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- Gold Price Gains and Losses over the Last 3 Months
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- How is the Price of Gold Today Determined (5.00 out of 5)
- How to Buy Gold Coins (5.00 out of 5)
- Still a Good Time to Invest in Gold? (5.00 out of 5)
- IRS Invades Privacy of American Investors (5.00 out of 5)
- Selling Price of Gold Coins (5.00 out of 5)
- India to Buy More Gold from IMF (5.00 out of 5)
- Is this Gold Bull Market Over? (5.00 out of 5)
- When to Buy $20 Liberties and $20 Saint Gaudens? (5.00 out of 5)
Archive for February, 2010
5 Reasons why Gold is a Good Investment Today
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1. Hedge against inflation
2. Hedge against a collapse of the U.S. Dollar
3. Bull Market
4. Diversification
5. Store of Value
Probably the number one reason why people are investing in gold today is due to a fear of inflation. Central Banks around the world have turned on the money spigots and began flooding banking markets around the world with liquidity. This has scared many people and rightfully so. Once all of this liquidity hits the hands of the people we are in for a serious bought of inflation, maybe even hyperinflation. I have read some statistics that have said that the Federal Reserve (which by the way is a private bank) had doubled the money supply in a year’s time. It will be difficult for the Fed to draw back in all of that liquidity. Although they want you to believe it will be easy for them. When inflation hits gold prices will continue to rise.
Some people are even more concerned that the U.S. dollar will not only hyper inflate, but that it will eventually collapse and become worthless paper. We have seen this happen many times throughout history, the most recent being Zimbabwe. Their currency was declared dead in April of 2009. Citizens of Zimbabwe began digging and panning for gold in order to scrape together enough grams of gold to be able to provide for their families. Gold goes a long way under these circumstances.
On a more positive note, gold can be played purely as speculation that the price will rise. We are in the middle of the 10th consecutive year of price appreciation. This is a strong bull market for gold, and many experts are calling for gold to reach $2,000 to $5,000 per ounce before the cycle ends. Therefore, putting money into gold now, if the experts are right, can be very lucrative.
Gold is always, first and foremost a portfolio diversifier. Gold typically performs better when stock, bonds, dollars and other paper assets do poorly. However there are times when gold does well in conjunction with paper assets, but typically gold and other precious metals will compliment your paper assets nicely, giving you appropriate diversification.
Gold has always been a store of value. For over 5,000 years gold has been coveted and treasured. Gold will never be worthless, while any paper asset can be rendered worthless under a variety of circumstances. Now gold can definitely decline in value but it will always be worth something. Governments and countries can collapse and companies can go bankrupt which would then render those respective paper assets worthless. Gold has no debt or any other encumbrance or decision maker attached to it other than you.
These times are proving to be the perfect time to own gold.
Is there a Current Floor to the Gold Price?
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Gold has been of value for over 5,000 years. Civilizations have risen and fallen, currencies have come and gone and yet gold still is coveted by people all around the world. Gold has never been worthless! It has always had some value to it; therefore it is different than most other asset classes. Stocks, bonds and paper currencies for example can all become worthless at some point.
But is there a floor under the price of gold? The simple answer is no. I am assuming that this question is pertaining to the government. Neither the U.S. Government, nor any other government has a floor price on gold. A floor price being the minimum a person or institution has to charge for it, or the lowest possible dollar amount it can fall to. Gold can free float as high or as low as the market’s action will allow. So the price is determined primarily by supply and demand. But there are technical tools that can help us understand the price action of gold.
This leads me to believe the question is this: what is the current support level on the price of gold? Most assets trade between support on the bottom and resistance on the top. These two figures are determined by previous market action. When an asset breaks a resistance level, that figure then becomes the new support level. The current support level on gold is $1,017 which was the last resistance level. The resistance level at the top is $1,218. Gold has not tested that level since it was set in December of 2009. In addition, recently gold has had difficulty breaking $1,045 on the bottom (the price at which India bought 200 metric tonnes from the IMF) and the $1,120 mark on the top. So I am calling $1,045 to $1,120 a smaller trading range within the technical trading range.
