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Buy gold while gold price is still low

Thu Oct 12, 2006 10:10PM | By Tony

See more in Personal Finance | Permalink | Email | Comments (0)

The gold price is at $589 as I am writing, and I think this is a nice buying opportunity. My wife calls me Leprechaun, and even though I am not Irish, I like the comparison with the little green villain. Just like him I want my 100 gold coins, but instead of Shillings, I go for American Eagles and Buffaloes, Chinese Pandas and Canadian Maple Leafs. There are others to pick from, but the point is to buy a coin, gold coin.

In my opinion, and I did a lot of research, the mighty dollar will fall and fall bad. So I want few gold coins for a rainy day, or rather days, as we have many rainy days ahead of us, again in my humble opinion. Consider these gold coins an insurance. You must buy insurance to be able to drive. You pay the premium for the 6 months, and hope you never need it. After 6 months, it is gone, so you buy another 6 months worth of coverage and so on. Gold on the other hand will always have some value, and likely a lot. I think it will go up significantly, while insuring you against the uncertainty of the US dollar.

In historical terms, the price of gold today is rather low. As you can see from the chart below, in January, 1980, gold price went to all time high of $850. The gold price at that year end was about $590. In today's money the corresponding number must be considerably higher.

Now to the Federal Reserve. The Fed can't continue upping the interest rate, as that will bring the already slow real estate and mortgage business to a standstill. But lower interest rates will weaken the dollar further, and the gold will go sky high.
If the Fed keeps raising the rate to keep the dollar strong, then not only housing but also stock market will fall as the cost of conducting business will increase. Gold will become that safe heaven for many investors and will go up still. So gold is positioned well in either case.

We print plenty of dollars in US, and it has been accepted by every one in the world, but this is about to change I am afraid. Many oil producing countries will switch to another, "harder" currency, if dollar continues losing its buying power. That currency could be euro, gold or what have you, but if this happens, the dollar value will erode even more.

It has gotten to the point that according to some, including CNBC, "the storage currency of choice among drug traffickers, arms dealers, and the Russian Mafia had switched from $100 dollar US bills to €500 Euro notes". And as you can see from this article, this is not good at all for the US economy and dollar.

You can buy gold at your neighborhood coin shop. Make sure that the owner buys it back, and virtually all of them do. That what I do. If you prefer, you can trade via Internet. A friend of mine bought his first gold coin at American Precious Metal Exchange, and it worked out just fine. You can talk to them on the phone if you have questions.

The gold has been in very long-term bull market. The price hit $725 in May. As with many bull markets, there are corrections, even when fundamentally nothing changes. We are in the last stages of the rather furious correction, it can't last much longer.

While there is a small chance that the gold price will go further down, the situation in the Middle East and North Korea makes it a rather distant possibility. Oil prices are going to rebound as winter is coming, and OPEC will likely cut production. With that in mind, it always better to buy physical gold vs. gold mining company stocks. You can put it in a safe deposit box or insure it, and have some piece of mind in these uncertain times. Also visit Swiss America if you want more information.

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