your sure guide to making money trading gold and silver in all form.
Friday, November 5, 2010
GOT GOLD?
Do you have the guts to be rich? Are you a rule breaker? Do you have what it takes? Are you willing to go against the flow or are you going to mosey along with the herd? Your choice… not the market’s.
The late Sir John Templeton preached that investors should buy at the "point of maximum pessimism," when market sentiment stinks and no one wants to hold anything but cash. A pessimist sees the difficulty in every opportunity, while an optimist sees an opportunity in every difficulty.
In these markets, daily mayhem can cost you dearly, wipe you out entirely OR provide tremendous opportunity.
The Who, What, When, Why, & Where...
WHO:Which investments will deliver the most?
Investors will enjoy lucrative returns on both gold and gold mining stocks. However, investors who invest in junior mining stocks (at the bottom) will receive the greatest returns simply because of the multiples. Junior mining shares (penny or micro/small cap stock) trade at pennies as compared to major mining companies or gold bullion. Your money can buy more junior mining shares and it is easier to get a double (i.e. $0.20 to $0.40 per share). With an investment in major mining companies, the same money buys fewer shares and it is more difficult to realize a double (i.e. $30 to $60 per share.)
WHAT:What to do?
Buy – It’s a buyer’s market. The prices we’re seeing for assets now, whether it’s stocks, commodities, or gold, do not reflect the underlying value of those assets. People are selling them simply because they “have to” - whether because of margin calls or redemptions from hedge funds or otherwise, the assets have to be sold. It’s a sale!
WHEN: When do you buy?
Now! Buy at the bottom. History has proven that true fortunes are made during times ofeconomic distress or financial corrections. The depressed valuations of the companies right now allow you to purchase shares at a fraction of what they have been selling for a year or two earlier.
WHY:Why gold?
Fundamentally, supply and demand is the key. Gold supply is dropping. Gold demand is rising. In addition, history has shown that gold has a “proven” ability to provide a shelter from such negative market effects as inflation, catastrophic events and political unrest; gold stocks have outperformed any other type of investment during these times.
WHERE: Where to put your money?
Gold bullion for safety and steady returns; gold stocks for dramatic returns.
Today's "Weird" Markets
These are the kind of markets that test the courage of investors.
Markets run on fear and greed. Recent market volatility has never been greater and, in fact, is unprecedented. Because it is unprecedented, no one knows or can predict what will happen next. It takes more than insight to see “opportunity.” It also takes guts to act on it.
GOLD
Fundamentals on gold remain intact. If anything, they have improved under today’s widespread crashing credit conditions, inflation and material shortages. The long-term fundamentals for gold look healthy. The long-term supply constraints have not disappeared and demand continues to remain robust.
The fact that gold did not head higher during the current leg of the [global financial] crisis seems to reflect a combination of the rise in the U.S. Dollar, de-leveraging of commodity positions, sales to meet margins calls on other assets and the unwinding of the long gold-short dollar trade by some investors. This situation will not continue much longer.
In today’s world of massive deficit spending, political unrest, inflating currencies (i.e. “fiat money” or excessive printing of paper currency) and financial/credit crises, gold’s monetary role is reasserting itself.
U.S. Dollar
Since July 2008, the U.S. dollar has staged its most dramatic rally in years. However, from a fundamental standpoint, the dollar’s position has worsened significantly. Trillions of dollars of are being created to bail out financial institutions and local economies.
When the dollar was taken off the gold standard in 1971, there no longer was any discipline on the money creation (“printing”) process. As a matter of act, two years ago, the U.S. changed its laws so that it no longer had to report how much money was printed. No one knows exactly how much is printed. Once a currency is on this path…
The U.S. federal government is already operating at the mercy of foreign creditors because domestic savings have already been consumed. What was at one time the richest country in the world, the U.S. is now the biggest debtor in the world. The federal government’s debt is growing the fastest and politicians are spending the country into bankruptcy.
