Precious Metals
This page is for active and future traders in precious metals to share ideas and experiences with others.
Thinking about investing in precious metals? If you’ve got the money to do so, it’s a very worthy investment. It’s been long proven that in times of great global financial instability, precious metals usually remain quite stable. Before you jump head first into making purchases, there’s much to know about precious metals and how you should go about acquiring them.
Tips on Buying Precious Metals:
1. Like any other investment, you MUST do your homework. It comes in coins, bars, certificates, mutual funds, and stocks. Palpable precious metals (or metals that can be physically held) are divided into subcategories: bullion and numismatics. Gold in bullion form (bars, essentially) are almost always pure gold. Numismatics are minted coins. Also know that precious metals will only increase in value when the price per ounce rises up. This is the basic terminology and primary concept of precious metals you should go in to the investing phase being well aware of.
2. Your next big step is to research precious metals dealers. You may find numerous dealers online. INVESTIGATE the dealer—learn whether or not they’re certified, how long they’ve been in the profession, and which part of the market they specialize in.
3. Decide on how you want to make a purchase—do you want your metal in a tangible form, or in a certificate form? With a certificate you will not have to store anything—it officially represents your ownership of a specific metal or metals. If you want your metal in a tangible coin form, consider purchasing in the 1 troy ounce size. This is a very popular form for purchasing, as well as an easy form for storing and selling.
4. Another way to go about investing in precious metals is funds. Investing in funds is actually one of the safest routes to take with precious metals—because they are managed and diversified, they are primarily stable. This is the recommended path for newcomers to the world of precious metals.
5. Also consider precious metals futures. How do futures work? You eventually enter into a contract when you purchase precious metals futures—you will buy or sell at a specific time at a specific price. This is a risky venture, and requires knowledge about whether or not certain precious metals will increase or decline in value.
Interesting info & trading link: http://www.kitco.com/
Still on the bus said
Jcan
Great info! Thanks for sharing,I started looking at this a couple of months ago,however got distracted by the drama with these clubs, and wanting to get back some of my money as I have a few $ invested, I however think I am going to review my portfolio and see how I am going to make this work.
Jcan said
DW, I love to look at a variety of investment options…its in my genes…my dad was a teacher for years and in his days he would buy land, his farming/goats/pigs/cows etc paid him more than teaching…My mom was a nurse and her dressmaking/selling clothes/baking etc was more than her nursing salary…So I am always on the look out for investments that will let my money work harder than me….So far, I have done remarkedly well…to God be the praise……
DW said
Jcan:
Great info, ^5 ^5
Jcan said
Gold’s The Best
Protection Against
Inflation,
Rising Oil Prices,
and a Declining Dollar
5 Gold Plays Delivering Immediate Profits
The Gold Bull Market is Going Strong and Promises Massive Gains
for Investors
DR when you come into your garden of dasies….Will You Be One of Them?
Fellow Investor:
Investments able to buck financial calamity, inflation, an anemic currency and a loss of economic confidence among foreign debtors — all monkeys on the back of the United States today — are rare commodities.
It appears that gold may be the rarest of all.
While domestic and international markets tumbled day-after-day in the first three months of 2008, gold climbed to an historical high of $1,000 an ounce. It retraced a bit as traders take profits, but to me that’s just an open for investors to load up before the next run. When all else looks risky, gold flourishes.
“After all, in a credit crunch, cash is deemed to be king. In which case, gold owned outright has just been crowned emperor.”
— Adrian Ash, BullionVault
Used as money for more than 3,500 years, gold thrives on crisis and investors’ fears. Two of the biggest drivers, a rapidly depreciating dollar and growing inflation, have helped catapult the price of gold more than 60% over the past two years.
Don’t think for one second that gold has run its course. In inflation-adjusted terms, today’s gold prices don’t hold a candle to what they were in 1980, when the Soviets attacked Afghanistan and prices rose to $875.
Today, that ounce would be worth $2,200. Even if gold tops $1,500 next month, it won’t be near its potential inflation-based price.
