Should You Invest in Gold?

Interview with Rich Checkan

Rich Checkan, president of Asset Strategies International, who has a lot of experience in the gold business, talks to us about investing in gold.

Douglas Goldstein: I am very excited to be talking with Rich Checkan, who is the president of Asset Strategies International. Today, we’re going to be talking about something that Rich’s a real expert in: the commodity of gold.

Now Rich, you know, people talk about it all the time, that there are a million different ways of owning it. But the bottom line is, why should someone invest in gold?

Rich Checkan: It’s a great question and it’s often misunderstood. The main reason that we sell gold, the main reason we feel people should own gold, is wealth insurance. You have insurance on your home, your car, your health.

What do you have for your portfolio to protect it in bad times? For us, gold is a store of purchasing power in a liquid form, for a potential financial crisis you hope you’ll never have.

Douglas Goldstein: Say that again, because I want to ask you a question about each one of those.

Rich Checkan: Gold is a store of purchasing power in a liquid form for a potential financial crisis you hope you’ll never have.

Douglas Goldstein: Let’s start with the first one. You said gold is a store of purchasing power, and that implies that somehow it keeps you ahead of inflation. Is that really true?

The Value of Gold vs. That of the Dollar

Rich Checkan: It is really true, and if you look at the performance of gold vs. the dollar - because that’s how we tend to measure it, worldwide - it’s a commodity. You look at gold’s rise in value vs. the dollar’s demise in purchasing power over the years. I think, since the creation of the FED, the dollar’s purchasing power has dropped about 96%, 97%, depending on who you talk to.

Gold looks like it’s appreciated, if you look at a chart. But what's really happening is the measuring stick, the dollar, has gotten smaller. So it takes more of those dollars to buy an ounce of gold.

Douglas Goldstein: As I am remembering, back when gold was even a higher price than the past, all along there's been inflation. Explain it to me again. In other words, if the price of gold isn’t actually going up on a regular basis though inflation is going up, how is it that the decrease in the value of the dollar really matters to us?

Rich Checkan: The dollar’s purchasing power has weakened over time, and I believe that’s due to mismanagement. If you go back centuries and look at any empire and the currencies they had, eventually they'd get to the point where interests got in the way of good fiscal decisions, and they’d make decisions where they spent more than they had.

That lessens the value of each dollar, or each Euro, or whatever it is in your pocket, and so the dollar is losing purchasing power over time. If you look at a chart of gold and the dollar since the FED was created, it’s very clear, right about the time we came off the gold standard, that that’s when gold was unshackled, and it shot up or appreciated in dollar terms.

It’s really because we lost fiscal responsibility, we lost that governor on our decisions, and the dollar has lost purchasing power from that point forward. It’s pretty dramatic if you look at the charts.

Gold as a “Liquid” Investment

Douglas Goldstein: Let’s look at the next point that you’ve made. You’ve said that gold was a rather liquid investment. I know you're not talking about melting it down or actually moving around with liquid gold.

I assume what you mean is that you can take a bar of gold or a couple of coins and you can go somewhere and do something with it, because it’s a valuable currency that people are willing to work with.

I have to tell you, this is not my experience. What do you mean by saying a liquid kind of an investment?

Rich Checkan: You can find a market for it to buy and sell anywhere in the world, plain and simple.

Doug: Anywhere in the world?

Rich Checkan: Yes. It’s basically wealth that can move across borders and it’s not subject to government controls, for the most part. Anywhere you go, somebody will recognize the value of what you're holding in your hand and you'll be able to exchange it for local currency, or goods and services etc. That’s what we mean by liquidity.

There are more or less liquid forms of gold, clearly depending on what your purpose of the gold is. That would dictate how you would own it, where you might store it, etc.

Douglas Goldstein: Well, Rich, let me share with you my story, and you tell me what I’ve done wrong.

Rich Checkan: Okay.

Douglas Goldstein: Recently, we were going through my parents’ stuff, and like everyone, we found a gold chain here, or a trinket there, and they looked kind of goldlike. We thought, “Okay, this is pretty good.” We filled a small envelope and said, “Let’s go to a dealer who can sell gold.”

For me, liquid is when someone gives you $100 and you can move it from here to there. Dealing with this was complex, and now we have to go to a store, and the guy looks at it and he goes, “That’s not gold.” As a consumer, I don’t really know what gold is. Then at the end of the day he goes, “Alright, I’ll give you 125 bucks.”

What do I know? I’ve no idea what this stuff was worth and it was frustrating, so I took my 125 bucks and gave him the trinkets. I have no idea. That does not feel liquid to me. Maybe I had a bad experience and it works better for other people. But what are you referring to?