Should gold go below $1,045, look for it to test the $1,017 level. If gold breaks the $1,120 level on the top look for it to test the $1,218 mark. If gold should break the $1,218 level that would then be the new support level with the new resistance level being unknown because it has never been higher. If gold should break the $1,017 support level that would then become the new resistance level and the next support level would be around $1,000.
Technical language can be confusing, so if I have done so I apologize. In the simplest form, the current support level is $1,017 and the current resistance level is $1,218.
Gold Price Gains and Losses over the Last 3 Months
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The price action on gold has been hot lately. Gold closed at an all-time high on December 2nd of $1,212.50 per ounce. The price action prior to that was climbing almost daily from the $1,050 mark. After it reached the high of $1,212.50 it slowly made its way down to test the $1,050 support level. It came close to this support level but never broke it. It closed at around $1,058 on February 5th and since then has steadily climbed to where it sits today of $1,112.
The up and down market action can be scary for your average investor. This is why I always say, if you are not a day trader then you do not need to pay attention to the daily market action. What you are looking for are trends in the market. Trends are what tell you what to do in the long-term. Trends should guide your strategy. If you look at a chart of gold from 2000 to present you can see a long-term positive trend. It started at $252 per ounce and has been climbing ever since. Sure there have been some big corrections along the way, buy that is what you want. Ups and downs are a sign of a healthy market. If you were watching the daily market action you might have sold out too early. This is why trends are so important.
Take March of 2008 to November of 2008 for example. Gold rose to an all-time high of over $1,000 per ounce and steadily fell to $709 per ounce. Had you have sold out because of the downward slide, you would have missed out on the following upswing. As for the current trend, everything is pointing towards a continuation of the upward trend. Two of the biggest factors playing into the future of the gold market are the U.S. Dollar and normal bull market cycles.
The dollar has been in a steady demise for a few years now, and with all of the money printing going on with the U.S. government I don’t think it will be going strong anytime soon. I have written many times in this blog about the three phases of a bull market which I think is also a big factor contributing to the positive trend in gold. Many experts are calling for gold to hit $2,000 per ounce this year and $4,000 to $5,000 per ounce before the trend is over.
When to Buy $20 Liberties and $20 Saint Gaudens?
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The old adage says that timing is everything. Or that one should always buy low and sell high. With rarer issues of $20 Liberties and $20 Saint Gaudens, timing isn’t necessarily everything. Now, you can always buy rare gold coins in the dips in the market which will always produce better results over the long-term, but rare gold coins have proven over time to have performed very well, consistently. It should be noted that if you picked up some of these coins in 1989, which was the peak of the last bull market you would not have recovered yet. But if you look at a chart of mint state rare gold coins from 1970 to present, you can see that if you bought at any other time you would be doing fairly well.
Incidentally, we are currently experiencing what I believe to be a temporary low in these coins, which I presume will be a great buying opportunity. But where we are in the trend cycle I feel that we have many years to go before this market tops out.
Because of the high gold content of these coins, each Liberty and Saint-Gaudens Double Eagle contains .9675 ounces of gold, they will never be worth zero. Gold has never been worthless. This gives their owners an added layer of protection.
In addition, these types of coins are scarce. For example, millions of 1 ounce American Eagle coins are minted each year. Whereas PCGS and NGC estimate that somewhere around 1.5 million 1 ounce Liberties and Saints in a 62 to 66 grade exist today. This adds yet another layer of protection for their owners.
These coins have been excluded from gold confiscation in the past, and with the dollars extreme weakness, it is thought by many that another gold confiscation is looming. Many experts believe that the numismatics will again be excluded from confiscation if it were to occur. This is another layer of protection.
Due to these factors I believe that anytime is the right time to buy Liberties and Saints. They have proven time and time again, that they are a safe and private way to accumulate wealth over time.
Gold, Long-Term Hold
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When investing in gold you will often hear it called a long-term investment. What exactly does long-term mean? You will typically hear precious metals companies refer to a long-term hold as a period from 3-5 years up to 10 years or possibly more. Where did this come from? It was illegal in the U.S. to own gold from 1933 to 1974, and prior to that gold was pegged to the dollar for 100’s of years. So owning gold bullion as an investment is a fairly new thing. Its track record is currently at 36 years. When compared to other investments that is a fairly short time frame.
