Gold investment advice - how to invest in gold : Bad Credit Advisor

Gold investment advice - how to invest in gold

The purpose of our gold investing category is quite simple and straightforward - to provide you with the clear and one you can use gold investment advice. We do not sell gold here or other precious metals. All we strive for is to help you navigate among many often contradictory gold investment opinions, newsletters, sites and books. The advice we are giving here is primarily for those who are looking to invest in physical gold. Sure, we may touch gold stocks, futures, mining warrants, ETFs and what have you, but the main emphasis is by far on gold bullion and gold coins. We will occasionally mention other precious metals and even some commodities, but this is the category to get timely information and advice on physical gold investment.

Never mind how to invest in gold for now. The first question we need to answer is why would you need to invest in gold. While everyone is aware of stocks, stock options, bonds and even annuities, the ignorance of an average person when it comes to investing in gold is simply mind boggling. And this is after gold basically quadrupled in price in the last 10 years and with many commercials running on TV and radio. Before you dismiss such 10 year gold performance as rather insignificant - it has only quadrupled in 10 years, while many stocks increased ten fold, take a deep breeze and look at your 401(k) and IRA. After recent stock market fiasco, the former probably looks like 201(k) and the latter now stands for I'm Really Angry. The old stock investment advice of Buy and Hold just got you toasted, didn't it? Those who bought some gold, however, are feeling rather good. And if you are new to this blog, we were recommending gold some three years ago, October 2006 to be exact in Buy gold while gold price is still low. Then, gold ounce was selling under $590 USD.

My aunt has sold her house reasonably well, considering what has been happening with another Buy and Hold investment, and cleared close to $250,000 in tax free profit, after living in the house for 11 years and digging into home equity few times. When her husband thought out loud at the family dinner on what to do with the money, I gave him an advice - to invest in gold somewhere between $50,000 to $75,000. The price was in the low $800 then. My aunt exact words were - Gold? what do you mean invest in gold? He invested into it 30 years ago marrying me. I am gold. It would have been quite funny, hadn't that been quite sad. Here are two highly educated and intelligent persons in their sixties, who accumulated close to $200,000 in stock market losses over the time, own a worthless piece of swamp in central Florida which they bought in 1986 or 87 as would be great thing, and were very lucky to sell a piece of a lake front in Indiana for only $20,000 less than they paid. And here I am, giving them a free and sound gold investment advice, and they are laughing.

In a nutshell, here are the most common ideas on how to invest in gold.
1. Investing in gold mining companies by buying the stock. This is the least pure way, because gold mining companies can range from large established enterprises with massive gold reserves to the tiny junior companies that owns some land but don't know exactly yet what is in the ground. There are many of those traded on Canadian stock exchanges. You have to deal with all different kinds of costs, including energy, equipment, mining licensing, labor, cost of extraction and most importantly with what are the proven gold reserves. While stocks of some companies, juniors in particular, can offer tremendous gains, the risks are also quite significant.

2. Next gold investment advice is about exchange-traded funds or ETFs. According to Investopedia.com, exchange-traded fund is "a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange." So a gold ETF track a basket of gold mining companies, or the gold itself. The SPDR Gold Shares ETF (GLD:NYSE) is probably the most liquid in gold and tracks the share price of gold and is partially backed by the actual metals. You can move in and out of gold like stock, taking profits when the gold price goes up without worrying about costs, like energy and equipment, mining licensing, labor, as with mining companies. The most important thing here is liquidity which allows you to buy or sell without any problems.

3. Investing in gold futures. This is the gold investment for professionals. Take my advice and stay away from futures market. There is always a risk of the commodity price moving drastically against you, so you can incur significant losses. Yes the rewards can be very, very impressive, but please, stay away and here is why. According to The World Gold Council, "Futures prices are determined by the market's perception of what the carrying costs - including the interest cost of borrowing gold plus insurance and storage charges - ought to be at any one time. The futures price is usually higher than the spot price for gold. ... Gold futures contracts are firm commitments to make or take delivery of a specified quantity and purity of gold on a prescribed date at an agreed price." When you buy a futures contract, you must only deposit a fraction of the price of the gold worth. You pay for the full value of the futures contract only when you take delivery of the actual gold. Sounds great if the price of gold goes up, but pretty bad if that price goes down.

4. Buying physical gold. You can invest in gold bars and/or coins. The only fee you pay is a dealer premium when you buy. This is the straight forward and sure fire way. You don't have to pay any fees, like you do with the gold ETFs, you don't have to pay for a mining companies energy costs, and you don't have to buy 100 ounces in a futures contract if you don't want to. You can buy one bar or coin or 20 in a time. 1 ounce gold bars are the most popular and the smallest size we would recommend, but a 10 ounce bar carries the least premium and the most economical way to invest in gold. Coins are widely available in fractional sizes but once again, you should buy 1 ounce gold coins. Read What gold to buy - gold coins to buy.

You can also read,
Gold investing
Why invest in gold when price is so high
Gold Price Direction - Gold Prices Forecast 2009 - 2010
Should I invest in silver or gold? Silver over gold?
Silver price predictions - silver prices forecast 2010, 2011

Sun Dec 13, 2009 10:12PM by Tony | More in Gold Investing | Comments (0)