Investments in Gold and other precious metals

Aegis

jon3001 wrote: »

I'd say the comparison is fine for hard assets you physically own (e.g. gold). But an investments in commodity futures will have it's own returns above spot-price (e.g. roll yield and interest).

More details:
http://forums.moneysavingexpert.com/showpost.html?p=8752285&postcount=48

Ahh, commodity futures. A way to make confusing and high-risk investing even more confusing and possibly even riskier!

wombat42_2

LongTermLurker wrote: »

You need Wombat - he's on a supercycle (gold-plated Harley, I think )

See here http://forums.moneysavingexpert.com/showthread.html?t=1263595

:D:D:A:beer:

sabretoothtigger

Yes lehmans were good at them

Jon has got it right, you got to be floating a pretty big fund to consider gold normally. For example I own 1 gram :laugh: courtsey of some trading sites special offer
Or you could be like !!!!!! and just take the gamble that the market is totally screwed and gold is the place to be right now


FTSE100 vs Gold (futures) over the last year

wombat42_2

Gold is often thought of as a currency as much as a commodity.

jon3001

Aegis wrote: »

Ahh, commodity futures. A way to make confusing and high-risk investing even more confusing and possibly even riskier!

In what way do you find them confusing and high risk compared to equities? Personally I think they're much simpler.

sabretoothtigger

Did Lehmans operate gold future or etf funds

I think the best argument for gold is to just to buy big chains of the stuff like Mr.T because it will be most use if the banks all go broke and the only way to get money is a pawn shop. This has even become partially true in the uk for some recently
Buying fancy future funds would seem to double the risk in this respect. In the past gold jewelry has been popular in asia for this reason I believe

Aegis

jon3001 wrote: »

In what way do you find them confusing and high risk compared to equities? Personally I think they're much simpler.

I understand buying and selling physical substances. I have more difficulty understanding how to trade options and futures simply because it doesn't involve directly trading the commodity in question at a spot price. I'm studying the material I have for investment principles, but still would not like to enter the commodity futures world (or the commodities world in general for that matter) without a lot more knowledge as to how these contracts work in the real world as opposed to on paper.

For the record, I don't trade in equity futures either. Or direct equities. There's far too much for me to try and learn already without trying to become knowledgeable enough to go in to direct holdings or futures without it being pure chance.

This is why I tend to go for mutual investments. That way all I need is a superficial understanding of the assets and a bit of research into the market and the manager.

jon3001

sabretoothtigger wrote: »

I think the best argument for gold is to just to buy big chains of the stuff like Mr.T because it will be most use if the banks all go broke and the only way to get money is a pawn shop. This has even become partially true in the uk for some recently

Certainly there are arguments for having physical possession.

sabretoothtigger wrote: »

Buying fancy future funds would seem to double the risk in this respect.

Depends on your investment aims. Personally I wouldn't bother with precious metal futures. There are ETFs which have allocated bullion (rather than futures) so you don't have the same credit risks. And yes - if you don't trust a major institution like HSBC to look after your bullion in their vaults then by all means take physical possession.

When I was talking about commodity futures I was really talking about diversified index funds that spread the money across things like energy, industrial metals, agriculture and livestock. The risks/rewards are more on par with stocks and they serve a different purpose in your portfolio than precious metals.

I hold both precious metals and commodity futures funds in my portfolio (along with stocks/bonds). They're not mutually exclusive.

jon3001

Aegis wrote: »

I understand buying and selling physical substances. I have more difficulty understanding how to trade options and futures simply because it doesn't involve directly trading the commodity in question at a spot price. I'm studying the material I have for investment principles, but still would not like to enter the commodity futures world (or the commodities world in general for that matter) without a lot more knowledge as to how these contracts work in the real world as opposed to on paper.

For the record, I don't trade in equity futures either. Or direct equities. There's far too much for me to try and learn already without trying to become knowledgeable enough to go in to direct holdings or futures without it being pure chance.

This is why I tend to go for mutual investments. That way all I need is a superficial understanding of the assets and a bit of research into the market and the manager.

Jim Rogers's 'Hot Commodities' book is all the primer you need if you want to buy a commodities futures fund and understand the essentials of what it does. I don't trade direct options/futures either.

Basically commodities are subject to supply and demand which dictates the spot price. Lets say it oil trading at $60/barrel.

Some junior oil firm is getting started with it's extraction project. $60/barrel looks a good price and they want to lock in some profit for when the project is reaching substantial yields in six months. They're concerned that a downturn in the economy will limit demand and affect their profits.

A commodity trader could offer them a contract to buy their oil in 6 months time at $58.50/barrel. This offers the junior oil firm stable profits while the $1.50/barrel is the trader's risk premium. If oil is still trading at $60/barrel in 6 months time the premium represents a 2.5% profit (5.1% annual). Of course oil could be higher or lower than this but in the long run he's making a profit here.

By investing in a commodity futures fund you get access to this activity. As commodity futures expire the money in simply rolled in to new futures so you're always fully invested.

Commodity futures can also be bought on the margin. However the fund doesn't expose you to margin risks. 10% of the money may be used to buy on the margin; the other 90% would be invested in US T-bills earning interest. In the event of a margin call you have T-bills to cover it. This is what's know as a fully collateralized investment.

So you get a return of:

• spot price appreciation (long term inflation)
• risk premium
• interest

phil_b_2

Gold has performed pretty poorly recently IMO. In times like these it is supposed to rocket to the moon, that has been the mantra of almost all gold-bugs for as long as I remember. Yet here we are, in financial crises, and gold isn't really going anywere. It's day in the sun may come though, as things unfold. Who knows.

When ever it threatens to breakout, the rise seems to be countered by a crash.

Check out the various secure stocks on the market at the mo. Many are very low and should almost certainly go up in the medium to long term.