generally to provide a balanced perspective that includes insights from two different camps.

A counterview might have strengthened the manuscript

If there is a weakness in $10,000 Gold, it is this: anyone viewing this industry with some objectivity would be forced to put Barisheff himself in the “gold bug” camp, however much he or Wiley might disclaim such a characterization. The book’s subtitle is “Why Gold’s Inevitable Rise is the Investor’s Safe Haven,”  but you’d expect such a conclusion from someone whose day job is providing gold and precious metals in various types of investments, wouldn’t you?

The manuscript could have benefited from a co-author less aligned with the industry, or at least an extensive foreword from an outsider. Similarly, too many of the back-cover blurbs come from sources close to the precious metals industry, such as David Morgan (founder of Silver-Investor.com).

That all said, anyone looking for a one-stop investment guide to all things gold can hardly ignore this book. Students of paper (aka “fiat”) money, central banks, inflation and hyperinflation will find plenty of grist for their mill here. Even investors who have a small amount of gold exposure as “insurance” may find Barisheff’s cautions against ETFs like GLD or SLV of interest. These two ETFs in particular are arguably one reason gold investing became so popular over the decade-long bull market the precious metal has enjoyed. Both appeal to people who prefer owning bullion to mining stocks that are really just paper claims on precious metals. Barisheff, however, seems to view precious metals ownership via such electronic vehicles as one or two steps removed from the real thing, making them suspect if things came to such a pass that investors really wanted to collect on the insurance they thought they’d purchased.

For now, I’ll put my review copy of the book in my extensive financial library, for handy reference. Time will tell if $10,000 Gold belongs in the same category as such overly bullish stock-market books as Dow 36,000 or Dow 100,000, or whether Barisheff will ultimately get the last laugh.

Gold & Financial Independence

P.S. For more on this theme, see “Gold and Findependence” here.

Having just given a talk over the weekend to the Real Estate Investment Network (REIN), I agreed with this person that real estate certainly can be considered a haven of sorts, assuming it’s one part of a broadly diversified portfolio of financial assets.

Both gold and real estate are solid tangible items and I’d be comfortable owning each asset class to the tune of 10% or 15% of an investment portfolio, not counting a principal residence. Personally, I prefer ETFs holding REITs but as I mentioned in my talk, I can certainly sympathize with the realtors’ preference for bricks-and-mortar over mere “blips in a computer,” even if it entails the multiple headaches of being a landlord.

The four camps of gold investors

As for gold, I’ve always been in the intermediate position of a 10% weighting, which means I’m feeling a bit battered after Monday’s action. Over the years, the experts and financial advisers I’ve talked to have been in four main camps about gold. Here they are:

Camp 1: Zero exposure. They view gold as a “barbarous relic” that pays no income unless you choose volatile dividend-paying gold stocks.

Camp 2: The 5% “insurance” camp. This camp is similar to Camp 1 but views a 5% position in bullion as “insurance” should economic Armageddon unfold. As with fire or car insurance, this is a policy you hope you never have to collect on.

Camp 3: The 10% camp I inhabit myself, with roughly equal exposure to bullion, including silver and platinum, plus precious metals stocks. This camp views inflation as more or less inevitable, given the fact the world’s central banks continue to put their printing presses into overdrive. Gold, like real estate, can be viewed as a solid inflation hedge. Both asset classes are mentioned in David Aston’s excellent retirement column in the current issue of MoneySense (Slay the Inflation Dragon) on newsstands now.

Camp 4: True believers and gold “bugs.” Those with 15%, 20% or more exposure to gold I’d categorize as the true gold bugs. No doubt this group is chastened by the past week’s action but from the commentary I’ve seen so far, they are nowhere near close to capitulating. True to form, most view the current setback as the proverbial buying opportunity. We’ll see.

What I can say is that if you have zero exposure but think the 5% insurance allocation makes sense, now is a much better time to start building a position than when gold was close to $2,000 an ounce. The same goes for those in the other camps although caution and gradually testing the waters would seem to be the prudent way to go here.

No single asset class is a “safe” haven, not even cash

Whether you swear by gold, real estate, cash, bonds, reverse index funds or even dividend-paying stocks, the lesson of this gold crash is that no one asset class can be considered a safe haven. Treasury bills paying 0.25% interest aren’t safe: not with the money-printing that’s going on. Long bonds aren’t safe havens either, given the danger of capital losses if interest rates get hiked.

Dividend lovers may look fondly at blue chip stocks paying 4 or 5%, which is a vast improvement on GICs and bond yields but of course at any moment stock prices could plunge, as they did yesterday, and a generous dividend may pale in comparison to the massive capital loss.

No, Virginia, there is no single asset class out there that can be considered a safe haven. We’re left with those dull platitudes the financial industry constantly reiterates: it’s all about prudent asset allocation and geographical diversification. A big bet on any one asset class, whether it’s long bonds, gold or stocks, is a bet that can quickly turn sour. Just ask the gold bugs.