If you are reading this blog for the first time then we must pause and differentiate between the two types of gold you can own, bullion and numismatic gold. These two types of gold have different strategies for ownership behind them and different spreads (see previous blog post). These factors will determine length of hold. For more on the different types you can read bullion and rare gold coins.
My thoughts on long-term hold and where it came from is this. When the dollar was removed from the gold standard in 1970 the price action was allowed to free float. The price of gold rose from $35 per ounce to $850 per ounce in January of 1980. That was a fast and significant rise in the value. From there gold fell to its low of $252 per ounce in 1999, with ups and downs all along the way. That was a fairly slow and significant fall. Because gold as an investment is a fairly new opportunity companies want to disclose to their clients that it may take a while to grow your gold’s value. Gold’s recent climb from $252 per ounce in 1999 to $1,115 where it stands today has been a fairly steady rising pace. So if you bought bullion in 1999 you would have realized over a 340% gain.
There are times when it has taken a few years to see your gold grow and there have been times when it would have taken many years to see your gold grow. This is why everyone needs to DIVERSIFY their portfolios.
When comparing the two different types of gold, bullion and numismatics, these tend to perform differently. If you look at a PCGS chart you can clearly see that over the past 40 years numismatics have outperformed gold bullion. This is due to a few factors that make it unique, but mainly it is rarity. Because the cost of doing business is higher, it will take you longer to make up the difference, which is another factor in “long-term.” It should be noted that bullion and numismatics do not move in lock step with each other. In fact from 1987 to 1989, bullion lost roughly 10% of its value while numismatic coins according to PCGS went up over 600%.
The net of this is that sometimes it can take a short period of time to cover your costs of doing business, and other times it can take years. That is why it is noted by companies to think long-term when it comes to gold ownership, because no body really knows. In addition, many people choose gold to protect against a collapsing dollar, and in that case it could be a very long hold.
What does it Cost to buy Gold
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Buying gold coins should be a process of discovery; for you and for you representative. You will begin to discover the ins and outs of owning gold in your portfolio and what it can do for you. On the other side your broker should discover what your goals and objectives are. Items like: are you more concerned with asset protection or growth, are you long-term or short-term, what are your concerns about the future, how much of your overall portfolio do you want in gold, as well as other questions that may arise.
These questions will help you both narrow down to the right type of gold and or silver that is right for you. Once you have a strategy in place it is easy to begin to acquire the appropriate precious metals for you. This can take place in one lump some or your strategy could include a plan to acquire pieces over time.
There are various costs of doing business in each category of gold and silver. Bullion gold or silver, meaning loose coins and bars of a more recent issue, typically can range anywhere between 2-10% on average throughout the industry. This is what is known as the spread. The spread is the difference between retail and wholesale. Typically you will buy at retail and sell at wholesale. Common dated numismatic gold coins with typically rage anywhere between 15-25% and better dated or rare gold coins will typically range between 25-35%. These are averages; some can be higher or lower depending on the company. Make sure to choose a company that discloses their spread verbally and in writing and that it is clear exactly what their spread is (not a range).
Do not be afraid of high spreads! You want to use the right tool for the right job. That might mean owning rare gold coins which fetch a higher premium. This type of gold has outperformed gold bullion in the mint state rare category (according to PCGS) close to 4-1 over the past 40 years, and has some other very important benefits that other types of gold do not have. This type is a typically a longer term hold. For these reasons it is important to understand your options and your goals, in order to apply the right tool for the right job.
Gold as a Store of Value
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Gold has been around for over 5,000 years. It has been treasured by individuals, kings and civilizations for its beauty and intrinsic value. It has been used for trade and as a currency for many years throughout history by many different countries. Gold has always been used in jewelry and for artistic purposes. But the main point is, it has always been a store of value and always will be.
Gold’s value comes from its rarity. Anything that is sought after that is rare is valuable. In fact, some estimate the world pours more steel in an hour than it has poured gold since time began. All the gold in the world could be compressed into a 20-yard cube, which is about 1/9th the mass of the Washington Monument.
