It was almost like I was able to manipulate the market. As soon as I posted my blog 2 days ago stating that I thought gold was a bit overbought in a short-term, the gold price dropped quite a lot the next day. Of course I’m kidding and the perfect timing was simply a coincidence. But I think this blog becomes more timely now as the buying opportunities may come any time now. If you follow my blogs closely, what I’m going to tell below should not be anything really new to you. But maybe still a good idea to summarize the key methods here with respect to investing in gold.
Buying physical gold: If you have never done so, it is the most important action to buy some physical gold. As I said, treat it as saving instead of investment and simply forget about it as your saved money. You will be really happy over time if you do that now. Two basic ways:
- The safest way is to buy gold bars or coins if you can and store them somewhere no one else knows about. In Canada and China/Hong Kong, you can simply go to the major banks to buy them without any problems. Unfortunately I’m not aware of any US banks selling gold bars or coins directly. You probably have to order gold coins from the US Mint (controlled by the US government) or some coin dealers you trust. I bought a few gold coins from the US mint when they first issued pure gold coins called American Buffalo back in 2006 I think. The official price was $800 per coin (1 oz) but since they were promoting them, I got some good discount (12%) to buy them at that time. Right now this gold coin is trading in Ebay at a price around $1800. I’m afraid you will not see any such deals from the US Mint anymore due to the high demand nowadays. But still, if you can find something with a premium (i.e. the amount you pay more beyond the gold spot price) within 5%, I think it would be a good deal. I will only be interested in the pure gold coins (> 99% purity).
- Alternatively you may buy physical gold via EverBank. I see this as the best alternative option available in the US if you cannot buy physical gold directly. Check its website under “WorldMarkets” for details. An economic way is to buy unallocated gold, for which you save the storage management fees. I really like EverBank and think it is one of the best and safest banks in the US. I have also bought some unallocated gold in my EverBank account. Easy, simple and profitable as well. Please note: regardless of what you will do, don’t buy gold jewelry products for this purpose! You will pay too much for the processing fees unnecessarily and you will not get them back at all when you sell eventually. It will really not keep its value as you’d like as money.
Buy paper gold: I call them paper gold when you buy gold via funds. Although the fund values should largely reflect the gold price in some proportion depending on the setup of the fund, you don’t really own the physical gold. That’s why I call it paper gold. Some funds have claimed that they have physical gold backed up but I’m not sure you can actually authenticate it. So the risk is always there that you may not have bought the real gold value as you would have thought. That’s why I treat paper gold as investment, not as saving, and the appropriate caution for any investment should always be applied, e.g. using a trailing stop loss to protect your principle capital or profits. There are many such funds out there. Personally I have invested and traded significantly via GLD (an ETF fund) with very good profits. I haven’t encountered any issues so far for 2-3 years with this ETF and will continue to do so as a trading vehicle. It has largely tracked the gold price movement consistently on a daily basis. So you can trade it just as any other stocks. For my Canadian friends, there is a mutual fund called PHY.U (Sprott Physical Gold Trust), which I think is also a good way to buy paper gold. But I must say this fund is relatively young and I have very limited personal experience. I just know the founder of the fund is a veteran investor for precious metals with a great track record in the past decades, someone I can trust. It is also traded in the US with a symbol PHYS.
If you are a bit more aggressive and want to catch up with the lost time, there is a double long ETF for paper gold, symbol DGP. I bough a small position of it about 2 year ago and it has largely done what it is supposed to do, to track the gold price in 2:1 ratio (of course not always exact). It has increased by about 230% since I bought it. I was too conservative at that time and my position was too small. I’m thinking to add more to it when the time is right. Be careful though, it is much risky than GLD since when the gold price drops, it will also go down with it twice as much. So it is not for someone with very little tolerance of volatility and only hope to simply grasp a quick profit. It may be painfully against you in short term if you don’t get in at the right time. Over time though I’m very confident it will be doing great with the long term bull market of gold.
Gold mining stocks: As I recently discussed, gold stocks are actually very cheap in terms of their valuation relative to the gold price. In the normal time, gold stocks should appreciate much faster than the gold price itself, but at the moment they are very much lagging behind. Since I wrote about 2 weeks ago, gold stocks in general have jumped up with gold for about 10% or so. They may retreat a bit but overall they are still cheap. I like a few gold stocks as discussed before. For the example I wrote regarding GoldCorp (GG) options, I have already seen the maximum profit ($4.5 per share), for this specific setup, with GG trading at the price around $55. I have two choices at the moment: either take the max profit and waiting for the next opportunity or I decouple the setup by closing the position of selling the call options. This way I can leave my long call positions for unlimited upside potential. Given that I think gold stocks are cheap at the moment, I’m more inclined to doing the latter to capture the future potential.
Of course, gold stocks are more risky than paper gold, although with high potential for return. If you want to be relative safer, go with the ETF fund, GDX, which is much less risky compared with individual gold stocks. I have significant positions with GDX as well and again with great profits after a few years of holding. My recent GDX positions have also started to show good upward trend since I got in a couple of months ago.
Friends, if you are still among those with doubt about the gold and silver bullish trend, please wake up to face the reality now. You got to do something with your hard-earned money to protect your future life. I hate to see my friends being among those who would only regret why they did not take action earlier when they saw a huge depreciation of their assets down the road. It is inevitable if you don’t take your action now! Mark my words!!
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