“We don’t see any reason in this cycle why gold shouldn’t reach its real all-time high, which is actually about $2,200 an ounce.”
— David Garofalo, CFO, Agnico-Eagle Mines
I firmly believe that gold’s seemingly unencumbered price-raising rampage will propel the yellow metal to $3,000. It’s just a matter of time. I don’t even consider myself a gold bug, but I’d be somewhat negligent not to bring to your immediate attention this once-in-a-lifetime opportunity.
The start of this commodities run began in 1999. As Jim Rogers, author of Hot Commodities writes, “The shortest bull market for commodities lasted 15 years, the longest 23 years, so if history is any guide, they’ve got a long way to go. This is not a bubble.”
The up tick in gold is a mere 9 years old, so we should see at least six more years of this party — maybe more — with a whole lot of investors making a boatload of cash.
The bottom line is that the problems plaguing the United States — the same ones that propel the price of gold — are far from over. That’s good news for investors in the yellow metal.
What makes gold tick, why it will continue ticking, how history provides a gauge for the future, and where your entry points for profitable investing lay.
Falling Dollar Equals Rising Gold Prices
As the U.S. dollar weakens, the price of gold strengthens. When the dollar fell in 1982 and 1983, the price of gold rose from $294 an ounce to $514 an ounce in just nine months — an increase of 74%. It happened again from 1985 to 1987, when a drop in the dollar propelled the price of gold from $282 to $502 over 21 months — an increase of 78%.
Comparatively speaking, our currency is in even more trouble: the Fed appears to be using the U.S. dollar in an attempt to ward off a recession and spark the economy.
As nervous global financial markets sold off in January, the Fed “came to the rescue” after fearing the U.S. credit crisis would sink the U.S. economy. After three previous quarter-point cuts, it came down even harder with a 75-basis point drop, the largest cut since 1982. That was followed shortly by another 50-point cut.
“Suddenly, the world is realizing that gold is still a safe haven asset. We’ve seen pretty substantial losses in equity markets. I think this is genuine safe-haven buying.”
— James Moore, theBullionDesk
As the dollar enters its next down phase, the United States could easily suffer a flight of capital. Not only will you see each dollar buy less, but, more importantly, there could be less demand for dollars, as foreign investors slash the flow of dollars from Asia, Europe, and the Middle East… or our biggest debtors start to pull their money from U.S. Treasuries.
Gold Thrives in Inflationary Times
Like the dollar, inflation and the price of gold are highly correlated. Since the end of World War II, the five steepest years of U.S. inflation were 1946, 1974, 1975, 1979 and 1980. During those five years, the average real return on stocks, as measured by the Dow, was -12.33%; the average real return on gold was 130.4%.
During the 1970s, gold soared to 23 times its value and a $50,000 investment would have made you a millionaire almost overnight.
Historically, gold has served as a hedge not only against inflation, but also against deflation. For example, in the slump following the “Wall Street Crash,” from September 1929 to April 1932, the Dow Jones Industrial Index slid 85%, to 56 from 382. Some 4,000 U.S. banks closed their doors. Meanwhile, the price of gold actually went up.
High Demand, Short Supply Deliver a Unique Profit
Opportunity to Decisive Investors
Power shortages in South Africa in late January forced its three biggest gold producers — AngloGold Ashanti, Gold Fields and Harmony — to suspend production. And recent reports from the power producers of South Africa indicate that it could take at least 5 years for them to ramp up electricity production to meet growing demand.
With no end in sight to the country’s energy crisis, ongoing stoppages would affect the gold supply, raising prices and likely profits for mining companies in other countries. South Africa is the world’s second-largest producer of gold. This is huge.
That, coupled with growing investment and consumer demand from China and India, makes it even likelier that gold prices will move higher.
For example, demand for gold-based Exchange Traded Funds (ETFs) has skyrocketed. Forbes recently reported that “inflows into physically backed ETFs have risen by 32.5% this year,” according to a daily research report by Barclays Capital. This added 205 metric tons to demand.
