Buying in to Gold

mikeorange7

I'd appreciate a few nuggets of information on how I can invest about £500 in Gold or Gold linked accounts.

Looks like Precious metals are being hyped up all of a sudden and a bubble may happen over the next six months.

From what I have read lately it seems that the dollar is losing it's popularity especially in the far east, and these countries are warning they may sell dollars and buy gold.

I would ask Mr Brown for some Gold dealing advice but then I may as well ask my 10 month old son!!

Many thanks

deemy2004

Problem is that gold is priced in dollars

So a 10% rise in gold with a 10% depreciation in the dollar, means you make NOTHING !

Thats why the oil price hike did not hit the euro zone as hard as it should have done becuase the rise was coupled with a fallign dollar.

cheerfulcat

For smaller amounts I would go with coins. If you were investing more I would suggest a gold fund (which invests in mining shares and related equities) as well.

For coins I use Chard; here's their home page -

http://www.taxfreegold.co.uk/index.html

which includes links to some interesting info. I have been happy to deal with Chard by mail order, if that's any use to you. No other connection.

They sell silver too, btw.

More here about gold and other precious metals -

http://boards.fool.co.uk/Messages.asp?mid=8967030&bid=51297

http://www.thebulliondesk.com/

HTH

Cheerfulcat

mikeorange7

many thanks both. very useful.

cgnao

Best coins are sovereigns, then britannias, as they are UK legal tender and as such exempt from capital gain tax. Effectively they are UK cash. Non-UK coins (as krugerrands or american eagles) and gold bars are not UK legal tender and as such they are liable to capital gain tax.

At the current spot price of £226/ounce,

9 off gold sovereigns will cost you (considering an average dealer's margin of 10%) around £535. The intrinsic gold content would be £478.

2 off 1 ounce britannias would cost you £524. The intrinsic gold value would be £452.

If you bought 100 sovereigns (in excess of £5000) you would probably be able to negotiate the dealer's margin down to around 5%.

However, given that you only intend to invest such a small amount, you might be better off using https://www.goldmoney.com, which is the ONLY, I repeat the ONLY, and I repeat again the ONLY way to invest safely in gold online. I have had an account with them for the last year and are very satisfied. They charge 3% buying commission and 0.1 gold grams (about 70p) monthly storage fee.

Remember gold is a safe haven asset. Its price goes to the moon in financial crises, which is when institutions are likely to go into trouble (debt bubble, does this ring a bell?) and may fail. Therefore stay away, I repeat STAY AWAY, from gold futures, exchange traded funds, unallocated gold accounts and certificates. They are paper gold: you give up your cash and become a gold creditor. If the institution is insolvent, you lose your money AND receive no gold.

As a side note, it is an excellent time to buy gold. It will outperform any other asset class in the financially turbulent years to come. Protect yourself.

deemy2004

I would not say its 'excellant time' to buy gold. Excellant time would have been 3-4 years ago when it was trading at 260, and not 450 its current price.

What's wrong with futures markets ? Afterall they determine the price of gold, without their liquidity gold would be trading at $35 !

And remember gold is priced and traded in dollars so a fall in the $ will devalue the sterling value of your gold by an equal amount, thiis it would need to rise substantially.

Gold Analysis -
the Gold bull market is now going into its 5th year, with little sign that the market is peaking, yet, so does suggest higher prices, thus likely targeting 500, which represents some 11%, now if you bought gold and if the dollar did not fall, then your profit after costs such as commission and storage would be what ?  4 or 5% ? Thats IF you got out at the peak.

For there is one thing to take note of, and that is gold is a volatile commodity its not going to say get to 500 and then stick there for several years. Once the buying stops the sellign will start and it will likely trend over several years back towards $300, but thats for AFTER the peak.

Now if you want to buy a metal, look at palladium

cgnao

Gold is not a commodity. It is true money. Unlike dollars, pounds, euros and others, it is THE ultimate form of payment and not someone else's liability. Governments can't print or inflate gold. Which is why gold is the best store of value known - and it has been for for the last 5000 years.