There is a “currency bubble” caused by the U.S. Federal Reserve System creating money out of thin air, without any substance underneath it. As with any bubble (i.e. high tech, dot com, etc), they eventually pop.
History - The Greatest Teacher (aka "Wisdom")
True fortunes are made during times of economic distress or financial corrections. Only one year before J.P. Morgan completed the formation of U.S. Steel (which financial historians have called the deal of the 20th century), he said that such a feat could never be accomplished by any man - until the markets crashed. The depressed valuations of the companies involved allowed him to purchase the business entities at a fraction of what they had been selling for twelve months earlier.
During the Great Crash of 1929, investors who diversified their portfolios with a fewHomestake shares (gold) were able to travel through the Great Depression relatively unscathed, while those who owned only the Dow Jones Industrials, were devastated. Investments in gold mining shares were islands of economic refuge during the grueling years of the Great Depression. The stock price of Homestake Mining soared relentlessly upward during the entire bear market. The share price of Homestake Mining rose continuously from $80 in October 1929 to $495 per share in December 1935 – which represents a total return of 519% (excluding cash dividends) during this devastating period. In addition, during the six years (1929 – 1935) Homestake paid out a total of $128 per share in cash dividends.
Commentary - Recent Market Activity
The relentless selling we have seen over the past months in precious metals was kicked off by the manipulative interventions occurring right around the time of the Fannie Mae and Freddie Mac implosions in mid-July. Yamana Gold, one of the most successful gold companies around, saw short interest rise 72% in the first two weeks of August. This stock has been a star performer. Why, or more appropriately, who, would short it? Many investors have thrown in the towel and portfolio managers are now forced to sell due to redemptions. These disillusioned investors believe that the market is telling them a message and don't realize it is not a market message but a heavily controlled manipulation to make them believe so and to dupe them out of their positions.
It is no accident that we haven’t been able to take refuge under the safe haven of Gold as tradition would have it. It is a planned policy known as “the strong dollar policy” that runs against all the natural forces in the real world, dooming it to failure.
Gold production was down 5% last year from its peak in 2003 despite steadily rising demand. Production will likely decline even more this year. The four largest gold producers are expected to produce 18% less gold this year than in 2006. These are not the signs of a bubble. Any further declines in the price of these and other commodities will result in even bigger shortages. The rapidly growing smaller producers that are helping to offset these declines in the larger producers are being seriously handicapped by the continuous price capping of gold which delays and cuts off badly needed capital to deliver what the world is demanding. The US Government has stopped selling gold coins also, so how does the price plummet when there is demand yet no supply? There is overwhelming evidence that the recent declines in gold and silver are a fraud.
The stocks are certainly selling at giveaway prices but will surely break free of the suppression when the physical markets break free. We have heard that many gold stocks inCanada are being shorted without borrows by brokerage firms with almost no limits. This is how they are dislodging stocks from even the most strong-handed precious metals investors.
There is a saying that a gold bull will do what it takes to throw off as many riders as it can and we are seeing it demonstrated before our very eyes. It was the same in the 1970's despite gold rising 26 times and many stocks rising from pennies to over $500 per share! It is sad to see investors give up on the very few areas of the stock market with such strong fundamentals that can allow them to do well despite the onerous future we face. Gold is certainly a commodity that will stand the test of time.
Is your take............. you choose
Monday, November 1, 2010
Gold and Silver Prices Soar in October, Mark Third Month of Gains
Speculation that the Fed will weaken the greenback with a second round of monetary easing supported gold. Prices shot up 2.5 percent this week after falling 3.4 percent last week. Other metals gained as well. Silver and palladium soared. Silver surged 6.3 percent this week and reached a fresh 30-year high. Palladium jumped 9.1 percent for the week and hit a 10-year high.
In U.S. stocks, the major indexes were mixed but closed nearly unchanged from last Friday. For the month, however, they soared between 3 and 6 percent.
