Top Tips: Commodity Investing

Gold and Silver Investing for Long-term Wealth Creation


Gold & Silver

The importance of Gold and Silver Investing

Truth be told, I’m not really a Gold bug.  But I do believe that every prudent investor needs some commodity exposure in their long-term investment portfolio.

For those of you who do not know what a Gold bug is, it is defined as someone overly bullish on the yellow commodity and/or someone distrustful of government-issued paper currency and/or someone who believes gold is the best measure of true wealth. 

So whereas I am not a card-carrying Gold bugger myself (sorry, couldn’t resist the play on wordsJ), I do think that the intelligent investor should have a portion of his or her assets in gold & silver…as insurance.  In fact, I would suggest that you shouldn’t even think of gold or silver as an investment product; rather as an insurance policy against inflation (or, worse, hyperinflation).  Why?  Because there are growing signs today that point, potentially, to an upcoming period of high inflation.  And so you might as well ‘insure’ yourself from any potential scenario like this actually occurring.

Why buy gold and silver? Find out today at GoldSilver.com

Current trends/facts, as I see them, that support the 'gold as insurance' approach include:

  • The US Fed, with its quantitative easing (QE) program, is currently buying US Govt bonds to the tune of ~ $85 billion per month (as of September 2013).  So, in effect, the Fed is currently adding about $1 trillion (with a capital T) to our monetary base ever year.  The Fed is currently in the 3rd (soon to be 4th) phase of QE….with no end in site.  See Wiki’s description of the QE program here.
  • The Fed’s Ben Bernanke revealed that he may start a ‘tapering’ (i.e., reduction) of the QE program.  But the market seems skeptical.  So is the most successful bond investor of our time, Bill Gross, who thinks we’ll be in a low interest rate environment for as long as 2035 (!!).
  • The new nominated Fed chairman, Janet Yellon, will likely continue with Ben Bernanke’s QE program.
  • The European Central Bank has also initiated a similar QE program….as have the Japanese.
  • In short, it appears OECD central banks are engaged in a race to the bottom with respect to weak currencies.  The US, Europe and Japan are all over-indebted societies.  In such situations, you have 3 choices –
  1. you can grow yourself out of the trouble (i.e., generate economic growth greater than increasingly large debt service costs so that, over time, you are paying down your national debt).  Good luck Japan and Europe, with their relatively anemic economic growth prospects.  Only the US has this potential…but when you add in the various unfunded entitlement programs (i.e., government liabilities) like  Social Security, Medicare, etc, the US debt to GDP is closer to 400%.  Developed economies simply do not grow at the necessary rates to solve this big of a problem.  Hmmmm, perhaps this is why the politicians in Washington DC are always fighting…. 
  2. you can default on your debt.  No government wants to do this; in particular the US government as it would most likely lose its hugely-valuable reserve currency status.
  3. you can inflate away your debt with loose monetary policy.  And it looks like this is the ‘winner’ as the OECD countries are pursuing this strategy via QE programs.  And if you are not prepared, you will definitely be the 'loser' as inflation is a stealth tax against citizenry.  Put simply, your paper money will buy less and less because it's worth less.  Simple as that.

Having gold & silver in your portfolio comes down to which of the three scenarios you think various world governments will pursue – although I believe any of the three scenarios would create an upward price bias on precious metals like gold and silver.  Remember, I suggest you view gold as insurance…that way you start viewing it differently than, say, Warren Buffett, who isn't so keen on gold and silver investing

Also keep in mind that when compared to the US dollar, or Yen or Euro, gold & silver start looking like a pretty good alternative.  Because unlike paper money, the amount of gold and silver is finite.  You cannot sell more than has been produced (this isn’t entirely true, what with all of the paper gold products now available to purchase.  So when I write about gold & silver, I’m talking about the stuff you can hold in your hand.  The real product). 

Finally, consider this – gold is the only form of monetary value that has never failed in the 5,000 year history of its use by humans.  Going back to Roman times, coins had significant intrinsic value (unlike our money today) – meaning that the actual coin carried enough gold, silver or copper to have value in itself.  Coin debasement became common in more recent times so that, today, we only have the promise of a government to backstop the value of a given currency. 

So if (when?) a global currency crisis comes, those holding paper currencies will suffer large loses.  But since central banks cannot print new gold or silver, these commodities should hold up in value pretty well (relative to paper currencies they could rise hundreds, even thousands of percent).

Want more information about the cause of inflation?  Check out the below link.


How much Gold & Silver?

Recall that I suggest a portfolio allocation of 5-10% of your investments to be in commodities like gold & silver (at least for the Occasional Glancer and Hobbyist).  The Gold bugs are currently suggesting 30-50% but this is really preparing for Armageddon – which is unlikely to actually occur.  After all, look at Europe has done from the crisis in 2008 to today.  They have muddled through quite well.  And I think they, and the US & Japan and many others in similar circumstances, will somehow continue to muddle along and avoid dire crises.  And even if they do enter a series of crises, your DRIP investments should hold up over time.  Remember, we are only investing in the bluest of blue chips stocks via DRIPs; stocks that should be able to, over time, adjust their pricing to be relatively less impacted by inflation (there is a lot of empirical evidence that suggests in the short term inflation ravages equities.  But remember, we’re thinking over the long term).

How to best purchase Gold & Silver?

So where to go to buy gold & silver?  There are numerous routes  starting with your local coin dealer on the high street or in the financial district of your city.  Or, if you live in Switzerland, you can even go into special bank branches and buy gold & silver coins or bars right then and there!

For more information about gold & silver investing, I recommend GoldSilver.com where you can read many relevant articles about the value of investing in precious metals.  

Silver Bars and Coins

If you want to purchase gold or silver coins, please click on the below links (again, this is GoldSilver.com, a trusted supplier of precious metals)

Buy Gold Buy Silver

There are also companies that provide the types of automated purchasing programs similar to those offered for DRIPs.  So you can ‘fire & forget’ by investing on a set schedule directly from your automated investment vehicle (remember Pay Yourself First!).

In addition to GoldSilver.com (which has an 'insider' program to consider...

...I suggest the following two services (both of which I use regularly so I can personally vouch for them) but there are many more such services out there so search for yourself for the product or service that best fits your individual needs:

  • BullionVault – enables you to purchase gold and silver in multiple markets around the world.  They claim to be the world’s largest online investment gold service.  You can store your product in several global locations.
  • SilverSaver – easy to set up accounts and automate regular purchases.  Your product is stored in Delaware, US.

If you want to invest in ‘paper’ gold, like the GLD gold spider product, that is fine but do so as part of your brokerage account and/or regular stock investing activity.  Don’t think that this acts as a suitable replacement for dealing in the actual physical commodity because, at the end of the day, you’re buying a piece of paper with GLD / equivalent products.  And as Lehman Brothers and many others have taught us, paper can lose all of its value in a nanosecond.  A hunk of real precious metal, on the other hand, can be touched and, most importantly, easily monetized if need be.

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