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The Private investor and Gold

There are today several important reasons why it is critical to put a considerable part of your savings into gold as explained on the Why Gold page. The value of paper money is likely to decline rapidly against gold due to governments’ deficit spending and the necessity to print worthless paper money to finance the deficits. In order for individuals to preserve their purchasing power, it is essential to keep an important part of their savings in an an asset that doesn’t lose its value in real terms.
Gold has been such an asset throughout history. During periods when the financial system is unstable, wealth preservation becomes very important. Owning gold stored outside the banking system with personal access for the investor is the ultimate way of protecting wealth. This is especially the case in times when the return of investors’ money is at risk due to the fragility of the banking system (Iceland/Cyprus). During such times investors should put sufficient funds into gold so that they are protected against banking failures or the fall in the value of paper money as in the Weimar Republic or more recently in Zimbabwe. The percentage to be held in gold depends on the circumstances of the investor but 15-25% should be considered as a minimum.

Highest quality Swiss refined gold

Chain of integrity and The London Bullion Market Association

MAM only buys Gold through LBMA (London Bullion Market Association) member banks or refiners.
The LBMA association is absolutely essential and not only important to assure the quality of the gold but also to ensure that the gold can be easily sold again within the LBMA chain. It is for this reason that, if investors take personal possession of their gold (which we discourage for safety reasons) it will be more difficult to quickly sell the gold since it is outside the LBMA chain of integrity.

Private investor: Buy allocated and segregated Gold

Buy allocated and segregated Gold

Throughout the ages Gold was owned as money and to protect assets in uncertain times. Today, owning gold outside the banking system means instant liquidity in times of problems in the financial system (most recently Iceland and Cyprus). In the Weimar Republic, or more recently Argentina or Zimbabwe paper money became worthless.  People who had gold could buy what they needed. Investing in gold as a private individual has many advantages. The MAM service allows account holders to visit and inspect or withdraw their gold personally. On the instructions of the client, MAM will buy sell or transport gold on behalf of the account holder. If a client wants to sell part or all of his gold, MAM can normally do this the same day as we receive the instructions. The minimum account size is CHF 250,000.


How much shall I invest?

In 2002 MAM advised clients to invest up to 50% of their financial assets in physical gold at a time when the gold price was $300. Although gold has gone up substantially since then, we still consider that gold is cheap at current prices. What percentage of one’s personal wealth to put into gold is a personal choice. Some investors put the majority of their wealth into gold and some put 10-25%. In our view, investors should put a sufficient amount of their wealth into gold so that they have enough “insurance” if other investments should go wrong. By insurance, we mean a meaningful amount that would be sufficient to live off for an extended period of time. Whether this means 10-25% or 50-75% depends on the circumstances of the investor.

When shall I buy Gold?

Many investors believe that gold is now too expensive and that they should wait for a bigger correction. Investors should not buy gold as a short term investment but instead as a means of protecting their wealth and purchasing power. Therefore short term timing considerations are less relevant. At any time a correction is possible. But it is MAM’s firm view that the downside risk is very limited whilst the upside is likely to be many thousand dollars. With a very fragile financial system, it is more important to preserve your assets as soon as possible instead of trying to finesse the entry point of your gold investment. When you invest in physical gold you should not consider it as a tactical purchase, but as the safest way to protect your wealth for yourself and future generations.

Where shall I store Gold?

From a wealth preservation perspective, gold must be owned in physical form and stored outside the banking system in the name of the owner of the gold.
In the section “Wealth Preservation”, we explain in detail how gold should be owned and stored. To own unallocated gold in a bank, gold futures or gold ETFs involves owning paper gold without the backing of physical gold. MAM also has had clients who believed they owned allocated gold bars in a bank vault, only to discover that the gold bars actually never existed, but were simply a “promise” to deliver the gold. For these reasons it is critical to own gold in physical form, in the name of the investor and to store it in secure vaults outside the banking system.


Private investor: Private (Family) Trust

Private Trust

Investing in gold protects wealth against the destruction of paper money. To buy gold through a trust can have many advantages such as asset protection, asset preservation as well as estate and tax planning. A trust also gives a higher degree of confidentiality. Very importantly, a trust protects its beneficial owners from malicious creditor claims. Wealthy families have often used trusts to provide for future generations. Setting up a trust used to be very costly but today trusts can be created at a relatively low cost, whether they are onshore or offshore trusts. To understand the full benefits of investing in gold, investors should also study the “Why Gold” page as well as ”The Private Investor and Gold” and “Buying gold in your own name”.


Asset Protection

Malicious creditor claims are very common today in many countries. This can happen to anybody, but some professions are more exposed, for example medical doctors. To defend these claims can be very costly and destroy wealth built up during a life time’s hard work. A properly constructed trust protects investors wealth from such attacks. A trust also keeps wealth intact for future generations, rather than distributing the assets to the heirs.