This financial storm has created a lot of demand for gold, just like many other financial crises have. As demand heats up the values rise. This is a simple rule of economics. However, because gold is of limited supply, its values will rise faster than that of something that can be massed produced. It should be noted that more gold is added to the market every year through mining, but peak gold production has been achieved. A mining company used to be able to extract 12 grams of gold from 1 ton of ore. Now the average is 3 grams per ton of ore.
People always wonder if gold will ever be worthless. It has never been worthless, and I do not believe it ever will be. It is the first true money. It cannot be printed into oblivion and it cannot be destroyed. Thousands of currencies have failed over history, but gold has stood the test of time. It is truly the choice for a store of value.
Bullion Bars & Ingots
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Gold is the hot topic right now. You can see ads for gold all over the web, radio, print and TV media. This increased awareness is due to a bull market that is in the middle of the second phase of three phase bull market. Gold has gone for $252 per ounce in 1999 to $1,063 per ounce where it sits today. That is over a 300% rise in value.
When people think about gold their minds usually go to jewelry. Most Americans own some form of gold jewelry, however very few people own gold as a financial asset. Some estimates put this figure somewhere around 3%. This will change as the market continues to heat up. As we enter the third phase gold could go up even more dramatically. Some experts are calling for $5,000 per ounce before the bull market is over.
Once someone begins to think about gold as a financial asset, they typically think about pure gold in the bar form. Sometimes people think about bullion coins, like American Eagles but pure gold is where the novice goes, even though bullion bars and coins are for the most part the same thing.
One confusion is the difference between bars and ingots. Bullion bars are virtually the same thing as bullion ingots. The only difference is that ingots are formed by pouring molten gold into a mold and chilled until solid, whereas bars are minted from blanks that have been hand cut into the proper dimensions. Markings are almost always applied by whoever formed them.
Which is better to buy? That depends on which one is the cheapest. Gold is gold when it is in the pure form. Typically the larger the quantity bar or ingot you buy the lower the premium you will pay per ounce. Therefore don’t get hung up on bar vs. ingots. When it comes to pure gold for inflation protection or price speculation buy the cheapest bar or ingot you can.
Gold Coins with Motto and without Motto?
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The motto on our gold coins is “In God We Trust.” This motto was added during the civil war and appeared on most of our “Liberty Head” coins from 1867 to 1907. In 1907 Theodore Roosevelt decided to have our gold coins redesigned in order to create a more beautiful coin, like those of the ancient Greek and Roman cultures. This coin is called the Saint Gaudens coin, after its designer Augustus Saint Gauden.
During the design process, Roosevelt asked that the motto be excluded. He knew that the men who used them in the West, were using them in brothels, saloons and gambling and thus he felt that the Lord’s name should not be associated with these activities. He expressed this feeling to reverend Roland C. Dryer in a letter dated November 11, 1907.
“My own feeling in the matter is due to my very firm conviction that to put such a motto [In God We Trust] on coins, or to use it in any kindred manner, not only does no good but does positive harm, and is in effect irreverence which comes dangerously close to sacrilege. A beautiful and solemn sentence such as the one in question should be treated and uttered only with that fine reverence which necessarily implies a certain exaltation of spirit. Any use which tends to cheapen it, and above all, any use which tends to secure it being treated in a spirit of levity, is from every standpoint profoundly to be regretted.”
Teddy Roosevelt’s wishes were granted and from 1907 to mid-way through 1908 and the coins were minted without the motto. It wasn’t until Congress got together and decided that they wanted the motto on our coins. They felt that it should be known that our nation believed in God and that it should be clearly stated on our currency. In 1908 the motto was put back on, therefore there are St. Gaudens coins that are minted both ways. There exists today a 1907 no motto, a 1908 no motto and a 1908 with motto. From 1908 to 1933 the coins continued to be minted with the motto.
Only roughly 5.2 million Saint Gaudens were minted without the motto, compared to over 65 million that were minted with the motto. This makes the no motto a rarer gold coin in relationship to mintages; however these coins are still fairly easy to acquire. There are rarer issues that exist, for example, there are roughly 10 1933 Saints know to exist.
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