• See this Canadian Business graph from Monday for how Manulife’s “ultra-low” mortgage rate, which was removed after just one day, compares to the 1980s.

• Marketplace and The New York Times team up on a multimedia project that explores how our emotions influence our personal finances. The piece includes radio, print and graphic stories, as well as a personal quiz.

• And in a special April Fool’s Day announcement, TurboTax reveals Canadians can at last do taxes using a vintage video game console.

• It’s gold stocks’ time to shine, says Bryan Borzykowski. Here are five miners who will outpace gold prices.

• Who says you can’t lose money with bonds? Just look at these numbers.

Just because it may not be breaking new price records doesn’t mean you shouldn’t own any gold. Historically, gold has been a great hedge against both inflation and poor economic performance. With continued deficit problems in Europe and the U.S. and a threat of a Chinese slowdown, it’s possible gold will rise again, says Stephen Lingard managing director of Franklin Templeton Multi-Asset Strategies. “Gold is a great hedge in this environment and that’s why we’ve seen such strong performance over the last few years,” he says.

Since 2008, gold prices have climbed about 100%, while the S&P/TSX Composite Index is almost flat. While both asset classes did fall in 2008, gold will outperform when people are worried about the markets. But Lingard cautions investors about owning gold simply for the returns. Gold prices are affected by sentiment rather than just supply and demand fundamentals, which is what determines the price of most commodities. As soon as that sentiment turns and people feel better about the economy, the price of gold will fall.

“Gold is not a good investment on a standalone basis,” he says. “Equities make far more sense on a long-term basis. What gold does is provide a little bit of insurance and it helps with overall diversification.”

Jamie Carrasco, an investment advisor with Macquarie Private Wealth, treats gold as cash. He’d rather put the cash portion of his portfolio in the metal than the U.S. dollar, which is getting debased thanks to the Federal Reserve’s quantitative easing program (it’s buying government bonds to keep fixed-income interest rates low and help stimulate the economy). “In an environment where paper is getting devalued, it makes a lot of sense to own gold as cash,” Carrasco says. “I’m just protecting my purchasing power.”

He adds that people shouldn’t worry about how high the price will go. “Gold isn’t moving,” he says. “Currencies are declining.”

There are three ways to own gold. You can buy bullion, an ETF or the stock of gold-producing companies. Buying bullion is expensive as there are storage and transportation fees over and above the price of the actual gold, plus fees if you need to turn around and sell your bars, bricks or ounces. Instead, investors have been purchasing gold ETFs at a fraction of the cost of a gold bar. iShares’ Gold Trust ETF, for instance, is trading at about $17, while SPDR Gold Trust, the most popular gold ETF, is selling for $168.

Lingard has about 3% of his portfolio’s assets in the iShares ETF. He likes it because it’s backed by gold. If he wanted to, he could trade it in for some physical bullion and every time new shares are issued, iShares buys more gold. “Make sure that the ETF you buy is backed by the metal,” he advises.

These days, investors may be better off buying gold companies. Stocks have lagged behind gold prices significantly. Over the last five years the S&P/TSX Global Gold Index, an index that tracks worldwide gold securities, is up just 1.36%, while the price of gold has climbed 120%. Historically, gold and gold stocks are correlated about 75% of the time.

The reason for the discrepancy, says Lingard, is that gold companies have things like management, expenses and earnings to worry about, while a gold bar is just a gold bar. “In the past year you’ve had earnings problems and cost overruns,” says the fund manager, explaining why gold shares have lagged.

Because of these issues, gold stocks are incredibly cheap, with many companies trading below 10 times earnings. Carrasco has sold most of his bullion and purchased both gold and silver companies instead. He says that many of companies are basing earnings projections on conservative gold prices, so if the price of gold rises, and he thinks it will, then these businesses should see earnings jump. “Producers are making a lot of money right now and they’re increasing dividends,” he says. “With multiples like this, it’s a gift.”

Lingard also thinks stock prices and valuations will climb. But make sure you’re buying a company that can produce gold cheaply. “If the gold it’s pulling out of the ground is worth more than increases in inflation, wages and production, then in theory they’ll do better as gold prices rise,” he says. “It’s the earnings of the company that are driving these stocks, and not some claim on the physical asset.” Investors who want exposure to stocks can either buy individual securities, ETFs that track the gold sector or mutual funds that hold a basket of precious metal companies.

Once you decide what you want to own, you need to figure out how much of your money should be in this asset class. Since it’s a hedge, you don’t want to be too overexposed to the commodity. Lingard suggests not putting more than 10% in the metal. Carrasco is more generous with his allocation and many of his clients have a 20% to 25% weighting in gold. Other experts suggest putting no more than 5% of assets precious metals.

Either way, with economic volatility continuing into 2013, investors should probably own at least a little bit of the yellow metal. “It’s the right time for gold,” says Carrasco.