Tax & Estate Planning

There can be substantial tax benefits arising from holding gold or other assets in a trust. In some jurisdictions, combining a trust with an annuity or insurance wrapper can also be very tax efficient. Investors must check this with tax counsel in their own country as MAM does not give tax advice. With a properly constructed trust, tax benefits can be substantial both for income, capital gains as well as inheritance tax. A trust also gives more flexibility when it comes to transferring assets or distributing income to heirs.

Confidentiality & Probate

With the openness of the internet, it becomes ever more difficult to keep information about private assets and wealth confidential. A trust makes it possible to keep the assets within the trust confidential. The death of a head of family can result in major disruption of a family estate, whether or not there is a will. In most common law jurisdictions, the estate must go through the probate procedure with possible added delay, expense and publicity. Probate can be avoided by establishing a trust because the death of the trust grantor will not affect trust property, which will continue to be held and managed in confidence by the trustee.


Private investor: Personal Retirement Plan

Individual Retirement Plan – IRA

At all times it is critical to protect a pension plan against inflation. For decades this was possible through investments in stocks, fixed income securities and property. However in the last 12 years most pension plans have lost value (inflation adjusted) due to widespread intervention in investment markets, lower yields as well as more difficult market timing. With the acceleration of money printing in combination with extremely low fixed income yields the pressure on pension plan returns is likely to get worse in years to come. Physical gold stored outside the banking system is an excellent way to insure a pension fund both against inflation as well as against counterparty risk. The risk parameters are very much the same as those used by professional Family offices and which always point to a balanced asset allocation which includes a minimum percentage of gold in order to maximize long term performance.

USA – Traditional or Roth IRA

Matterhorn Asset Management services Personal Retirement Plans in several countries. In the USA, the most popular and easiest to manage is a self directed IRA with custodian approval to invest in physical gold in a foreign country. Existing retirement plans that are subject to limitation can be re-allocated to an approved Self Directed Plan. There are a number of specialised US companies offering such service and Matterhorn Asset Management can provide several names for potential clients to seek further advice on how to invest in gold.

Goldswitzerland operates IRA plans for US customers who wish to convert their 401K into an IRA. The account application procedure is similar to that of Private Trust. Ask your tax counsel for advice on operating a 401K IRA or (partial) conversion to a foreign held Gold account using an approved self-directed plan.

IRA LLC or Solo 401K

The IRA LLC (Limited Liability Company) or Solo 401k is sometimes the best way to invest in physical gold. Pairing your IRA with an LLC is entirely possible. US investors should get US professional advice prior to an enrollment.

SIPP – UK

A self invested personal pension is an excellent vehicle for investing in physical gold and preserving wealth as well as the purchasing power of your pension fund.



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The sign-up process only takes 10 minutes on line. Thereafter we need a few original documents and a notarized copy of the account holder’s passport by courier or land mail to our company address in Zurich. Our compliance department will review the application and the account can be active inside 72 hours. Matterhorn Asset Management can only accept declared funds.

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Institutional investors – Physical Gold or ETF?

MAM offers institutional investors the facility to buy physical gold bars and store them outside the banking system at a cost comparable to investing through a gold ETF.
The typical method for investing in physical gold for institutions would be via gold ETFs. But an ETF is a paper investment in gold and does not give direct physical ownership. Through MAM’s Precious Metals Division – GoldSwitzerland – institutional investors can acquire gold bars in their own name which are stored in private vaults in Switzerland, outside the banking system. The investor owns the individual bars directly in their name with serial numbers, weight and purity. The appointed officers of the institution or their accountants have access to inspect the Gold. There is instant liquidity and MAM will buy sell or transfer the bars at the request of the investor. The cost for buying, storing and insuring the physical gold bars is comparable to the cost of buying “paper gold” through an ETF.


Gold: a strategic asset allocation

Gold: A Strategic Asset Allocation

Long term investment yield improves
with a permanent allocation to Gold

In Q2 of 2014, the World Gold again commissioned Boston firm ‘New Frontier Advisory'(NFA) to perform an independent analysis on the role of Gold in a broad premium asset spectrum for investors with a major base currency (USD, GBP, EUR, CHF, YEN, CAD, AUD). The report was published by WGC in July 2014 and covers the period since 1971, the year the gold standard had to be abandoned. It is a known fact that qualified diversification reduces risk. The main conclusion is that Gold does mitigate risk on a historic and on a statistical basis using over 40 years of market data. In the risk/return optimized portfolio Gold participates between 4 and 10%. Also check the World Gold Council link below.


Gold Reports from the World Gold Council (gold.org)

To get immediate and free access to all World Gold Council reports please follow the button link and register. The World Gold Council is the global authority on gold and its uses and the first source of informed opinion and advice for stakeholders and decision makers. WGC is an adviser to major investment institutions worldwide.

