I have chatted with several goldbugs recently - one can hardly escape their infomericals - and I have had questions regarding my own position on Gold.
Over the past couple of weeks I have had the chance to codify my thoughts on Gold. I also went to a coin store the other weekend to familiarize myself with the buying process.
In conclusion, I think it makes a lot of sense to own gold. The primary reason is that I do not see how we avoid inflation given the constantly churning dollar printing press. Most people agree gold holds its value during times of inflation. Therefore, the question then becomes how should I hold gold and how much of it.
This is where the codification of my thoughts comes in. I think it makes sense to look at Gold as an insurance policy. If it goes up in value then you will have been successful in your battle against inflation. If it goes down in value, oh well, you did not lose a lot of value from other assets.
When I was speaking to a family member who was going to test the waters, I said that if you want to buy some, buy an amount that you would not be upset about if you lost half the value. If you cannot be comfortable with the idea of insurance or paying something for protection that you may never benefit from, then Gold is probably not for you. Also, if for whatever reason Gold does drop precipitously, then you have the opportunity to buy more if you have not blown your spending power up (assuming you still see the inflation or other threat that caused you to buy it in the first place).
There are several ways to own Gold. The easiest for you and me are through the exchange traded fund ticker GLD, which you can buy just like a stock, or physical. Physical is a lot easier to buy than I had expected. A reputable coin store that I went to sold Krugerrands and US Eagle coins. They were one ounce coins quoted as the spot price (about $1,010/oz) plus a premium. The premium was $55/coin for Krugerrands and $65/coin for Eagles, which if you think about it, is a damn high commission.
The argument for the higher Eagle premium is that Americans still like to buy American. I was somewhat wary of the authentication "process." I was just told that the shop eyeballs them and there are very few frauds. So one would need to shop around and make sure this is in fact true. However, if I had a couple of thousand dollars on me, I could walk out with a couple of coins. The shops are far less intimidating than I thought. The staff should be happy to educate you.
I would love to hear your thoughts on inflation protection and Gold specifically. Have a great weekend!
-2outof4
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You are probably aware of my thoughts as I speak about them often, but if not, here they are.
ReplyDeleteI started looking into gold right after our capitalist-loving current president was elected because I saw what was in store for the country. Through my research, I decided on purchasing numismatic, or collectors' gold. This is gold that survived FDR's seizure and subsequent melting of all gold except that which can be considered rare or have collectible value. Pieces that are dated something like 1905 and earlier. See Section 2(b)
http://www.the-privateer.com/1933-gold-confiscation.html
These gold pieces have a much higher price tag than your standard bullion or newly minted coins. Numismatic coins have the inherent value of gold, plus the additional premium from the rarity factor. The reason I decided to go with numismatic over bullion or new coins is that the value does not fluctuate as drastically as the spot price, but seemingly is more resistant to down-tics than up-tics in price. I've witnessed this first hand since the time I made my purchase. When the spot price drops, the value of my gold decreases less than the amount it increases after a similar increase in spot price. The rarity factor also helped in my decision. Something that is rare now is only going to be more rare in the future, especially with the current increase in demand. The rarity portion of the value of the gold I feel like has high potential to steadily increase in the long run, even if the price of gold bullion remains somewhat steady.
Another benefit of buying numismatic is that if the government feels the need to reclaim all the outstanding gold again, numismatic offers you another layer of protection through the clause in the law. Half the reason I bought gold was because I saw our country following some of the same policies that led to/or prolonged the depression, so I don't find that scenario happening again completely unimaginable.
My wife's 401k also allows basically any mutual fund Fidelity has so I also put a small % into their Select Gold Fund (FSAGX) which states is goal as: Investing primarily in companies engaged in exploration, mining, processing, or dealing in gold, or to a lesser degree, in silver, platinum, diamonds, or other precious metals and minerals.
So there is my investment strategy. I bought gold through Swiss America Trading Corporation www.swissamerica.com and was pleased with their service. There are many similar legit companies like them such as www.learcapital.com and www.goldline.com, I just liked SATC the best. Good will treasure hunting everyone.