What You Need To Know Before You Buy Your First Ounce Of Gold

Online interview of Michael J. Kosares

Question. What kind of gold should I buy?

Answer. We probably get that question more than any other -- pretty much on a daily basis. The answer, however, is not as straightforward as you might think. What you buy depends upon your goals. We usually answer the "What should I buy?" question with one of our own: "Why are you interested in buying gold?" If your goal is simply to hedge financial uncertainty and/or capitalize on price movement, then contemporary bullion coins will serve your purposes. Those concerned with the possibility of capital controls and a gold seizure, or call-in, often include historic pre-1933 gold coins in their planning. Both the contemporary bullion coins and historic gold coins trade at modest premiums over their gold melt value, track the gold price, and enjoy strong liquidity internationally.

Q. When should I buy?

A. The short answer is 'When you need it.' Gold, first and foremost, is wealth insurance. You cannot approach it the way you approach stock or real estate investments. Timing is not the real issue. The first question you need to ask yourself is whether or not you believe you need to own gold. If you answer that question in the affirmative, there is no point in delaying your actual purchase, or waiting for a more favorable price which may or may not appear. Cost averaging can be a good strategy. The real goal is to diversify so that your overall wealth is not compromised by economic dangers and uncertainties like the kind generated by the 2008 financial crisis, or those now unfolding in Europe and Japan.

Q. Why not wait for the necessity to arise, then buy gold?

A. Over the past few years, as concern about a financial and economic breakdown spread, there were periods of gold coin bottlenecks and actual shortages. In 2008-2009 at the height of the financial crisis, demand was so great that the national mints could not keep up with it. The flow of historic gold coins from Europe was also insufficient to meet accelerating demand both there and in the United States. Premiums shot-up on all gold coins and a scramble developed for what was available. There is an old saying that the best time to buy gold is when everything is quiet. I would underline that sentiment.

Q. Can you give us a profile of the typical gold investor?

A. Gold owners are a group of people I have come to know very well in my 40 years in the business. Contrary to the less than flattering picture sometimes painted by the mainstream press, the people we have helped become gold owners are among those we rely upon most in our daily lives -- our physicians and dentists, nurses and teachers, plumbers, carpenters and building contractors, business owners, attorneys, engineers and university professors (to name a few.) In other words, gold ownership is pretty much a Main Street endeavor. A recent Gallup poll found that 34% of American investors rated gold the best investment "regardless of gender, age, income or party ID. . ." In that survey, gold was rated higher than stocks, bonds, real estate and bank savings.

Q. What about high net worth investors?

A. Traditionally, wealthy, aristocratic European and Asian families have kept a strong percentage of their assets in gold as a protective factor. The long term economic picture for the United States has changed enormously over the past several years. As a result, that same philosophy has taken hold here particularly among those interested in preserving their wealth both for themselves and for their families from one generation to the next. In recent years, we have helped a good many family trusts diversify with gold coins and bullion at the advice of their portfolio managers.

(Please see: Seven Reasons Why High Net Worth Investors Choose USAGOLD)

Q. You frequently mention gold as insurance. What do you mean by that?

A. Gold's baseline, essential quality is its role as the only primary asset that is not someone else's liability. That separates gold from the majority of capital assets which in fact do rely on another's ability to pay, like bonds and bank savings, or the performance of the management, or some other delimiting factor, as is the case with stocks. The first chapter of the ABCs of Gold Investing ends with this: "No matter what happens in this country, with the dollar, with the stock and bond markets, the gold owner will find a friend in the yellow metal -- something to rely upon when the chips are down. In gold, investors will find a vehicle to protect their wealth. Gold is bedrock."

Q. What percentage of my assets should I invest in gold?

A. Once again the answer is not cut and dry, but a general rule of thumb is 10% to 30%. How high you go between 10% and 30% depends upon how concerned you are about the current economic, financial and political situation. Recently, CNBC television commentator Jim Cramer strongly advocated a 20% gold diversification.

Q. In your book, you state: "Who you do business with is one of the most important aspects of gold investing." Why is that?

A. A solid, professional gold firm can go a long way in helping the investor shortcut the learning curve. A good gold firm can help you avoid some the problems and pitfalls encountered along the way, and provide some direction. It can help you in the beginning and through the course of your gold ownership both in making additions to your portfolio and liquidations.

Q. How can the average investor distinguish between the good gold firms and the bad?

A. First, and most important: Check the Better Business Bureau's profile on a company before you do business with it. Check not only its rating but the number of complaints lodged against it and how those complaints were handled. A consistent record of complaints can be a warning sign even if the company has managed to keep an A+ rating. This is a simple and straightforward step every first-time investor should take, but it is amazing how many ignore it. Second, choose a gold firm that has a solid track record. Ten years in business is good; fifteen years or more is even better. Third,choose a firm with a commitment to keeping you informed, i.e., one that is interested in answering your questions now and keeping you informed in the future. If a sales person gives you short shrift or hits you with a heavy sales pitch take it as a warning.

(Note: USAGOLD has been awarded the Better Business Bureau's Gold Star Certificate, its highest accolade. In addition, the firm has been rated A+ by the BBB with zero consumer complaints. The firm has been accredited since 1991.)

