Posts Tagged ‘physical gold’
Physical Gold or US Dollars?
You have a personal choice to make everyday as to how you keep your savings. Do you keep it in cash? Stocks or bonds? Do you keep it in a CD or in a savings account at the bank? Or do you keep it in physical gold? When you keep it in physical gold, in your possession, you have essentially removed your money from the system; a system in which you have no control, a system that is manipulated by central bankers and the federal government.
There is a fundamental difference between physical gold and paper assets (or digits on a screen). One is a physical piece of gold that has intrinsic value, and has had value for over 5,000 years. On the other end of the spectrum is wealth that is stored as digits in an electronic account in a computer system. If the dollar collapses only one of these is safe.
The way our government is treating the economy today is massively irresponsible. The more money the government prints, the more the value of the dollar is eroded. It has become obvious over the past few years that the irresponsibility has run rampant. From the dealings of Bear Sterns and Lehman Brothers to the failure of BP to buy a part that could have prevented the mess in the gulf. In the world we live in it has clearly become all about the money. Do you trust these types of people to have your best interest in mind? I think not.
If you own physical gold you are saying I don’t trust the government and the Federal Reserve. If you have money in the system you are supporting that system. Now I am not suggesting that you pull everything out and live off the grid, but I am saying that everyone should own some physical gold for financial insurance. Sure you will probably see great gains by many experts’ expectations, but it is more about protecting what you already have, and building wealth as secondary.
He who controls the assets has the power. Gold coins in your hand or numbers in your bank account, which one is safer? Which one will you choose? Weigh your options, do your research and decide for yourself what makes most sense.
Everything You Need to Know about Gold in Three Sentences
Richard Russell, a prominent financial writer, on July 8th wrote this:
“Fed Chief Bernanke will absolutely not accept deflation… Shrewd gold-accumulators are well aware of this. As the deflationary and deleveraging forces press on the US economy, the Bernanke Fed is ready to devalue the US dollar in its (whatever it takes) battle to hold back deflation.”
Russell sums it up in three sentences:
1. The Fed will not tolerate the growing forces of deflation
2. To combat the deflationary forces, the Fed will devalue the dollar by printing trillions more of Federal fiat money.
3. Once it is realized that the Fed is on the path to devalue the dollar, there will be panic to buy and own gold.
The key to what he has said is “once it is realized that the Fed is on the path to devalue the dollar.” Most of the general public does not realize that this is going on with intention. They don’t realize that every time the Fed prints dollars it devalues all dollars in the system through monetary inflation. It only takes 4% inflation for 17 years to cut the value of the dollar in half! When the general public realizes that the Fed won’t stop printing there will be a mass exodus into gold and the prices will go through the roof; simple supply and demand.
It should be obvious that the Fed hates deflation; they have been inflating the dollar since their inception in 1913. They do this by printing money. This process has been accelerated by the removal of the gold standard in 1971. The Fed can now print money without limitation, thus the reason the monetary supply has increased 2.5 times in 18 months. The deficits are increasing by an average of $4.7 billion per day. But people have become accustom to the inflation tax, so it is just normal.
The new pace with which the Fed is printing money will have massive inflation implications in the long-run and it will be impossible for people to ignore. Own gold now before everyone does. By the time everyone wants in there won’t be enough physical gold for everyone to own in order to protect what they have.
“Sabotaging the System”
Think of all of your monetary wealth:
Checking Accounts
Savings Accounts
CD’s
IRA’S
401K’S
Stocks
Bonds
Mutual Funds
Annuities
Insurance
Social Security
All of these monetary instruments are controlled by computers. Less than 3% of all money in the system is actually printed. That means 97% of US dollars are electronic.
These are the paper assets that you count on to be there when you need them, now and in the future.
Now imagine they are all wiped out in a nanosecond by a cyber attack that erases all financial data and fries the interlinked banking and financial systems.
The public thinks that these systems are impenetrable. Think again. This isn’t science fiction, this is science fact. It has already happened. The US Government’s military defense system was hacked into and controlled for a few days! One banking system was hacked to the tune of $10 million. These attacks are common and worldwide. In this report from 60 minutes in November of 2009, an ex-government official acknowledges the vulnerability of our internet based security.
Scenario, you go to your bank, they have no records. All the bank loans and records are erased the bank has no information of what they owe you or who owes them. Your brokerage account and the stock exchanges have no record of who owns what, and so on down each layer of the financial system. FDIC is broke and they don’t have a clue as to how to restore the system. You’re left with the money in your pocket and any physical gold you own.
