There is a way to invest in gold and precious metals without copping a watch or chain. As a matter of fact, having a small percentage of your portfolio invested in precious metals can be very beneficial for your overall balance, especially in times like these. Keep reading to find out why.
People have been buying and selling gold for almost as long as the Earth’s creation. The ancient Egyptians buried the Pharaohs with gold ornaments because gold doesn’t rust or decay. In the US, one of the primary reasons for western migration was because of the gold rush. Most monetary systems were built on the gold standard. Over time, the use of gold has faded because of the increased reliance on paper currency, but gold still remains a solid investment for the following reasons:
Bank & Credit fears: The price of gold and the level of uncertainty regarding banks is directly correlated. If people fear a bank failure, then it is possible (but highly unlikely these days) that a bank run will occur. This makes gold more desirable to hold.
Increased inflation: In Germany in the 20’s and in Zimbabwe today, paper currency was basically worthless. As a matter of fact, Germans used the currency to light their stoves. As people feel that their dollars are worth less and less, the value of gold increases.
Low or negative real interest rates: If the return on bonds, equities and real estate is not adequately compensating for risk and inflation, the demand for gold and other alternative investments such as commodities increases.
Decreased value of the American dollar: Put shortly, investors have choices. When faced with investing in the depreciating dollar vs. gold, most would choose gold.
Now that you know the ‘Whys’, here is the ‘How’
Buying gold bullion or bars: While this is probably the least efficient way to buy gold, it definitely has to be the most fun. I get giddy just thinking about building my own mini Fort Knox at my house. Keep in mind that once you buy the gold, you have to find a way to keep it safe and undamaged. Also gold in the physical form is very illiquid, meaning you can’t easily sell it once bought.
Gold mutual funds and ETF’s: The Street Tracks Gold ETF (GLD) represents one tenth of an ounce of gold and replicates the movement of the underlying commodity. There is also the iShares Comex Gold Trust (IAU) that operates in the same fashion. Another route to take is to invest in mutual funds that own companies involved in the mining and exploration of gold and precious metals. These companies give you exposure to the gold market but not 100%(which may not be a bad thing)
Keep in mind that gold can be very volatile, so don’t have more than 5-10% in your portfolio.
For more info check out www.molifeney.com
Allen Taylor
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
April 7, 2008 at 9:00 am
jmac
Before you invest, consider this article
http://www.ens-newswire.com/ens/dec2007/2007-12-06-01.asp.
Investigate your options, what may be an investment for you could be a huge detriment to others.
April 7, 2008 at 9:18 am
Lionel Carter
Great info, the investment club I am in is looking in to investing in commodities and were planning to go the “storage” route I will be sure to bring up gold mutual funds and etf’s at our next meeting thanks!
April 7, 2008 at 11:07 am
Dash
Jmac–the link was messed up so I could not read the article. As with every investment each individual or club in Lionel’s case has to make sure it fits them. Not telling anyone What to do but just providing info…
April 7, 2008 at 11:20 am
Jello
http://youtube.com/watch?v=Xh2RWggjZCs
April 9, 2008 at 2:35 am
jmac
Sorry for the failed link.
Basically, I learned this past semester in my human rights lawyering class that the biggest US gold mining company, Barrick Gold Corporation, has been in litigation with the Western Shoshone Tribes of Arizona and Nevada for their strip mining procedures over traditional Shoshone lands which are central to their native philosophies. Processes to seperate gold from rock in these areas include the use of cyanide (yes, i did say cyanide) within the soil.
“The Cortez gold mine is located 60 miles southwest of Elko, Nevada in Lander County. Barrick is the owner of a 60 percent joint venture interest and is the operator; the remaining 40 percent interest is held by Kennecott Explorations (Australia) Ltd.”
From the article;
“Even if the Western Shoshone win the Tenabo/Horse Canyon exploration case, the lawsuit will not stop the newly proposed Cortez Hills Tenabo Project. This development includes a new open pit, underground mining, three new waste rock facilities, a new heap leach pad and related roads and facilities, requiring new surface disturbances of 6,792 acres and the permanent loss of 817 acres of pinon trees, which produce pine nuts, a traditional Western Shoshone food source. ..The Cortez Hills Tenabo Project is expected to extract eight million ounces of gold worth $6.4 billion at today’s prices. The current Cortez mining in the valley is about 15 miles from Mt. Tenabo but the new mine would blast directly into the mountain.”
-From http://www.ens-newswire.com/ens/dec2007/2007-12-06-01.asp
A short video detailing the issues has been released by OxFam. It’s available on YouTube: he Cortez Hills Tenabo Project is expected to extract eight million ounces of gold worth $6.4 billion at today’s prices. The current Cortez mining in the valley is about 15 miles from Mt. Tenabo but the new mine would blast directly into the mountain.