Q. Can you briefly describe what you believe to be the biggest mistake investors make when starting out as gold owners?

Answer. The biggest trap investors fall into is buying a gold investment that bears little or no relationship to his or her objectives. Take safe-haven investors for example. That group makes up 90% of our clientele, and probably a good 75% of the current physical gold market. Most often the safe-haven investor simply wants to add gold coins to his or her portfolio mix, but too often this same investor ends up instead with a leveraged (financed) gold position, or a handful of exotic rare coins, or a position in an ETF that amounts to little more than a bet on the gold price. These have little to do with safe-haven investing, and most investors would be well served to avoid them.

Q. What about the high profile gold companies that advertise on talk radio and cable television?

A. The same vetting rules outlined earlier apply. Check them out. Too often investors make the mistake of believing that the gold firm that sponsors their favorite political commentator is also the best place to make their gold purchases. National media campaigns are expensive and those costs are usually covered in the prices paid by investors for their gold coins. In some instances that mark-up can be twice the gold value. Take care that you are not paying too much for your gold and that you are buying the gold items best suited to meeting your goals.

Q. What is your view of gold stocks?

Answer. Many of our clients own gold stocks and we believe they have a place in the portfolio. However, it should be emphasized that gold stocks are not a substitute for real gold ownership, that is, in its physical form as coins and bars. Instead, stocks should be viewed as an addition to the portfolio after one has truly diversified with gold coins and bullion. Gold stocks can actually act opposite the intent of the investor, as some justifiably disgruntled mine company shareholders learned in the recent past when their stocks failed to perform as the price rose. There is no such ambiguity involved in actual ownership of gold coins and bullion. When gold rises, they rise with it.

Q. What about gold futures contracts?

Answer. Futures contracts are generally considered one of the most speculative arenas in the investment marketplace. The investor's exposure to the market is leveraged and the moves both up and down are greatly exaggerated. Something like 9 out of 10 investors who enter the futures market come away losers. For someone looking to hedge his or her portfolio against economic and financial risk, this is a poor substitute for owning the metal itself.

Q. What about ETFs?

A. Since, for one reason or another, it is difficult to take delivery from any of the ETFs, they are generally viewed as a price bet and not actual ownership of the metal. Most gold investors want possession of their gold because they are buying as a hedge against an economic, financial or pollical disaster. When disaster strikes, it does not do you much good to have your gold stored in some distant facility by a third party. For this reason, over the past couple of years the trend even with hedge fund operators has been away from the ETFs. In 2011, ETF sales plummeted while purchases of physical coins and bullion for delivery skyrocketed.

Q. Please summarize -- What is the best approach for the safe-haven investor?

Answer. If you want to protect yourself against inflation, deflation, stock market weakness and potential currency problems -- in other words, if you want to hedge financial uncertainties, there is only one portfolio item that will serve you in all seasons and under most circumstances -- gold coins and bullion. Make sure you do your homework on the company with which you choose to do business, and make sure that the gold ownership vehicle you choose truly reflects your goals and aspirations.

Though this interview will help you start safely on the road to gold ownership, it is just an overview. If you would like more detailed information, I would recommend my book, The ABCs of Gold Investing: How to Protect and Build Your Wealth With Gold, which covers the who, what, when, where, why and how of gold ownership in detail. You can also shortcut the learning curve by contacting our offices and asking to speak with one of our expert client advisors who will be happy to answer your questions and help you get off to a solid start.

Source : USA Gold

How to Buy Gold and Silver

When it comes to buying physical gold and silver, there are a range of options you can take.

Precious metals Exchange Traded Funds (ETFs) are the cheapest and most convenient way to buy and sell gold and silver.

But if you take that route, you also expose yourself to counterparty risk. In short, when you buy an ETF, the metal you buy is not held by the ETF provider. It’s held by a large global bank, like HSBC or Morgan Stanley.

If the bank goes bust, your gold and silver could be gone too. Besides, you can never really be sure they’re holding the gold they claim.

Why do you need to worry about this?

Because the US Commodity Futures Trading Commission, with the Gold Anti Trust Action Committee, reports there is now one hundred times more ‘paper gold’ in the world than physically exists above ground.

For this reason we believe it’s much safer to have the bullion in your hand (details on how to store it in a moment).

Owning the shiny stuff…

But, buying physical gold or silver is more expensive than investing in an ETF. Dealers charge a premium. Then you’ve got the cost of delivery, storage and insurance. And when you sell, your dealer will take a cut.
On top of that, buying bullion isn’t ‘risk free’.

The risk, of course, is that gold and silver prices fall through the floor and you take a loss on an asset you can’t always buy and sell easily. Please note: I don’t expect this to happen, but it’s a risk to be aware of.
So what sort of gold do you buy? You have a choice of coins, nuggets or bars…

Coins are elaborate, and more expensive to make than bars or nuggets – so they cost more to buy per ounce. Some may be rare collectables, but this ‘added value’ can be in the eye of the beholder. The same can be said with antique gold and silver coins. This is a specialised market and is best avoided unless you really know your stuff.