Portfolio Insurance

Portfolio insurance

Only 1% of world financial assets are invested in gold currently. It is quite remarkable that an investment class which has gone up almost 7 times in the last 10 years and still very few investors own it. Institutional investors have virtually no exposure to gold today. However, as the destruction of paper money accelerates and gold continues to appreciate, institutional investors will allocate a percentage of their assets to gold. This is likely to be the case, not only because institutional stakeholders will expect it, but also because gold represents an insurance against systemic risk as well as against hyperinflation. To have up to 5% in physical gold could be a very cheap insurance in case of a major decline in value of conventional asset classes such as stocks, bonds and real estate.


Institutional: Investment funds

Investment (Mutual) Funds

Most investors measure returns based on stock market performance. But this is a fallacy in a world with massive money printing and credit creation. In real terms, most funds have not achieved positive returns in the last 12 years. Measured against real money – Gold – the Dow jones for example has declined over 80% since 1999. (Click for chart). If MAM’s long term projections are accurate, the Dow is likely to lose another 90% in real terms (Gold) in the next few years. This is a more than plausible scenario in an inflationary or hyperinflationary environment.

When stock markets are vulnerable, investors turn to the bond market. In a deflationary economy, interest rates continue to be depressed and bonds appear to be a safe investment. The problem with a deflationary downturn is that none of the bank or government loans that were created during the credit bubble would ever be repaid. Thus a deflationary implosion would most probably involve a collapse of the financial system.

However, governments are totally aware of the massive risks in the financial system and are therefore likely to print unlimited amounts of money in the next few years due to continued deficit spending worldwide as well as the fragility of the banking system.

Gold & Investment Funds

Due to the fragile state of the world economy, the risk to investors are major. Whether we get a deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect investors against both scenarios.

The key is not whether MAM is correct or not in its assumptions. What is more important for fund managers is to protect against the eventuality of either scenario happening. To hold some physical gold would be a responsible insurance strategy against either event.

Portfolio Insurance

The difficulty for fund managers is to determine what percentage of physical gold should be held in the portfolio as insurance. There have been several studies made on this subject. Most of the studies indicate that at least a 4% allocation to physical gold improves the risk return trade-off across a range of typical fixed income / equity portfolios. This percentage increases depending on the portfolio mix, volatility and correlation.

Counterparty risk

Evaluating counterparty risk should take a much higher priority in a fragile financial system. Is the bank or custodian where assets are kept safe? Will bond issuers (whether government or private) repay their debts with stable or debased money?  What is the risk of default of bond issuers?

To protect counterparty risk is vital in a world where most governments are virtually bankrupt and can only survive with money printing and where the banking system only survives by valuing toxic assets at maturity value rather than market value.


Physical gold is the only triple A risk!

Physical gold stored outside the banking system protects investors against both a deflationary implosion and inflation/hyperinflation. It also gives investors “insurance” against counterparty risk. GodSwitzerland can provide institutions with protection for a  relevant percentage of their  assets. GoldSwitzerland has a pricing offer for institutions that is competitive with any other method of acquiring allocated and segregated gold. Please contact us for details.

Institutional: Pension funds

Pension Funds & Gold

During the 1980s and 1990s it was relatively easy for pension funds to meet their obligations due to strongly rising stock markets. And, since the year 2000 this has become much more difficult. Many pension funds are today underfunded, especially if realistic future return assumptions are used.
In the 2000s most stock markets have achieved marginal returns at best in nominal terms but with major volatility. In many countries the market is lower today than at the peak in 2000. In real terms measured against gold most markets have declined significantly in the last 10-12 years. In spite of the 2012 and 2013 relative strength of the S&P, the S&P is down 82% (April 2013) against gold since July 1999. As more money is printed to prop up a fragile financial system and rising government deficits, stock markets are likely to continue to decline substantially against gold. With negative interest rates in nominal terms in many countries or negative rates on an inflation adjusted basis, the debt securities market will not enhance pension fund returns. In addition, bond prices are at record levels and could decline substantially. Gold has no long term volatility correlation with any other asset class. Even a small investment of between 1.5-3.0%, depending on reporting currency, will consistently optimize a fund’s performance.

Retirement Funds & Gold

Due to the fragile state of the world economy, the risk to investors are major. Whether we get an deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect pension funds against both scenarios.

The key is not whether MAM is correct or not in its assumptions. What is more important for retirement fund mangers is to protect against the eventuality of either scenario happening. To hold some physical gold would be a responsible insurance strategy against either event.


