Buying Gold

Avery Webb

Buying Gold as an Investment - 5 Tips

It's important to spend a little time in learning the basics of the precious metals markets prior to jumping in. The gold market is especially attractive in times when:

A - the economy is in a deep recession
B - there are unstable currency valuations
C - when the central banks decide to print enormous sums of money out of thin air.

Hmmm, could we be witnessing one of those periods now?

I would say so…

The general concern I have when the printing presses are running on full power is the nasty consequence of inflation. As the dollar becomes inflated, the dollars value tends to drop. Buying gold can offset these inflated dollars and create a little security in uncertain times. Here are a few tips to help you stay mindful when investing in gold.

Tip#1 - Use the 5-10% rule. Identify how much money you have available in your portfolio. Diversify your holdings with a small percentage of gold. A common rule of thumb is to keep it at 5-10%.

Tip#2 – Once you commit, hold on for the ride. Let the investment rest for 3-5 years on upwards to 10 years. Gold is running in the high $900’s (per oz) and likely to go higher as we rebuild our economy.

Tip#3 – Invest in experience. Stay clear of the hyped-up, young, start up ‘gold exploration’ business opportunities. If they have very little gold production, you can bet safely that they are burning through the cash and their predictions on returns are highly speculative.

Tip#4 – Gold coins and bullion - are generally considered a conservative investment opposed to, say, investing in the equities of a gold mining company. In addition, if you invest in historical coins you have the added safeguard of keeping those coins. The government has policies in place to confiscate gold reserves in times of hyper-inflation. Historical gold coins are generally exempt from confiscation.

Tip#5 – Invest in experienced gold mining companies. Equity investing can insure more leverage for an investor than the precious metal itself. It’s a whole lot easier to trade stock in a company when you want to get out. Again, diversity is the key here. The value of gold equities does tend to be overpriced, yet in a bull market, the investment can still bear fruit.

In conclusion, use the 5-10% rule on gold investing. Once you commit, hold on to your gold for a few years. Historical coins have added safeguards against government confiscation. Choose experience over youthful hype when investing in precious metals. Finally, consider buying equity in gold mining companies if you need to have a quick exit strategy in place.