Returning to U.S. bullion prices, gold futures for December delivery rallied $15.10, or 1.1 percent, to close at $1,357.60 an ounce on the Comex division of the New York Mercantile Exchange.
"The Fed meeting next week has been dominating the markets," Standard Bank analyst Walter de Wet, was cited on Reuters. "Ahead of that, people have positioned themselves, and from an investment perspective they are not going to add too much more gold."We think the gold market has priced in around a $500 billion QE exercise by the Fed," he added. "If the Fed comes out with a higher figure, we think gold will move higher. If it’s lower, it is going to be bearish for gold."
Gold advanced $32.50 this week. It gained $48.00, or 3.7 percent, in October. The metal rose 4.7 percent in September and 5.6 percent in August.
December silver jumped 68.9 cents, or 2.9 percent, to close at $24.564 an ounce. Its weekly pick up of $1.446 was the best since mid-February. Silver also registered its third straight monthly increase. It rallied 12.6 percent in October, 12.3 percent in September and 7.9 percent in August.
Silver continues to outperform gold, with the latest silver-to-gold ratio falling to 55.27. In contrast, the ratio was near 66 in June.
In other New York futures prices, January platinum added $15.10, or 0.9 percent, to $1,707.10 an ounce. It rose 1.9 percent this week and 2.9 percent in October.
Finally, the best precious metals performer was palladium. December palladiumadvanced $15.65, or 2.5 percent, to $645.10 an ounce. The metal soared 12.9 percent in October and 13.8 percent in September.
In London bullion weekly prices, the benchmark gold Fix price was $1,346.75 an ounce, up $24.25 or 1.8 percent. It gained 3.0 percent in October.
A "broad ranges and of pre-guessing the US Fed unfolded in the precious metals complex, most of it being subject once again to the fluctuations in the US dollar,"Jon Nadler, senior analyst at Kitco Metals, Inc., wrote Friday morning. "Markets were eagerly awaiting US GDP and consumer sentiment data but, to be fair, most of the ebb and flow in trading sentiment was still being dominated by one overriding preoccupation; that of what the Fed might (or might not) announce on Wednesday," Nadler added.
Silver was fixed at $23.960 an ounce for a weekly increase of 91.0 cents, or 3.9 percent. Silver advanced 8.6 percent this month.
In London PGM metals, platinum was up $27.00, or 1.6 percent, this week to $1,700.00 an ounce. It rose 2.3 percent in October. The palladium fixing was $640.00 an ounce for a weekly gain of $54.00, or 9.2%. It soared 11.7 percent in October.
How Much Gold, Silver, and Rare Coins Should You Own?
A question I am frequently asked by both new and experienced buyers of precious metals is just how much of one’s portfolio should be devoted to gold, silver, and rare coins?
There is no one-size-fits-all answer to this question. Factors that affect the allocation decision include someone’s current financial position, their amount of liquid assets, their age, the level of potential risk versus reward they can accept, and their commitments that may tie up assets in the future.
To help people, I have come up with a range of answers, using the percentage of net worth as the standard. For some it may be easier to think in terms of percentage of an investment portfolio.
The easy part is how much of someone’s net worth in total should be allocated to hard assets. For the conservative person, who may need quick access to cash for living expenses or may have a short time frame for ownership, I currently recommend a 10% allocation. I consider this to be the bare minimum to hold for insurance purposes. Gold, silver and rare coins tend to rise in value when the values of stocks, bonds, currencies, real estate, and other assets are falling. They also tend to rise when inflation is running rampant. Professional planners have confirmed that investment portfolios that own some amount of what I call hard assets tend to perform better over time than those that omit precious metals.
For a moderate investor, I now recommend approximately 20% of net worth or of an investment portfolio be allocated to gold, silver, and numismatic coins.
For the aggressive investors, which includes people who have significant liquid assets that need not be touched for a long time (at least five years), expect to live long enough to enjoy long-term appreciation, and are comfortable with a higher risk of loss, I suggest at least 25% but no more than a 33% allocation to precious metals and rare coins.