Nuggets are beautiful. But the price can vary a great deal depending on purity and other factors. They aren’t as straightforward to buy and sell as bullion bars or coins.

If you’re after a long-term investment, in my opinion it’s best to go with bars.

With silver, one kilo bars are a convenient size and are worth about A$1000 today.

An ounce of gold is surprisingly small – nearly A$1700 of value squeezed into just one centimetre squared. You can get two-ounce, five-ounce and 10-ounce bars. And a kilo bar of gold will set you back about A$53,900. Each bar is iPhone sized – truly portable wealth.

Just remember that with precious metals, the ounces are ‘troy ounces’, which are equal to 31.1 g.
Australia has quite a few bullion dealers, and I’ve listed the main ones in this table below. Click on the name to link to the website.

Australian bullion dealers
Bullion dealer                         City
Perth Mint                                  Perth
ABC Bullion                                Sydney
Ainslie Bullion                          Brisbane
Guardian Gold                         Melbourne
Australian Bullion Company Melbourne
Gold Bullion Australia             Melbourne, Sydney, Brisbane Gold Coast

Take the time to shop around for the lowest premiums and commissions. It’s quite surprising what the difference can be. And make sure you’re comparing prices to the Australian gold or silver price.

You can head to the bullion office directly to buy gold. But if you don’t have one located near you, you can place an order over the phone or even online. Delivery is easy to arrange, but ask questions about the method used and whether it is insured.

And then you’ve got eBay.

Bizarrely, eBay has quite an active silver market. I’ve bought and sold successfully this way quite a few times before. Selling is particularly good, as you’re the one charging the commission for once!

Using eBay is riskier than going through a registered dealer. So it’s essential to get the metal tested. This is as easy as going to a business that buys scrap gold and silver, and asking them nicely to scan it for you. When you find a good seller, stick with them. It’s also a smart move to get the seller to send it recorded delivery and insure it. Make sure you’re familiar with eBay if you want to go down this route.

The other interesting way to cut out the cost of the middle-man is through SilverStackers, a precious metals forum. This puts you directly in touch with other buyers and sellers, as well as providing plenty of market commentary.

Where do you keep your precious metals?

Now, you’re faced with the problem of storing it. A shoebox under the bed? Your home safe? A bank deposit box? Store it with the dealer you bought it from?

A home safe can be installed for about $500 from a local security company. But you should only store small amounts this way. If you do keep it at home, you need to increase your home and contents insurance to cover the metal. And you’ll need to avoid telling everyone down the pub about your stash…

Most bullion dealers have storage facilities. When you buy bullion from a dealer you can ask about the storage options available.

Depending on how much you buy, it quickly becomes cheaper – and safer – to store it at the dealer, or rent a safety deposit box for a few hundred bucks each year… This is what I do.

Safety deposit boxes are a great option. They provide security and easy access.

Banks offer safety deposit boxes, but then we are back to square one with the risk of having a bank as the counterparty.

If you want to remove counterparty risk, you can store it with a company that has nothing to do with the banking system. These are in short supply. I found just one company called Guardian Vaults that does this. They’re only in Melbourne for now, but they have clients nationwide.

I hope this all helps put some new options forward.

Enjoy that bullion!

Dr Alex Cowie
Editor, Diggers & Drillers

The Five Biggest Investment Lessons of 2013 | Gold Investment

From the success of Royal Mail to the fall of gold, this year's events can teach investors some useful lessons

By Richard Evans, Investment Editor

What lessons did private investors learn in 2013?

It was certainly an eventful year – although the eurozone crisis died down and stock markets have generally risen, some investors have not had an easy time.

Many were forced to start taking their own decisions after their advisers dropped them following changes to the way they were paid. Others lost small fortunes because they believed the gold price could only go up.

But even misfortunes such as these can be turned to investors' advantage if they learn the right lessons. Here we look at five of the year's biggest investment stories and explain what they can teach us.

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Royal Mail's share sale

For a few weeks in October, readers of this website were interested in just one thing: the flotation of Royal Mail. It was clear from the popularity of certain Royal Mail stories (such as this and this) and the comments made online by readers that many had never bought shares before and needed help to navigate the process.

All Royal Mail investors who bought shares in the flotation have made handsome returns – the share price has risen from 330p to about 580p yesterday – but many were annoyed that they could not invest as much money as they wanted, because all applications were scaled back to £750.

Lessons Investors who don't follow up their purchase of Royal Mail shares with a more comprehensive long-term savings plan will discover that their foray into the stock market makes little difference to their future prosperity – £750 as a one-off investment is simply too small to make a difference, even if it gains 75pc.

Owning shares in a single company is also far too risky – you should spread your risk by owning a basket, ideally adding other types of investment, such as bonds, which pay a fixed level of income.

• Read more: What next for Royal Mail first-timers?

How to Invest in Gold

NEW YORK (TheStreet ) - It's never too late to invest in gold, no matter what the gold price.

Whenever you buy gold, the first rule of thumb is dollar cost averaging -- putting a fixed amount of money towards gold every month regardless of the price. For the average investor, this strategy spreads risk out over time and lessens the downside.