Institutional: Hedge funds

Hedge funds & Gold

During the last decade Gold in US dollars has achieved a compound annual growth rate which has outperformed most asset classes. In real terms gold reflects the destruction of paper money over time. Since money printing is likely to accelerate dramatically in coming years, gold will continue to outperform most asset classes in spite of the unprecedented manipulation of gold and silver by central banks and bullion banks. The latter has created an extremely high risk environment for those funds without at least some allocation to Precious Metals.
Many Hedge Fund Managers have recognised the importance of gold. Ray Dalio: “There is no reason not to hold gold”. Kyle Bass: “Buying gold is just buying a put against the idiocy of the political cycle”. David Einhorn: “As the result of the Fed’s destructive Jelly Donut Policy I will keep a substantial long exposure to gold”.

Hedge Fund risk

Due to the fragile state of the world economy, the risk to investors are major. Whether we get an deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect enhance hedge funds returns in both scenarios.

The key is not whether MAM is correct or not in its assumptions. What is more important for hedge fund mangers is to protect against the eventuality of either scenario happening. To hold physical gold is likely to be a successful strategy in either event.



The Corporate Investor & Gold

In today’s very fragile and indebted market, post Lehman, and in the midst of increasing economic risk and funding limitations, the company CFO and Treasurer should assess the potential downside to both sides of the balance sheet in order to protect the company’s assets and its shareholders. The case for a balanced percentage of Gold to protect a company’s cash is likely to both preserve and enhance the company’s assets especially at a time when money becomes more of a liability and a risk rather than an asset.

Corporate: Counterparty risk

Counterparty risk

Evaluating counterparty risk should take a much higher priority in a fragile financial system. Is the bank or custodian where assets are kept safe? Will bond issuers (whether government or private) repay their debts with stable or debased money? What is the risk of default of bond issuers?

Corporate: Hedging Corporate Risk

Hedging Corporate Risk

An investment in physical Gold as a protection against currency debasement, especially for cash rich companies, is a responsible strategy against a fragile financial system.

Corporate: Benefits of gold

  • Physical Gold is safer than cash if stored securely outside the banking system.
  • Gold will always be accepted as collateral or can act as the ultimate barter instrument.
  • A Gold asset will reduce risk exposure to all other business assets.
  • Gold represents instant liquidity and is marketable at all times.



The Family Office & Gold

Generational wealth should be managed with reverence and with the purpose of preserving and enhancing the assets for future generations. Due to a century of money printing (starting with the creation of the Fed in 1913), most investment assets such as stocks and property have risen significantly in the last hundred years. This has created considerable private wealth. The current fragile state of the world economy, with both most major sovereign states and the financial system being virtually bankrupt, will make it extra difficult to preserve this wealth. In meetings with Family Offices in the last couple of years, we have found that there is too much weight on short term strategies and performance rather than the protection of wealth.

In our recent presentations at major Family Office Conferences, it was clear to us that many managers of major family wealth are very much focused on traditional assets such as stocks, bonds and property. Few managers realise that in real terms, measured against gold (money that can’t be printed), commercial property as well as the stock market have declined 75-85% in the last 10-13 years. These assets were inflated by money printing and the credit bubble in the last few decades. They are likely to continue their major under-performance in real terms.

Family Office: Why gold for the FO Portfolio

Why Gold for the Family Office Portfolio?

Due to the fragile state of the world economy, the risk to investors are major. Whether we get a deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect pension funds against both scenarios.

The key is not whether MAM is correct or not in its assumptions. What is more important for Family Office managers is to protect against the eventuality of either scenario happening. To hold physical gold would be a responsible insurance strategy against either event and the chart on the right is only partial proof of risk transfer between asset classes.

USDGOLD-Index2000-100-2014

Physical gold stored outside the banking system is the ultimate form of wealth preservation. It protects investors against both a potential deflationary implosion and inflation/hyperinflation. It also gives investors “insurance” against counterparty risk and has enhanced returns substantially in investment portfolio’s with an average asset allocation mix.


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Matterhorn Asset Management AG / GoldSwitzerland – Bahnhofstrasse 28A – CH 8001 ZURICH – Switzerland – Tel: +41 44 213 62 45 – Fax: +41 43 456 97 11

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Disclaimer

Disclaimer

Information and opinions contained in this website are gathered and derived from sources which we believe to be reliable. However, we can offer no undertaking, representation or guarantee, either expressly or implicitly, as to the reliability, completeness or correctness of these sources and the information provided.

Interested investors are strongly advised to consult with their Investment Adviser prior to taking any investment decision on the basis of the information and opinion herein and in order to discuss and take into account their investment goals, financial situation, individual needs and constraints, risk profile and other criteria.
Information and opinions contained in this website shall not be construed as an offer, recommendation or solicitation to acquire or dispose of any investment instrument or to engage in any transaction.

The investment strategy expressed in this website and related documents are the opinions of Matterhorn Asset Management AG and do not represent the official investment policies of Aquila Investment AG.



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