Even though this 60 minute segment is old I thought that it is good for us to be aware of. There are a million scenarios that can happen, but if we have a plan we can succeed. Those without plans and protections in place will be in trouble. I urge you to acquire physical gold. Then at least you are prepared for anything.
PART 1 http://www.youtube.com/watch?v=vbOLlNtRcQA
PART 2 http://www.youtube.com/watch?v=lbxRSAFB0TI&feature=related–
Gold ETF’s
A gold ETF is an exchange-traded fund that tracks the price of gold. Gold ETF’s can be found on major stock indexes. One example is SPDR gold trust with the ticker symbol GLD; it is traded on the NYSE. The intention of these funds is to allow investors to invest in the price action of gold. Many of these ETF’s are not backed by gold, or are backed by only a very small amount of gold. The intention here is to speculate on the value of the spot price only. ETF’s will not give you the same protections that owning physical gold will.
How safe is it to own gold ETF’s in today’s economic climate? There are a few items to consider. Bear in mind ETF shares are not actually backed 100% by physical gold, but a combination of gold and a mechanism of derivatives. The actual amount of physical gold an ETF holds is rarely disclosed and covertly disguised in a labyrinth of accounting figures. Try asking a stockbroker what percentage of the ETF is physical gold, and furthermore if you wanted your gold, would you ever get it?
There is also counterparty risk involved in owning gold ETF’s. For example, in September 2008, shareholders in ETF Securities backed by AIG were unable to trade popular commodity securities, due to concerns over the future of their backer AIG. Banks and brokerages actually stopped making markets in the Exchange Traded Commodities (ETCs) backed by AIG, and sold by ETF Securities (ETFS). Consequently the price of the stocks also plummeted over 50% due to the concerns for AIG’s future.
Also remember the physical bullion used to back whatever portion of an ETF is confiscatable by the government. The U. S Government did in fact confiscate gold in 1933 due to extraordinary economic conditions. Should the current economic crisis reach that point again and the government again confiscates gold, the wealth insurance you need most will be taken away.Gold ETF’s can be more expensive to hold than physical gold. With physical gold there is a one-time fee. As opposed to ETF’s where there are many fees starting with one-time fees to buy and sell and annual fees like management expenses, insurance expenses, regulatory fees, exchange fees, accounting expenses, marketing expenses, legal expenses and storage expenses.
Gold ETF’s will give you exposure to the price action of gold, which is great for speculation purposes. What it can’t give you is the safety and security of owning the physical metal itself. Keep in mind physical gold will still give you access to price action.
Those people who decide to buy and own physical gold, their stored value remains more stable than those who own ETF’s. As the value of the dollar decreases, it takes more dollars to buy an ounce of real gold. The “share price” of actual solid gold does not deteriorate as a result of any financial meltdown. Indeed the value of these gold holdings is very likely to go up, and the gold price will continue to increase with the addition of more people seeing it as a safe haven in these stressful times.
Here are some examples of Gold ETF’s traded today:
Ultra Gold ProShares UGL
E-TRACS UBS Bloomberg CMCI Gold ETN UBG
PowerShares Global Gold & Prec Metals PSAU
iShares COMEX Gold Trust IAU
ELEMENTS MLCX Gold TR ETN GOE
UltraShort Gold ProShares GLL
SPDR Gold Shares GLD
Market Vectors Gold Miners ETF GDX
Market Vectors Junior Gold Miners ETF (GDXJ)
Who Buys Gold?
Many people participate in acquiring physical gold worldwide. Some want capital appreciation and others are looking for preservation of principle. It should be noted that gold is foremost a form of financial insurance for the paper assets in your portfolio. This is because gold and paper assets generally have an inverse relationship. Meaning when stocks go down gold goes up. However there have been periods when stocks and gold have risen together.
The types of buyers of gold are diverse. From foreign central banks and governments, to large institutional buyers and individuals looking to protect the money they have. Most buyers of gold today are concerned with the current economic situation worldwide. The main concern in the United States is the erosion of the U.S. dollar. On a side note, as the dollar becomes weaker the value of gold rises so everyday that the dollar weakens a portion of the rise in gold is attributed to gold being priced in dollars. Another portion of the rise in price is supply and demand.