Most money managers advocate anywhere from 3%-10% in gold. More bullish managers recommend an allocation as high as 20%.

Gold is protection, insurance against inflation, currency debasement, and global uncertainty. Here are four ways you can invest.

1. Gold Bullion

Buy physical gold at various prices: coins, bars and jewelry. Some of the most popular gold coins are American Buffalo, American Eagle and St. Gauden's. You can store gold in bank safety deposit boxes or in your home. You can also buy and sell gold at your local jewelers. Other companies like Kitco.com allow you to store gold with them as well as trade the metal.

When you buy gold coins or bullion, avoid big premiums. You want to buy gold as close to the spot price as possible, or a 10% premium at most. The higher the premium, the higher the gold price will have to rise in order for you to profit.

Coins typically come from the national mint, where they are made and sold at a 4% mark up -- the retailer's margin is 1% to 3%.

To calculate the premium of a gold product, subtract the spot price from the price you are being quoted, divide that number by the spot price and multiply by 100.

Had you purchased a one ounce gold bar at Kitco.com for $1,225.90 -- using a spot price of $1,200 -- the bar has a 2.1% mark-up. This means that the gold price only has to rise 2.1% from spot price levels for you to break even on your investment.

Premiums, though, can mount as high as 75% or more based on the gold item.

To avoid getting ripped off you must establish why you want to buy gold bullion. If you want to own gold as a long term investment, then buy gold as close to the spot price as possible.

If you want to own gold to use as money, if you are a "survivalist" you want to buy a tank of gas with gold as Jon Nadler, senior analyst at Kitco.com says, then you need smaller gold coins like one tenth an ounce and will have to pay the premium.

Nadler's take is that an individual investor shouldn't spend more than a 10% mark up when buying gold, but acknowledges that "everyone has their own threshold."

Where investors also tend to go astray is by buying semi-numismatic or numismatic coins, otherwise known as rare coins, which come with huge premiums that seldom recoup their value.

A good rule of thumb is to leave rare coin buying to rare coin dealers. Nadler advises that consumers interested in rare coins go professional auctioneers like Bowers & Merena or Christie's who have experts on staff and can objectively grade the coins the same way an antique dealer would appraise goods.

If a broker tries to sell you a story with the coin like it's from the "old world and there are only a few thousand in existence" experts advise to go elsewhere.

"Don't confuse investing in gold with the things being sold as gold investments," cautions Nadler. "You want something that tracks the price of gold as close to dollar to dollar as possible."

2. Gold ETFs

Gold exchange-traded funds are a popular way to have gold exposure in your portfolio without the hassle of storing the physical metal. First, you can invest in one of three physically backed ETFs, which track gold's spot price.

The most heavily traded ETF is SPDR Gold Shares (GLD), which saw record inflows as fears ballooned over Europe sovereign debt fears and a struggling U.S. economy. Big guns like George Soros and John Paulson own the stock.

iShares Comex Gold Trust (IAU) is the cheapest ETF with a 0.25% fee.

The newest gold ETF is ETFS Gold Trust (SGOL), which launched in September 2009. This gold ETF actually stores its gold bullion in Switzerland and gives investors access to different types of gold.

For each share of these ETFs you buy, you generally own the equivalent 1/10 an ounce of gold. If investor demand outpaces available shares then the issuer must buy more physical gold to convert it into stock. Conversely, when investors sell, if there are no buyers, then gold is redeemed and the company must then sell the gold equivalent.

Gold is a tool for investors and for traders looking for gold exposure or as a way to hedge other gold positions. The result can be rough violent price action.

Expense ratios can range from 0.25% to 0.50% and your value erodes the longer you hold the shares. The fund must sell gold, for example, periodically to pay for expenses which decreases the amount of gold allocated to each share.

There are also two types of gold stored in the ETFs, allocated and unallocated. Allocated gold is the bullion held by the custodian, big banks. Custodians provide a bar list of all the individual allocated bars daily and are typically audited twice a year, paid for by the sponsor, by an independent party like Inspectorate International.

Unallocated gold relates to authorized participants like JPMorgan or Goldman Sachs who trade gold futures. Futures contracts are often bought if the trustee needs to create new shares fast and doesn't have the time to buy and deliver the bullion. Typically allocated gold far outweighs the unallocated gold and the amounts are tallied each day by the custodian. The ETF also has a set amount of time when it must deliver the physical gold into the vault.

Because you own shares and not the physical metal, precious metal ETFs may be sold short, so two people can own the same "gold" -- the original owner and the investor who is borrowing the shares. Although baskets of shares are allocated to specific gold bars, which can be found in the ETF's prospectus, an investor must share ownership.

Profits made on investments in physically backed ETFs are also taxed like collectibles, at around 28% -- an investor gets taxed as if he owned bullion, when in reality he just owns paper.

There is the possibility of redeeming shares for physical gold, but that arrangement is conducted with brokers and is typically more difficult. Investors have to redeem in huge lots, like 500,000 shares, not really viable for the retail investor.

ETFs are also very controversial. Many complain that investors can't know if their gold really exists. Also, if a bank storing the gold fails, the ETF, aka investor, becomes a creditor.

