"The rich old speculator Bernard M. Baruch forehandedly bought gold and gold shares after the 1929 Crash. Years later a suspicious Treasury Secretary asked him why. Because, Baruch replied, he was 'commencing to have doubts about the currency.' Many are beginning to doubt the the strength of the dollar as they well might. Following Baruch's example, they should lay in some gold as a hedge." -- James Grant, Grant's Interest Rate Observer
Question. What kind of gold should I buy?
A. 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 a question of our own: "Why are you interested in buying gold?"
If your goal is simply to capitalize on price movement, then bullion coins will serve your purposes. If you are interested in long-term asset preservation and you have additional concerns about capital and/or monetary controls -- a more complicated scenario -- then you might want to include the lower premium variety of pre-1933 European and American gold coins in the mix. These have been treated by the U.S. government since the 1930s as historical items, and, as a result, afford the privacy-minded investor a greater degree of safety than gold bullion.
But what I just gave you is a rough sketch. To develop a more refined strategy, we recommend spending time with your broker here at USAGOLD-Centennial Precious Metals. We can help you design a portfolio capable of weathering these uncertains times and in keeping with your long-term goals.
Q. When should I buy?
A. The short answer is 'When you need it.' You cannot approach gold 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. Once you answer that question in the affirmative, there is no point in delaying your actual purchase. The real goal is to diversify so that your overall wealth is not compromised by economic dangers and uncertainties.
Q. Why not wait for the necessity to arise, then buy gold?
A. During the course of last year, when concern about the financial crisis was peaking, there were periods of gold coin bottlenecks and actual shortages. The national mints could not keep up with public demand, and the flow of older gold from Europe was stymied by accelerating demand both there and in the United States. Premiums shot-up and a wild scramble developed for the available gold, even at rapidly escalating prices.
These events pointed up some of the problems inherent to the contemporary gold market. During times when demand for is booming, you cannot call the warehouse and order gold coins like you can most other consumer items. Even running at full capacity, the manufacturers (the national mints) cannot keep up with demand surges like the one we had in mid-2008 and again in early 2009. In the case of the older coins coming from Europe, the supply simply dries up because, to make a long story short, they aren't making them anymore. As a result you cannot treat a gold acquisition the way you do ordinary consumer purchases. Though your need may be great, the supply might simply have disappeared.
Q. You frequently mention gold as insurance. What do you mean by that?
A. Those of you who have read my book, The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold, know that gold's baseline, essential quality is its role as the only primary asset that is not someone else's liability or responsibility. 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 that book 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."
This is precisely what people learned during recurring economic crisis situations over the centuries as well as in contemporary meltdowns such as Mexico's in 1994, the Pacific Rim's in 1997, and the United States' slow motion crisis from 2001 to present. If you consider what investors lost in the U.S. stock market over the last eight years and what gold investors gained during the same period, the swing in the net wealth effect is astonishing. When push came to shove, those who owned gold understood what we mean when we say "gold is bedrock." To reduce this to a course of action: Diversification is important.
Q. What percentage of my assets should I invest in gold?
A. Once again the answer is not cut and dried, but a general rule of thumb is 10% to 30%, and once again your broker at USAGOLD-Centennial Precious Metals can help you make the decision. How high you go between 10% and 30% depends upon how concerned you are about the current economic, financial and political situation.
Q. Can you give us a profile of the typical gold investor?
A. Traditionally, wealthy, aristocratic European and Asian families have kept a strong percentage of their assets in gold as a protective factor. That same philosophy has taken hold in the United States in recent years, particularly in light of the on-going financial crisis. Our clientele represent a cross-section of America and Europe, but the heavy buying is concentrated in the professions and among people who own businesses.
Beyond those baseline markets, one of the fastest growing gold demographic groups is inherited family wealth. Contemporary heirs often have a stronger impulse to diversity with gold than their parents or grandparents did. They have lived through a period since the early 1970s of persistent decline in purchasing power and recurrent financial bubbles. Along the way, they have learned a few lessons about contemporary portfolio management. We have helped many family groups and trust funds diversify substantial investment holdings into gold coins and bullion.
Q. In your book, The ABCs of Gold Investing, you start the chapter by saying "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 is very important to pick the right firm. An experienced and reputable gold broker can help you choose the right gold product mix to hedge your portfolio, make sure the prices you pay are in line with market expectations, and help you in general with the decision making process. Also, the right firm -- one with proven logevity -- will most likely be around to help you liquidate all or part of your holdings should the need arise.
Q. Can you briefly describe what you believe to be the biggest mistake investors make when starting out as gold owners?
A. 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 (often costing five or six figures). These have little to do with safe-haven investing, and most investors would be well served to avoid them -- except as a sideline.
Q. What is your view of gold stocks?
A. 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 itself. 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 gold ownership.
We cover some the differences between gold stock ownership and metal ownership in "The Differences between Owning Stocks and Owning Metal" so I won't go into the details here. Suffice it to say that gold stocks are stocks first and metal second.
Q. What about gold futures contracts?
A. 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. Please summarize: What is the best approach for the safe-haven investor?
A. 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.
Sources : USA GOLD