When gold ETFs were first launched in 2003, they attracted mostly institutional investors. Today the balance is shifting, and more and more retail investors are considering gold ETFs as an essential component of a well-balanced portfolio.
“I think by the end of 2010 we’ll be north of $2,000 and could be as high as $5,000. So why is it going to go to $2,000? Because people are going to lose confidence in financial assets, in paper, in real estate, in the banking system. They’re going to get nervous about their money. And we’ve seen it happen twice in the last 110 years.”
— Rob McEwen, Founder of Goldcorp
The oldest and biggest gold ETF is streetTracks Gold Shares, trading under the ticker GLD. It has become a proxy for many investors. Even as you read this, money is flowing into GLD at a tremendous rate. This ETF holds more than $16.8 billion in gold, more than the central bank of China, giving GLD a valuation greater than General Motors.
All ETFs are designed to track their underlying indexes, and so GLD tracks the actual price of gold in a way similar to a gold futures contract. But you don’t have to have any special futures trading knowledge to capture futures-like profits. GLD is up +16.6% thus far in 2008.
As or more significant with respect to investment demand, gold futures began trading in Shanghai, China on Jan. 9 — a move expected to push demand massively higher.
The new market traded contracts for about 350,000 ounces of gold on its first day, a level that traders considered extremely positive given the fact that the well-established Comex, the New York-based metals exchange, usually trades about 800,000 to 1 million ounces a day.
Some strategists consider the launch of the Shanghai gold futures the most important development in the bullion market since the introduction of exchange-traded funds in 2003.
The eight largest gold ETFs now hold about 840 tons of gold — more than the official bullion reserves of the European Central Bank. Expectations are for overall Chinese gold demand in 2008 to increase from last year’s estimated 300 tons.
China is the world’s third-largest consumer of gold used for jewelry and investment after India and the United States, according to the World Gold Council. And with the growing middle class in China demanding a more Western-like lifestyle each day, you can expect demand for gold to only increase.
Gold and Oil Move in Tandem
As you may have figured out already, the price of gold bullion and crude oil are highly correlated. Over the past 60 years, one ounce of gold has on average purchased 15.2 barrels of oil. With gold trading just over $920 per ounce and crude oil trading at $135, this ratio today stands at 6.8:1 as of this writing.
Even if you’re not an oil person, you know that oil is on the rise. Now, the price of oil continues to break all-time highs. While some have stated that oil may not continue to trade over $100 indefinitely (although I can’t really see it going down any time soon), its unlikely to retreat much below $80 any time soon, especially when looking at the huge demand coming out of the booming Asian economies including China and India combined with supply issues.
The price of gold has not been sitting out the commodity rally either. It’s up 35% in the past year. In spite of gold’s recent gains, the ratio remains out of whack.
The idea here is that with oil unlikely to decline below $80 anytime soon (in fact, oil experts are calling for $140 – $150 oil by the end of this summer), the price of gold is likely to rally in the coming years – and in a big way. Historical data shows that when the ratio falls below 11 (meaning one ounce of gold will buy you 11 barrels of oil), the ratio not only will come back in line with the average, but that speculation drives the ratio above the historical average of 15.2, as has been evidenced every time that the ratio fell below 11.
One could argue that we now live in different times with the global commodity markets, and ratios such as gold-to-oil are no longer meaningful.
I disagree and am willing to bet that commodity prices are in fact highly correlated, and that historical relationships between prices are likely to remain intact for the foreseeable future.
How Individual Investors Can Capture Profits from Gold
When you think of gold investments, what comes to mind? A vault packed with stacks of gold bars, rare coins neatly arranged in a collector’s binder for passing from generation-to-generation, or the ever-popular “gold you can fold” certificates that eliminate the need for storage?
These most direct ways to own gold have been around for a long time. It’s a guarantee that your investment is 100% correlated to the price of gold, so there are no impurities to mettle with your profits.
Many people still opt for buying physical gold in one of the above forms, but as the gold bull rages on and individual investors clamor to get in on the action, more and more tools are popping up and making it easier and more practical for you to own a nugget or two in some way, shape or form.
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