Many types of gold vehicles exist, and I’d like to discuss mu preferred vehicles and reasoning behind each. It’s important to note that all vehicles have their pros and cons and no one type of gold investment is the ultimate solution. But, I think by sticking with the below tips and ideas, you’ll be able to skillfully invest in precious metals…
1. Hold Physical Gold Bullion
Gold bullion is the cornerstone of my investing. Before owning any type of gold investment, I think it’s wise to invest in physical coins and bars. A wide variety exist, but here’s a few pointers for purchasing.
-Buy a mix of .90%-.999% 1 oz and half oz coins and bars.
I prefer gold Kruggerands and American Eagles and 1 oz bars.
-Buy silver: Don’t forget about the other precious metal.
I actually believe that silver contains more upside than gold over the long term as I expect the gold:silver ratio to return closer to the 16:1 as science tells us silver is roughly 16 times more prevalent than gold in the earth’s crust. As I write this, silver fluctuates in the 40:1 to 55:1 range. Look for this to correct closer to the 16:1 in the future. Personally, I like to own about 75% gold and 25% silver bullion for my bullion allocation. For silver, I buy 1 oz silver eagles and 100 oz silver bars.
-Purchase from a reputable dealer or vendor
I use several vendors including Ebay, APMEX, and local coin shops. One thing I like about using local coin stamp shops is the ability to purchase with CASH.
2. Expect Volatility
Yes. You’ve read correctly. Come to expect it, but more importantly, understand it. For years, the commercial investment industry has pushed the concept of “volatility equals risk”. It’s simply not true for precious metals. You can check out my other article where I dive into this a little deeper______________. But, in a nutshell, the concept comes from the idea that a free market economy in which volatility implies investor uncertainty. However, a large number of mounting evidence suggests that bullion banks manipulate the price of precious metals through paper derivative products. By doing so, the market experiences wide fluctuations in its day to day, and month to month volatility. But, the macro trend clearly shows strong demand for physical bullion (both gold and silver). The last 10 years of the gold bull run experienced annual, semi-annual or more corrections of 5%, 10% or even 15% over the course of a few days. But, the proper mindset of a gold investor is crucial because when you understand that the market, in the short term, will experience corrections due to intervention and manipulation by a select few powerful hands, the corrections end up looking more like buying opportunities. Demand in 2010, and growing still in 2011 is as strong as ever with central banks and even institutions and individuals growing annually and across the globe.
3. Avoid The GLD/SLV ETFs
These two ETFs are widely used to gain exposure to gold and silver. Boh contain the largest market cap for gold and silver respectively. However, I don’t personally use either one of them and would not recommend using them for exposure for longer periods of time. As a short term trading vehicle, I think they’re fine to use but I don’t like them for long-term exposure because they don’t actually contain the full physical metal backing them. I prefer to invest in funds that invest completely in precious metals, particularly closed-end funds. I talk more about a few recommended funds in my free newsletter.
4. Avoid Or Limit Exposure To Large Gold Producers
If you’ve watched the video on the main page of the site, you’re already familiar with this concept, but it’s worth reiterating. Basically, large gold producers, namely_________ thrived during the first several years of the gold bull run (early 2000s). However, these opportunities have long since passed, in my opinion. The last several years, large gold producers have substantially lagged behind the actual spot price of gold. Over the last several years, owning the physical gold or a closed-end fund has proved more profitable as the chart below details. GLD (gold spot price [red line]), has outperformed these major producers… Reason being, large gold producers lack the ability to grow organically through discovery or production. Much of the growth comes from the purchase of smaller gold producers and companies and the shareholders of these producers are “fully valued” by the market. I believe more opportunity exists in smaller gold miners, explorers, and producers that are not yet fully valued by the market.
5. Invest In Gold Stocks
The other portion of my assets I invest in gold stocks, particularly undervalued mining, exploration, and streaming metal finance companies. As mentioned, I believe these are the best opportunity during a continuing bull run. For my personal portfolio, I hold cash (USD), gold bullion, silver bullion, and gold stocks. In my free newsletter, I discuss three of my favorite gold stocks as well as more investment insight and strategies I believe will be useful to you.
To Sound Investing,
B.