Gold is at the moment deeply undervalued, yet few understand it. Before the 1929 crash, for every 20 dollars in circulation there was one ounce of gold stored in a vault. In 1933, Roosevelt made owning gold illegal for US citizens and started printing dollars. The dollar was still backed by gold for foreign central banks though, at a fixed rate of 35 dollars/ounce. In the late sixties, to pay for the Vietnam War, the US accelerated the dollar printing presses, but the French got smart and started redeeming their dollar reserves in gold. After unsuccessful attempts to rig the market (London Gold Pool 1968) in 1971 Richard Nixon closed the gold window and stopped the dollar's gold backing. Currencies started to float against each other and the dollar printing presses went into overdrive. There are now 185,000 (yes, 185 thousand!!!) dollars in circulation for every ounce of gold on the planet. Yet gold is still only worth about 430 dollars/ounce. This is an effect of the gold price suppression operated by the world's central bank and the international monetary fund, who surreptitiously lend gold to big commercial banks. The lent gold is then sold on the market to suppress price. See https://www.gata.org for more on this subject. The suppression scheme is ultimately destined to fail because of the finite amount of physical gold available. There are already signs of this. Central bank sales have slowed dramatically, and countries like Russia, China and even Argentina are increasing their gold reserves.

The increase of the gold price has been for the last four years mainly a dollar phenomenon. I.e. gold has gone up much less in pounds, euros and very, very little in swiss francs. This is will change soon, as very dark clouds are gathering at the horizon.

To conclude, this is an excerpt from an article I found some time ago. I saved it on my hard disk, don't remember the website address and can't find it anymore.

"One day there will be an uncontained financial accident. Within hours credit facilities will be withdrawn, and there will be forced derivative position liquidations at organisations around the world. Modern derivatives will be the brokers’ loans of 1929, resulting in margin calls, liquidations, the evaporation of confidence, spectacular losses, a credit squeeze and financial chaos. The liquidations of assorted off-balance sheet positions will cause the realisation of big losses in many highly geared positions. This will in turn cause dramatic re-ratings of the creditworthiness of many borrowers.

The crisis will develop rapidly in the international bond markets - where corporations and western governments have borrowed cash consistently and cheaply. Borrowers whose worst excesses are currently hidden off balance sheet in the derivatives markets will find themselves insolvent, and their bonds and shares will plummet in line with their credit ratings. Oversupply of bonds from hurried sellers will drain the markets of cash and the selling of further bonds into the market will become impossible - even at distress prices for good bonds. The bondholders - pension funds, deposit takers and other collectors of the public’s surplus cash - will be drawn in, and will see that they are in no position to pay back their depositors.

Insurance companies will watch as the portfolios backing their obligations are destroyed. Their capital will be inadequate and they will suspend paying their annuity holders. Property secured lenders and banks will be standing in-line, having lent widely in the mortgage, debt and derivatives markets. Of the £600,000,000,000 of gross sterling deposits in the UK much is on relatively short periods (e.g. 30 day deposit accounts) and lent long term as mortgages on overpriced assets. Not the tiniest fraction of this amount of money can possibly be delivered by the banks in cash back to their depositors.

In 'normal' times it does not matter if a bank's withdrawals exceed immediately available cash resources, because the bank can gather up some cash in bond and money markets. But in a credit crunch they cannot do this. There will be queues at the bank but the doors will be shut, Argentina style.

Houses will appear on the market, as the equity rich seek to secure the cash which they regarded as their savings. But no-one will have the cash or the finance to buy them, and house prices will slump in search of a few brave buyers. Mortgage lenders will go hunting cash to stay afloat - they'll suspend new lending. The banks and building societies will increase borrowing rates, without increasing deposit rates, and they will suspend withdrawals. Industrial businesses will face a slump in demand like they have never seen. Unemployment will explode.

Only the debt free who have invested in super-cautious organisations and instruments will emerge with liquid assets."

mikeorange7

W :oW

That's alot to take in in one go.

I have to say that the reason for my recent interest in Gold and precious metals is the growing concern (real or imagined) I find myself having about global finiances.

I sense i need to research more.

cgnao

Your concern is real, not imagined. Protect yourself. Buy gold. Real gold, not paper gold. You won't regret it.

deemy2004

The dooms day scenerio your painting, would not occur over night.


It would take several years to ferment, i.e. economies in perpetual decline, deflation, whereas that situation is not visible even on the distant horizon.

World GDP continues to grow, quite strongly as a matter of fact.

Worry about the situation if the world goes into a recession, and is unable to pull itself out of the recession.

The same things were said near 20 years during reagonomics, which led to nothing.