Rich Checkan: One way of owning gold is through jewelry. Many folks around the world feel that they don’t trust governments, they don’t trust banks, and they’d rather wear their wealth, if you will. That’s a great way of storing purchasing power. In those markets where that’s common, it’s fairly liquid to do so.

In more modern economies, I could tell you that the most liquid form of ownership is going to be government-issued coins, or bars minted by major refineries. If you go to a jeweller, or a precious metals dealer, or even a pawn shop almost anywhere around the world, they're going to recognize the value and they’ll give you good value.

Now, you do want to make sure that you know what you have, before you go in there. With jewelry it’s hard because sometimes it’s 24, 22, or 14 carat. You have to kind of know what you have, going in, to know that you're getting fair value, compared to the gold price. Within a pure gold coin or a pure gold bar, it’s clear; whatever the gold price is, that’s what it is.

Dealing With Gold as Currency

Douglas Goldstein: Let’s go to this clear thing, because as a guy on the street who wants to own some gold, I have no idea what the purity really is. I don’t know what the mark up is going to be. You go to a pawn shop and say, “Oh yeah, I got a beautiful gold coin minted by the U.S. government.” The pawnbroker says, “Okay, I’ll give you x% below the price per ounce”, or however it works. I don’t really know what I am dealing with. How do I get past that so it actually becomes a useful currency?

Rich Checkan: First thing is, know who you're working with. I would recommend working with a dealer that actually looks out for clients that want long-term relationships, not a one-off trade. I don’t want to disparage the whole industry, but let’s face it, pawn shops are probably not where you're going to get your top dollar for a gold coin or a gold bar.

If you go to a reputable precious metals dealer (someone like ourselves), you will get treated fairly; you’ll get good value for your metal. I can tell you many gold coins that should buy government mints are actually selling at above the stock price, and that’s what they’ll pay you because that’s what it’s worth. Knowing who you're dealing with matters.

Douglas Goldstein: Is that because it’s artwork? You're saying this coin is worth more because it’s beautiful or something?

Rich Checkan: No, there is some value to the minted form; the fact that it is liquid and recognizable, has got some value to the dealer. They’ll actually put a couple of percent above that when they sell it to someone. They make their living on the spreads, but they're going to be fair, both to whoever they're selling it to and whoever they're buying it from. That only happens when somebody cares about you, and therefore, you need the long-term relationship and a long-term business model.

Using Gold in Times of Crisis

Douglas Goldstein: Okay, let’s go to the next point you made, which I thought was also very interesting. This was that gold is something that could be used in time of a crisis. When I imagine a crisis (and maybe I am a bit of a doomsayer sometimes), I imagine there’s going to be some war, and currencies are not going to work, and the internet’s going to go down. Here I am, with a bunch of gold coins.

Are you imagining that I would go to the local market and flip a coin to the guy and he’ll give me a chicken? Is that really what you mean by a crisis?

Rich Checkan: Not necessarily. Although I will tell you that’s happened. If you look throughout history, there's countless people that escaped, for instance, from Nazi Germany, with British sovereigns sewn in the hem of their clothes. That’s how they were able to transport their wealth across borders and start anew elsewhere.

When my uncle and his partner started this business in the early 70s, they worked with the Vietnamese refugees coming from South Vietnam. Those folks that had gold were able to start a new life in a new place. It could be that, but in reality, I don’t see us bartering for a loaf of bread with a gold coin.

If you have a financial crisis, if you have a medical emergency, you can cash it in, you can take care of what's on the table and then go back and replenish your emergency stash if you want.

Douglas Goldstein: So the crisis you're referring to, presumably, is something more like when the stock market crashes, and people rush to gold?

Rich Checkan: Absolutely. A lot of times you’ll see that gold will sell off. It did when, say, AIG investments collapsed, because people had to meet margin calls. When one of the most liquid investments in their portfolio was gold, they sold it, met the margin calls, and then started replenishing and building up. It was one of the first markets to recover.

Douglas Goldstein: Hey Rich, I have a whole string of other questions for you, but I see we’re just about out of time. Tell me in the last few seconds, how can people learn more about you and follow your work?

How to Follow Rich Checkan

Rich Checkan: It’s very simple. If you're stateside, in the U.S., our toll free number 1-800-831-0007. You can get us anywhere worldwide on the internet at www.assetstrategies.com.

Douglas Goldstein: Rich Checkan, thanks so much for taking the time.

Rich Checkan: Wonderful to be here. Thanks, Doug.