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The ABCs of
Gold Investing
Question:
What kind of gold should I buy?
Answer: 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 coins in the mix. These have been treated by
the government since the 1930s as historical, collector items and,
as a result, afford the privacy-minded investor with 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
representative here at USAGOLD-Centennial Precious Metals. He or she
can help you match the type of gold you buy with your goals. All of
our client representatives are seasoned professionals with
substantial experience. They can help you zero in quickly on your
needs, and make sure you are not going in a direction contrary to
your goals and needs.
Question. When should I buy?
Answer: The short answer is
'When you need it.' You cannot approach gold the way you approach
equity investments. Timing is not really an issue. The real question
is whether or not you feel the need to diversify your present
portfolio with gold. If you feel the need, the best time to start is
now. With rising competition for the limited gold supply from both
nation states -- like China, Russia and South Africa (to name a few)
-- and individuals across the globe, there is the chance that small
investors can be crowded out of the market at some point down the
road. It is better to be a day early than an hour late.
Question. You frequently mention
gold as insurance. What do you mean by that?
Answer: Those of you who have
read my book, The ABCs of Gold Investing: Protecting Your Wealth
Through Private Gold Ownership, know that gold's baseline, essential
quality is its role as the only primary asset that is not someone
else's liability.
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 have discovered during
countless crisis situations over the centuries and in financial
meltdowns in recent history like the Pacific Rim in 1997, in
Argentina and Brazil in 1998, in Turkey in 2002, and in the MidEast
now. When crunch time came, those who owned gold understood what we
mean when we say "gold is bedrock."
Over the years, we haven't altered this fundamental
philosophy about gold ownership. In everything we do at USAGOLD-Centennial
Precious Metals -- from our highly-regarded website to private
conversations with our clientele -- we constantly emphasize this
same fundamental precept of gold ownership. Needless to say, there
are millions of people around the globe, including many Europeans
and Americans, who agree with us on gold's utility in this respect.
Question: What percentage of
my assets should I invest in gold?
Answer: Once again the answer is
not cut and dried, but a general rule of thumb is 10% to 30%; and
how high you go within that range depends upon your analysis of the
current economic, financial and political situation.
Obviously, the individual with a low level of concern about the
current economic situation will tend toward the 10% level. Those
with lagging confidence in the way things are going will gravitate
to the higher end of the range. In recent months, we have had a
number of investors go substantially over the 30% figure based on
their own reading of the economy and the various investment
alternatives available.
In the current investment environment, with yields still
running below the inflation rate and stocks and bonds still suspect,
gold remains a healthy and viable alternative. Many, including even
the die-hard stock investors, still see gold as the most undervalued
primary asset group in the standard portfolio mix. As a result, gold
is getting a lot of attention. Gold is still in the beginning stages
of what many financial experts see as a long term bull market. Since
2001 gold has tripled in value.
Question: Can you give us a
profile of the typical gold investor?
Answer: 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 caught hold in the United States over the years,
particularly in the upper middle class, and there are a number of
investors who add gold to their portfolio on an on-going basis as
part of a regular gold savings program. This has been good for gold.
Most investors, as I alluded to before, acquire gold not so
much because they feel that the price is going to go up, but because
they want to insure their portfolios from destruction related to
currency debasement -- no matter if their currency is the dollar,
euro, yen or reminbi, for that matter.
Our clientele represent an approximate cross-section of
America and Europe, but the heavy buying is concentrated in the
professions and among people who own their own businesses. Those
with family wealth have also moved to diversify into gold in recent
years.
Question: 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?
Answer: 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 -- provide some
direction. It is very important to pick the right firm -- one that
is highly professional, doesn't have a political ax to grind and can
help you choose the right gold product mix to hedge your portfolio.
Unbiased, objective advice from ones gold advisor is key to this
process. So are market information and education. Pricing, product
selection, fulfillment and on-going support also rely on that
relationship. Picking a gold firm will be one of the most important
decisions you make on the road to gold ownership. That's why we
started this website and why it has become one of the most important
gold sites on the internet.
Question: Can you briefly
describe what you believe to be the biggest mistake investors make
when starting out as gold owners?
Answer: 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.
Question: What is your view of gold
stocks?
Answer: 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. Instead, stocks should be viewed
as an addition to the portfolio after one has truly diversified with
gold itself. Gold stocks could actually act opposite the intent of
the investor, as some justifiably disgruntled mine company
shareholders learned in the recent past. We cover some the
differences between gold stock ownership and metal ownership in 'The
Differences between Owning Stocks and Owning Metal' (see link below)
so I won't go into the details here. Suffice it to say that gold
stocks are stocks first and metal second. There is no such ambiguity
involved in actual gold ownership.
Question: What about gold
futures contracts?
Answer: 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 their portfolios
against economic and financial risk, this is a poor substitute for
owning the metal itself.
Question: What is the best
approach for the safe-haven investor?
Answer: 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.
Michael J. Kosares
Centennial Precious Metals, Denver
_________________________________
Mr. Kosares has over 30 years in the
gold business as the founder and CEO of Centennial Precious Metals,
Inc. and is a highly-respected member of the gold fraternity
internationally and a well-known expert in the field of gold. He is
the author of the widely read book, The ABCs of Gold Investing: How
to Protect and Build Your Wealth With Gold; and has contributed
articles to, and has been interviewed for a wide assortment of
financial publications including the Wall Street Journal and
Barron's.
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