April 10, 2008 at 11:36 am
Greg
I would avoid exploration stocks, unless you know something others don’t. Companies that sell commodities (gold, silver and yes oil) have zero pricing power which makes it tough to carve out a competative advantage. I’m with UMO on the ETF’s. Also check out ticker symbol OIL. This summer’s gonna be a b*tch at the pump.
April 19, 2008 at 9:40 am
Marian Richard
As president of a precious metals company, I can say that your article on gold as a method of safeguarding your assets is great but it does not go far enough. Bullion has been confiscated by the U.S. gov’t during hard or uncertain financial times 3X in this country’s history. Rare coins have never been confiscated — in fact, they were specifically made an exception.
Also, it is possible to buy IRAs that are based on gold, silver, or platinum instead of stocks or mutual funds, etc. The return on these IRAs is not dependent upon the vagaries of the stock market! Historically, rare gold coins have a much better track record than the Dow.
However, it is important to know that not all coins are rare and to have a broker that will steer you in the right direction, charge you a fair amount, and, most importantly, TEACH YOU ABOUT YOUR COINS & HOW TO MONITOR THEIR VALUE YOURSELF.
Many of us (young black professionals) are playing “catch up” in today’s financial world — it is important that we are working on a fair playing field.
July 8, 2008 at 11:30 pm
Greg
Marian,
Great post. Most people are probably more comfortable with a tangable asset like coins than a ticker symbol floating around in cyberspace somewhere. But liquidity is sometimes more important than appreciation. Is there an active market to buy back rare coins and what are the margins and fees we can expect brokers to take on each sale?
Because if you go to a jewlery store the retailer will mark you up 50% on a gold chain. Then if you try to turn that into cash at a pawn shop or something you’d be lucky to get 10% of your original purchase price. How are gold coins different?
July 9, 2008 at 1:50 pm
Marian Richard
Greg,
I’ll have to answer you from the perspective of our company. Our company doesn’t buy coins, per se. However, if one of our customers wishes to sell a coin, we will sell it for them on the Certified Coin Exchange and charge them nothing other than the cost of shipping the coin and insuring the shipment. This is done as a courtesy to them.
When they sell the coin has a huge bearing on whether or not they lose money on that coin. Our company recommends to each customer that they hold on to the coin for at least 6 years. This gives the coin time to appreciate in value. In this way, they have an excellent chance of making the mark-up back PLUS more.
If you look at our company website, you’ll see a chart of how the value of key dates & rarities has performed since 1970 – 9,523%. Obviously, whatever mark-up was paid for those coins is positively insignificant. Even the generic gold coin index is up 2,775% since January, 1970! The mark-up is, once again, almost not worth speaking of in comparison to the profits earned.
But, of course, gold is not suggested for making a “quick buck”. It is a good way of safeguarding the future for someone who plans ahead. Key dates and rarities should be purchased and put in a safe deposit box for a specific purpose, e.g., college tuition, etc.
That being said, generally the spread runs anywhere from 28% on up.
Your coin dealer needs to be member/dealers of PCGS, NGC, ANACS, CCE – associations which are dealer organizations that will expel a dishonest dealer if it’s brought to their attention. (My company has never had a complaint lodged against it.)
Taking a gold coin to a pawn shop is simply begging to be ripped off. In fact, they would only pay you the value of the gold if it is melted down (“spot gold”). So, for a $4,000.00 coin, a pawn shop will pay only $928.00 (today’s price for an oz. of gold) and then sell the coin for $4,000.00!!!
Buying coins on TV is a losing situation. The mark-up on those coins is astronomical! PLUS, most that I’ve seen are NOT solid gold. A great many are gold-clad!!! About 99% of the ones that I’ve seen that were solid were common dates.
Absolutely vital to using gold to safeguard your assets is an honest coin dealer – one who will make an honest living and look out for your welfare, who will steer you right in your gold purchases, and who will advise you and educate you so that you can direct your own financial future.
Please take a look at our website & follow the links. It’s very educational.
Our company feels that in today’s market, especially, earning the low end of the spread is quite sufficient. It is not necessary to mark-up a coin 100% or 500% (some TV coin mark-ups I’ve seen), or even 30%. That’s ridiculous. We want people to come back – not go away furious.
If you have more questions, feel free to ask. I like talking about gold and especially hipping the folks to the real deal.
Marian
July 9, 2008 at 5:32 pm
Christmas Ornaments
If we refuse the mythological explanation of democracy as a fundamentally new kind of social order
November 21, 2008 at 10:03 am
Christmas Ornaments
Great info, the investment club I am in is looking in to investing in commodities and were planning to go the “storage” route I will be sure to bring up gold mutual funds and etf's at our next meeting thanks!
November 21, 2008 at 10:04 am