There are other types of ETFs.

If you want the opportunity of redeeming your shares for gold, another option is Sprott Physical Gold Trust ETV (PHYS), which is a closed-end mutual fund that gives investors the option of trading in their shares for 400-ounce gold bars.

The fund can trade at a huge premium or discount to its net asset value at any time and has higher fees, making it more expensive to invest in. An investor can obtain physical gold on the 15th of every month, although the holder has to make transportation and storage arrangements.

There are also two other ETFs to consider. Market Vectors Gold Miners (GDX), a basket of large-cap mining stocks. and Market Vectors Junior (GDXJ), a group of development-stage miners. They both have market caps of $150 million or more and have traded at least 250,000 shares per month for six months.

3. Gold ETNs

If you want more risk, try exchange-traded notes, debt instruments that track an index. You give a bank money for an allotted amount of time and, upon maturity, the bank pays you a return based on the performance of what the ETN is based on, in this case the gold futures market. Some of the more popular ones are UBS Bloomberg CMCI Gold ETN (UBG), DB Gold Double Short ETN (DZZ), DB Gold Short ETN (DGZ) and DB Gold Double Long ETN (DGP).

ETNs are like playing the futures market without buying contracts on the Comex. ETNs are flexible, and an investor can trade them long or short, but there is no principal protection. You can lose all your money.

4. Gold Miner Stocks

riskier way to invest in gold is through gold-mining stocks. Mining stocks can have as much as a 3-to-1 leverage to gold's spot price to the upside and downside.

Gold miners are risky because they trade with the broader equity market. Some tips to consider when picking gold stocks are to find companies with strong production and reserve growth. Make sure they have good management and inventory supported by either buying smaller-cap companies or by maintaining consistent production.

Global gold production has been declining since 2001, only recently experiencing more juice, and big miners keep their gold reserves flush by buying or partnering with small-cap companies, which are in the exploration or development stage.

Many investors make the mistake of buying small gold miners that are in the exploration phase with no cash flow. Picking among these stocks is like buying a lottery ticket, very few companies actually strike gold and become profitable. Even fewer become takeover targets.

With gold prices high, gold companies can make more for every ounce of gold they produce, but their net profits depend on their cash costs; how much it costs them to produce an ounce of gold. Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.

Adam Graf, director of emerging miners for Dahlman Rose & Co., models 50 companies on a forward basis using forward curves. "On a theoretical basis, if gold moved up $100 an ounce, what does the change in the current value do based on what the forward looking cash flow should do."

Another factor to consider when picking gold stocks is how quickly the company will benefit from higher prices. Randgold Resources (GOLD_), a miner in Africa, is almost 100% correlated to gold prices. CEO Mark Bristow says that the company benefits from gold prices in almost two days.

You also have to buy the right amount of gold stocks. J.C. Doody, editor of goldstockanalyst.com, bets on 10 gold stocks because it allows him to take some risk with explorers or junior miners as well as get the safety from a major.

"Frankly there aren't 30-40 stocks in the gold space worth buying," says Doody who would rather be heavily invested in 10 than over invested in 2 and under invested in 40. "If you've got too many the best you're going to be is a mediocre mutual fund and if you have too few you're just taking on too [much] risk."

If you do go the gold stock route, you have to be prepared for the rollercoaster ride.

Leverage swings both ways so if the gold price drops 10%, gold stocks can plummet 20%-30%. Investors often get too spooked too fast and wind up selling out of gold stocks at the wrong time.

"It inhales and exhales 20-30% at least once or twice a year," says Pratik Sharma, managing director at Atyant Capital who urges investors to not get spooked by volatility. "Ultimately what you have to realize 5-6-7%... these things are meaningless when you have a sector that moves 20-30% several times a year on the downside."

There is always time to buy gold, you just have to know your ABCs before you start.

--Written by Alix Steel in New York.

Stock quotes in this article: GLD, IAU, SGOL, PHYS, GDX, GDXJ, GOLD 

Gold funds slump 31 per cent; steepest price drop in 32 years

Investors are dumping gold-backed exchange traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years.
Holdings in the 14 biggest ETPs plunged 31 per cent to 1,813.7 tonnes since the start of January, the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. The removals erased $69.5 billion in the value of the assets as prices fell by the most since 1981. A further 311 tonnes will be withdrawn next year, according to the median of 11 analyst estimates compiled by Bloomberg.

ETP investments reached a record $148 billion last year, helping sustain the bull market that drove a more than six fold increase in prices since 2001 by offering a way to own bullion without needing to store it. The slump shows some investors losing faith in gold as a preserver of wealth after inflation failed to accelerate and the US Federal Reserve signalled it may curb stimulus. John Paulson, the biggest investor in the largest ETP, said last month he doesn't plan to buy more.

Gold for immediate delivery fell into a bear market, defined as a drop of 20 per cent or more, in April and traded at $1,234.60 an ounce at 12.32 pm on Monday in Singapore, down 36 per cent from the September 2011 record of $1,921.15. Only corn and silver fell more this year among the 24 commodities tracked by the S&P's GSCI Spot Index, which slipped 3.6 per cent. Goldman Sachs Group called bullion a "slam-dunk" sell in October and said it was among the bank's most bearish commodity forecas ..