Anyone who is concerned with the weakness in the U.S. dollar is your main buyers of physical gold today. India recently purchased 200 metric tones of gold from the IMF, and sited their concern with the U.S. dollar. There are those that are buying gold for growth in their portfolio as well. Those institutions and individuals that want to capitalize on the appreciation potential that we see ahead.
There are other reasons why people acquire gold:
1. High inflation, or the fear of high inflation
2. Turmoil in stock markets
3. Spiking interest rates
4. Oil and other commodity price shocks
5. Banking crises
6. International loan defaults and other debt crises
7. Geopolitical crisis
Gold generally performs well in all of these circumstances. Those that own gold in their portfolios have to decide how much to own. This is the trickiest part because you have to determine what your goals, objectives and concerns are. If the dollar was to be devalued by 50% one would need to own 33% of their portfolio in gold to offset the losses in their paper assets (this is obviously grossly overstated, but meant to give general understanding). Many governments and individuals own gold, and as the trend with the dollar continues more people will buy into the gold market, driving values higher.
Are Gold Stocks Better than the Physical Metal Itself
Are Gold Stocks Better than the Physical Metal Itself? I personally do not believe so, but there is a tool for every job inside of any portfolio. But let’s look at some interesting points:
1. There is no one between you and physical gold (unless you have a company store it for you)
2. It cannot disappear due to creative accounting
3. Company’s cannot mismanage it
4. Gold cannot go bankrupt like a company
He who controls the asset has the power. Consider that if you have an asset in your possession, that no one has more control than you. For that very reason alone, physical gold is better than paper. But let’s look at gold stock performance in the past compared to the Dow and physical gold.
Gold stocks do not follow the physical metal exactly. “The performance of gold stocks at the end of 1987 should serve as a reminder to investors that these issues are still stocks and vulnerable like other equities during bouts of market weakness,” said gold fund portfolio manager at United Services in San Antonio, in the Investor’s Business Daily.In October of 1987 following Black Monday the Dow lost 41%, falling from 2,746 to 1,616. During that same period gold stocks (XAU), lost 46%, falling from 157 to 84. During that same period physical gold rose over 18%.
Following these initial losses in the Dow and gold stocks, gold stocks stayed down longer than the Dow. In fact the XAU finished 1988, over one year later, virtually unchanged while the Dow recouped close to half of what it lost. Over a 26 year period the Dow fell by 10% or more over 25 times, while gold stocks fell by a larger percentage and more often.
Performance isn’t the only consideration. Gold mining companies can go bankrupt for a variety of reasons, rendering their stock worthless.
If the paper dollar fails you have something in your possession that can be bartered with or exchanged for any other currency on the planet.
Finally, physical gold is portable, therefore can go with you anywhere you want. For these reasons I like the physical metal in my portfolio over any other form of gold.
Is Gold a Good Investment?
Gold is a great investment! Gold is a tool that needs to be used in your portfolio for its intended purpose, which would be different for every person. You need the right tool for the right job. Sure gold can be used in anyone’s portfolio as an inflation hedge, but gold can do much more for you than that.
Gold is firstly financial insurance; to hedge your portfolio during times of financial setbacks suffered by paper assets i.e. a falling dollar or a collapsing stock market. However gold can also be added to any portfolio for the following reasons:
1. High inflation, or the fear of high inflation
2. A decline in the U.S. dollar or other key world currencies
3. Turmoil in stock markets
4. Spiking interest rates
5. Oil and other commodity price shocks
6. Banking crises
7. International loan defaults and other debt crises
8. Geopolitical crisis
Gold in your portfolio can offset losses during down times or can even grow during prosperous times. Gold has gone from $252 per ounce in July of 1999 to $1,050 per ounce where it currently is today. That is over a 300% gain in 10 years! Some of this thriving came during the dot com bust, but some of it came while the Dow was climbing from 7,286 in October of 2002 to 14,164 in October of 2007 where it topped out.
There are a couple different ways that you can own physical gold; there is gold bullion and U.S. rare coins also called numismatics. These two types will provide different tools for you portfolio. You can acquire for strictly asset protection, or you can acquire for growth. You should consult a professional gold consultant to help you determine what will work best for your goals and budgetary parameters. Like I said earlier each person is different so working with a professional is highly recommended. As for the question is gold a good investment, I think the performance over the last 10 years speaks for itself. Many experts agree that gold will continue to rise in the future.