The markets are far more resiliant then you give them credit for , especially after much of the froth (apart from housing) has disspiated during the recent 3 year bear market.

cgnao

An interesting statistic is that in order to finance their deficits, the US currently require about 80% of the world's savings to be invested in the US markets. This is not sustainable and is the reason behind the dollar's slide (which by the way has only just started).

Your confidence demands me forwarding the second part of the article:

"Like most predictions these particularly wild ones are almost certainly wrong. But they show a possibility which many savers are simply not aware of. Most readers - even those who broadly agree that the future could get that bad - will smile inwardly in the confidence that they are shrewd enough and fast enough on their feet to get out at the first sign of trouble, before the storm really hits. Maybe they are in that tiny number who will achieve it, but it is unlikely. Not only is there simply not enough cash to pay out more than 1 or 2 percent of savers there are other great difficulties.

In times of crisis the marketplace makes it very difficult to act. At every stage of an implosion it introduces elements which obscure the ultimately successful line of action. Prices, for example, do not descend in an orderly straight line. Almost all the sharpest rises in the markets occur directly after the steepest falls. Market professionals have a black humour expression for these rallies. They call them ‘the dead cat bounce’.

Even a dead cat will bounce a few minutes or a few hours after the slump. People who lose 10% of their portfolio value on Monday morning, when the market phone isn't being answered, and then gain 8% on Monday afternoon, will choose to do nothing on Tuesday. While they're dithering the market will encourage inaction by greatly increasing the trading spread between buying and selling prices - leaving investors with the feeling that to trade is to be fleeced by the professionals. They will decide to hold on rather than lose another 10% of their money by selling while the prices are wide and the markets illiquid; and every time the prices narrow again they will wrongly think the worst is over and will still do nothing. Of the few with a trader's mentality almost all will be over-affected by the repeated market swings. Sucked out on the falls they will buy back in on the rally - on consistently wide spreads. Meanwhile any assets which offer protection to savers will boom in price, just to the point where they are uncomfortably - even dangerously expensive to buy.

This should be understood by all investors - but it isn't and it never will be. The market doesn't wait conveniently showing the point at which we should get out. It hangs between greed and fear. When it falls it tempts us to hold on with the prospect of recoveries which don't happen, yet it punishes us repeatedly if we start selling, with bounces which would have saved us from our loss. Bit by bit it turns the shrewdest market operator into a rabbit.

The significant majority of the tiny number who eventually succeed in such chaotic market circumstances will be those who acted before the storm broke. By the end they will have been through the mill, having endured countless hours of anguished doubt. But aided by the initial profits they make as the storm breaks they will have been able to ignore strong but temporary market movements against them, provided of course they have the fundamental confidence in their own judgement of the process of economic unwinding.

But even then only a handful will exit their wealth preservation strategy and go back into productive businesses within 20% of the bottom. This is what it is like to be a successful investor. Even in the good times it is painful to sell well, and painful to buy well. But during times of crisis the pain is amplified by extreme volatility, wide pricing, and thousands upon thousands of column inches of popular newspaper analysis recommending entirely the wrong action.

"Perhaps never before or since have so many people taken the measure of economic prospects and found them so favourable as in the two days following the Thursday [24th October 1929] disaster". J.K.Galbraith - The Great Crash 1929. However, "On Monday the real disaster began".

The disaster of 1929 was to continue down, then up; horror, then hope, then horror, for 6 months. It sunk the bulls, the speculators, the bottom fishers, the momentum trackers, the chartists, the value investors - everyone. Virtually no-one who had ever been involved in the markets came out of the other side with any money at all.

Perhaps the last word should be left to someone who did.

"The complexity of this era of credit liquidation is far too great for the mob mind to grasp. It is hardly possible for them to see the picture wherein about 700 billion dollars of physical and intangible wealth is attempting to be turned into about 5 billion dollars of money" Robert L Smitley writing in his usual style and with his normal regard for the intelligence of the average investor in his hugely entertaining book 'Popular Financial Delusions' - published in 1933.

By the mid 1930s investors who had lost everything started to read the words of market analysts - like Mr Smitley - who amidst the general poverty told them how predictable the crash had been. Strangely not many of them were rich. (To be fair Mr Smitley was. He made his fortune by trading in old business books on Wall Street between the wars. Apparently he read some of them as well!). We will doubtless get our share of experts emerging from our own economic rubble. On hearing them a very, very few people will have the privilege of knowing that they were wise before the event, which is so much harder than being wise after it. If they're particularly shrewd they'll keep their mouths shut, because by then the world will be a very different place"