ETP sales of more than 800 tonnes since the start of January, including by billionaire George Soros, exceeded total purchases in the previous three years. Paulson & Co cut its holdings in the SPDR Gold Trust, the biggest ETP, by half in the second quarter, while Soros and Third Point's Daniel Loeb sold their entire stakes.

Traditionally, investors turn to gold in times of turmoil as an alternative store of wealth to equities and the dollar and as an inflation hedge. Until 2003, most held gold bars, coins or jewellery in vaults or bought futures and options.

The introduction of gold-backed ETPs, which trade like equities, gave access to the metal without the need for arranging storage or dealing in derivatives. One futures contract traded on the Comex bourse in New York, equal to 100 ounces, costs $123,460 while a share in the SPDR Gold Trust, representing 0.1 ounce, is valued at $119.38.

ETPs backed by gold were created by Graham Tuckwell, an, Australia born entrepreneur who persuaded the producer-funded World Gold Council to back the proposal after the Australian Gold Council rejected his plan in 2002. The products are cheaper and more transparent than mutual funds, Tuckwell has said.

Tuckwell's ETF Securities oversees the second-largest gold-backed ETP. Zuercher Kantonal bank, Switzerland's biggest state-owned regional bank, and BlackRock, the world's leading money manager, are the next largest operators.

Some of the economic conditions that prompted investors to buy gold over the past few years no longer exist. The US unemployment rate that touched a 26-year high of 10 per cent in 2009 dropped last month to a five-year low of 7 per cent. The US economy grew at an annual rate of 3.6 per cent in the third quarter, the strongest in 18 months. Inflation in US is running at a 1 per cent annual rate, half the pace of past decade.

"Inflationary pressures are not strong," said Peter Richardson, chief metals economist at Morgan Stanley. "We're certainly not buyers" of gold, he said.

Mine output may also drop. The world's biggest producers, including Toronto-based Barrick Gold, took at least $26 billion of writedowns, cut spending and fired workers as prices fell and costs rose.

Paulson, the hedge-fund manager who said last year gold was his best long-term bet, told clients last month that he personally wouldn't invest more money in his gold fund because it's not clear when inflation will accelerate, according to a source.

While Paulson & Co sold half its stake in the SPDR Gold Trust in the second quarter, the investor remains the largest holder, with 10.23 million shares as of September 30, a Securities and Exchange Commission filing shows.

Soros, who called gold the "ultimate bubble" in 2010, increased his stake in the SPDR Gold Trust over five quarters starting from the three months through the end of September 2011. His company then lowered holdings in the two quarters through March, before selling the remainder in the three months to June, SEC filings show.

"Gold ETFs have fallen out of favour in 2013," said Mike McGlone, director of research at ETF Securities, citing the economic expansion, rising equity markets and prospects for tapering by the Fed. "We view 2013 as a correction in the longer-term structural gold bull market."

Read more at: Economic Times | India Times

Gold, Long a Secure Investment, Loses Its Luster

Weighing gold nuggets in the Philippines.    By NATHANIEL POPPER

Below the streets of Lower Manhattan, in the vault of the Federal Reserve Bank of New York, the world’s largest trove of gold — half a million bars — has lost about $75 billion of its value. In Fort Knox, Ky., at the United States Bullion Depository, the damage totals $50 billion.

Falling Fortunes The price of gold has had an extraordinary run up in the last 10 years, creating wealth for investors. But its price has fallen in the last two years.

And in Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled, too. A $29,000 investment that Mr. Norstog made in 2011 is now worth about $17,000, a loss of 42 percent.

“I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something,” Mr. Norstog, 67, says of his foray into gold.

Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking — fast. Its price has fallen 17 percent since late 2011. Wednesday was another bad day for gold: the price of bullion dropped $28 to $1,558 an ounce.

It is a remarkable turnabout for an investment that many have long regarded as one of the safest of all. The decline has been so swift that some Wall Street analysts are declaring the end of a golden age of gold. The stakes are high: the last time the metal went through a patch like this, in the 1980s, its price took 30 years to recover.

What went wrong? The answer, in part, lies in what went right. Analysts say gold is losing its allure after an astonishing 650 percent rally from August 1999 to August 2011. Fast-money hedge fund managers and ordinary savers alike flocked to gold, that haven of havens, when the world economy teetered on the brink in 2009. Now, the worst of the Great Recession has passed. Things are looking up for the economy and, as a result, down for gold. On top of that, concern that the loose monetary policy at Federal Reserve might set off inflation — a prospect that drove investors to gold — have so far proved to be unfounded.

And so Wall Street is growing increasingly bearish on gold, an investment that banks and others had deftly marketed to the masses only a few years ago. On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11 percent from where it traded on Wednesday. Société Générale of France last week issued a report titled, “The End of the Gold Era,” which said the price should fall to $1,375 by the end of the year and could keep falling for years.

Granted, gold has gone through booms and busts before, including at least two from its peak in 1980, when it traded at $835, to its high in 2011. And anyone who bought gold in 1999 and held on has done far better than the average stock market investor. Even after the recent decline, gold is still up 515 percent.
But for a generation of investors, the golden decade created the illusion that the metal would keep rising forever. The financial industry seized on such hopes to market a growing range of gold investments, making the current downturn in gold felt more widely than previous ones. That triumph of marketing gold was apparent in an April 2011 poll by Gallup, which found that 34 percent of Americans thought that gold was the best long-term investment, more than another other investment category, including real estate and mutual funds.

It is hard to know just how much money ordinary Americans plowed into gold, given the array of investment vehicles, including government-minted coins, publicly traded commodity funds, mining company stocks and physical bullion. But $5 billion that flowed into gold-focused mutual funds in 2009 and 2010, according to Morningstar, helped the funds reach a peak value of $26.3 billion. Since hitting a peak in April 2011, those funds have lost half of their value.

“Gold is very much a psychological market,” said William O’Neill, a co-founder of the research firm Logic Advisors, which told its investors to get out of all gold positions in December after recommending the investment for years. “Unless there is some unforeseen development, I think the market is going lower.”
Gold’s abrupt reversal has also been painful for companies that were cashing in on the gold craze. In the last year, two gold-focused mutual funds were liquidated after years of new fund openings, Morningstar data shows. Perhaps the most famous company to come out of the 2011 gold rush, the retail trading company Goldline, has drastically cut back its advertising on cable television, lowering spending to $3.7 million from $17.8 million in 2010, according to Kantar Media.

Goldline agreed to pay $4.5 million last year to settle charges brought by the city attorney of Santa Monica, Calif., accusing the company of running a bait-and-switch operation. Goldline did not respond to requests for comment for this article.



But the worst news for gold is probably good news for the broader economy, which, though still struggling to grow, has recovered from its lows.

“As the economy improves, the demand for gold as a financial hedge declines more than the fundamental demand for gold jewelry increases,” said Daniel J. Arbess, a partner at Perella Weinberg Partners, who sold off his fund’s large stake in gold in the fourth quarter of 2012.

Investment professionals, who have focused many of their bets on gold exchange-traded funds, or E.T.F.’s, have been faster than retail investors to catch wind of gold’s changing fortune. The outflow at the most popular E.T.F., the SPDR Gold Shares, was the biggest of any E.T.F. in the first quarter of this year as hedge funds and traders pulled out $6.6 billion, according to the data firm IndexUniverse. Two prominent hedge fund managers who had taken big positions in gold E.T.F.’s, George Soros and Louis M. Bacon, sold in the last quarter of 2012, according to recent regulatory filings.



“Gold was destroyed as a safe haven, proved to be unsafe,” Mr. Soros said in an interview last week with The South China Morning Post of Hong Kong. “Because of the disappointment, most people are reducing their holdings of gold.”

Gold’s most vocal bulls say gold doubters are losing faith too easily. Peter Schiff, the chief executive of the investment firm Euro Pacific Capital, said that he still expected gold to hit $5,000 an ounce within a few years because, he said, the world is headed for a period of dangerous hyperinflation.

“People believe the U.S. economy is recovering. It’s not,” said Mr. Schiff.

The most famous investor who is standing by gold is John Paulson, the hedge fund manager who made a fortune betting against the American housing market. His $900 million gold fund reportedly dropped 26 percent in the first two months of this year.

Mr. Paulson’s losses were particularly severe because he bet heavily on gold mining companies, which have fallen more sharply than gold itself.

Mr. Norstog, in Pocatello, made a similar mistake. He put his money in a gold fund that was focused on mining company stocks.

“If I had to do it all over again, I would have just bought the gold,” Mr. Norstog said. “At least that way I could have run my fingers through the glittering coins.”

Source : NYTimes

Gold Investment Letter New Blog Report: "Cardero Resource Corp: The Resurrection"

CHICAGO, IL, Dec 16, 2013 (Marketwired via COMTEX) -- The Gold Investment Letter helps sophisticated investors maximize profits in mining stocks with unbiased, specific, and actionable recommendations. In today's blog update we have focused on Cardero Resources.

About Gold Investment Letter Gold Investment Letter is a gold newsletter that focuses on gold stocks, junior mining stocks, silver stocks, and investing in physical precious metals. We isolate the best resource stocks to position ourselves and our subscribers. In today's blog update we have focused on Cardero Resources.

The editor of Gold Investment Letter, Eric Muschinski, who has been recommending gold and silver accumulation since 2003, is Founder and CEO of Phenom Ventures LLC and President and Co-Founder of Investor Media Inc.

SOURCE: Gold Investment Letter http://www.goldinvestmentletter.com/blog/

Investing Today? Just Buy Anything

or PRACTITIONERS of Schadenfreude, seeing high-profile investors losing their shirts is always amusing, writes Tim Price on his PriceOfEverything blog.

 

But for the true connoisseur, the finest expression of the art comes when a high-profile investor identifies a bubble, perhaps even makes money out of it, exits in time – and then gets sucked back in only to lose everything in the resultant bust. An early, and fine, example is the case of Sir Isaac Newton.

 

As any fule kno, the South Sea Company was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England's war debt. Investors warmed to the appeal of this monopoly and the company's shares began their rise. Although its management team was inexperienced, they were not inexperienced enough to prevent further shares being issued to a frenzied public developing a taste for rapid returns.

 

Britain's most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise. In the words of Lord Overstone, no warning on earth can save people determined to grow suddenly rich. Newton went on to repurchase a good deal more South Sea Company shares at more than three times the price of his original stake, and then proceeded to lose £20,000 (which, in 1720, amounted to almost all his life savings). This prompted him to add, allegedly, that:

"I can calculate the movement of stars, but not the madness of men."

The chart of the South Sea Company's stock price, and effectively of Newton's emotional journey from greed to satisfaction and then from envy and more greed, ending in despair, is shown below. 

A more recent example would be that of the highly successful fund manager Stanley Druckenmiller who, whilst working for George Soros in 1999, maintained a significant short position in internet stocks that he (rightly) considered massively overvalued. But as Nasdaq continued to soar into the wide blue yonder, in a manner not altogether dissimilar to that of South Sea Company shares, he proceeded to cover those shorts and subsequently went long the technology market.

 

Although this trade ended quickly, it did not end well. As David McCreadie of Monument Securities points out, three quarters of the internet stocks that Druckenmiller had originally shorted (and which he subsequently bought back) eventually went to zero. The remainder fell between 90% and 99%.

 

And now we have another convert to the bull cause. Fund manager Hugh Hendry has hardly nurtured the image of a shy retiring violet during the course of his career to date, so his recent volte-face on markets garnered a fair degree of attention. In his December letter to investors he wrote the following:

"This is what I fear most today: being bearish and so continuing to not make any money even as the monetary authorities shower us with the ill thought-out generosity of their stance and markets melt up. Our resistance of Fed generosity has been pretty costly for all of us so far. To keep resisting could end up being unforgivably costly."

Hendry sums up his new acceptance of risk in six words: 

"Just be long. Pretty much anything." 

Will Hendry's surrender to monetary forces equate to Newton's re-entry into South Sea shares or Druckenmiller's dotcom capitulation in the face of crowd hysteria? Time, as ever, will tell. In the meantime, call us old-fashioned, but rather than submit to buying "pretty much anything", we're able to square the circle of investing rationally in a QE-manic world by sailing close to the Ben Graham shoreline.

 

Firstly, we're investors and not speculators. (As Shakespeare's Polonius counselled: "To thine own self be true".) Secondly, our portfolio returns aren't exclusively linked to the last available price on some stock exchange; we invest across credit instruments; equity instruments; uncorrelated funds, and real assets, so we have no great dependence on equity markets alone. Where we do choose to invest in stocks (as opposed to feel compelled to chase them higher), we only see advantage in favouring the ownership of businesses that offer compelling valuations to prospective investors (Graham referred to this as a 'margin of safety') – or in locating managers capable of identifying such businesses. 

 

In Buffett's words, we spend a lot of time second-guessing what we hope is a sound intellectual framework. Examples: 

• In a world drowning in debt, if you must own bonds, own bonds issued by entities that can afford to pay you back; 
• In a deleveraging world, favour the currencies of creditor countries over debtors; 
• In a world beset by QE, if you must own equities, own equities supported by vast secular tailwinds and compelling valuations (for more on this, see this piece); 
• Given the enormous macro uncertainties and entirely justifiable concerns about potential bubbles, diversify more broadly at an asset class level than simply across equity and bond investments; given the danger of central bank money-printing seemingly without limit, currency / inflation insurance should be a component of any balanced portfolio (even if deflation in western economies may be the more plausible immediate threat, as Russell Napier suggests, do we honestly think it won't be met by even more aggressive monetary stimulus from the brain donors at the central banks?); 
• Forget conventional benchmarks. Bond indices encourage investors to over-own the most heavily indebted (and therefore objectively least creditworthy) borrowers. Equity benchmarks tend to push investors into owning yesterday's winners – at the high price that their popularity ensures.

The 'wild card' in all this is one Buffett also alluded to – "the ability to keep emotions from corroding that framework". It is worth labouring the point that human emotions evolved on the savannah, not in the dealing room. As fund manager Chris Clarke points out, fear and the likes of the fight / flight mechanism were the human evolutionary response to threats like sabre-toothed tigers. Humans have been running to and away from four-legged food sources (and sharp-fanged threats) for hundreds of thousands of years. Financial markets and the to and fro of securities price action have been with us for a few hundred years at most – we have not yet developed any evolutionary response, so the brain's reaction to losing money on an investment that might yet come good is often crude and counter-productive. In the words of Sir John Templeton,

 "To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward." 

And in the words of John Maynard Keynes, 

"It is the long-term investor, he who most promotes the public interest, who will in practice come in for the most criticism. For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion." 

So be long "pretty much everything", or be long a considered array of carefully assessed and diverse instruments of value. It's a fairly straightforward choice.

Buy gold at the lowest prices in the safest vaults today...


Source : http://goldnews.bullionvault.com/value-bubble-121120135