Under no circumstances do I suggest that anyone unload all their other assets and focus exclusively on gold, silver, and numismatics. Having all assets from just one investment class would be even riskier than not owning any hard assets.
OK, so now you can place yourself in a comfortable spot on the spectrum between conservative and aggressive, calculate your net worth or your total investment portfolio, and figure out how much you want to devote to hard assets in total. The next question that people then ask is how much should they allocate among gold, silver, or rare coins.
Silver is a more volatile metal than gold in its price movements. In bull markets, it will appreciate more than gold. In weak markets, it will decline by a greater percentage than gold. I use the gold/silver ratio to give me some clues as to which metal I expect to outperform the other in the future. Some analysts insist that a ratio like 16:1 is the long-term equilibrium ratio. I don’t know that this makes sense any more. However, I am much more comfortable projecting an eventual ratio in the range of 35:1 to 40:1. Since the gold/silver ratio now is in the mid-60s, that indicates that silver has the better prospects from here into the future. Accordingly, I allocate a somewhat higher percentage to silver than to gold, though I think it makes sense to have a significant allocation to both metals.
For conservative investors, I suggest that they avoid owning any rare coins at all for investment. Rare coins have a wider buy/sell spread than bullion, normally require a longer time for holding, and are less liquid. You may own some numismatic coins for the pleasure of ownership, but do not consider them as part of your investments. Thus, my conservative allocation would be 40% to bullion-priced physical gold, 60% to bullion-priced physical silver, and 0% to rare coins.
For a moderate person, I consider a small allocation to numismatics to be reasonable. So, for them I suggest an allocation of 35% to bullion-priced physical gold, 55% to bullion-priced physical silver, and 10% to rare coins.
As for the aggressive investor, I tilt even more toward numismatics and silver and somewhat less to gold. For this person, I recommend an allocation of 25% to bullion-priced physical gold, 50% to bullion-priced physical silver, and 25% devoted to rare coins.
I emphasize the purchase of physical gold and silver. And take delivery! There are a number of pitfalls of “paper” precious metals where I judge the risks of the seller or storage company defaulting on delivery are high enough to avoid them. Consequently, I don’t recommend certificate programs, London Bullion Market Association contracts, commodity contracts, allocated or unallocated storage arrangements (segregated storage accounts in your own name should be safe), and exchange traded funds.
I also strongly recommend not owning hard assets in precious metals Investment Retirement Accounts. There are a number of problems and limitations with owning precious metals accounts, not the least of which is the risk of confiscation of them as part of a program under consideration in Congress to potentially confiscate all private retirement assets. For further information on the problems with precious metals IRAs, see my article dated August 18, 2009 titled “Will U.S. Government Seize Bullion IRAs?”
In my precious metals and rare coin allocations, I purposely did not include either platinum or palladium. Neither metal had any significant use as circulating money in the past. The platinum market is running a surplus about half of the past decade, while palladium supplies have exceeded demand every year in the past decade. These two metals may do well in the future, but I expect gold and silver to outperform them on a percentage basis.
By finding your place on the investment spectrum and considering the allocations listed above, I anticipate that you will enjoy solid long-term results compared to many other asset classes.
Gold Market: Will be Bullish in 5 Years
This autumn was steady, and costs moved down to $575 levels till October 2006. It is here that they stabilized and have come to a point where gold now trades at $625-$650 levels.
Backers faced many world issues in this time, as the U.S. Was handling the Iraq issue, Israel attacked Lebanon, North Koreans fired rockets as well as a nuclear bomb, and with a nuclear clash with Iran. With doubtful events like these, gold did reasonably well and served its role as a safe harbor.
With no regard for all this, on a year to year basis, Gold is still higher by 23%. Gold bars now appears to be in the opening stages of a long-term ordinary bull market.
Friday, October 29, 2010
Gold Panning And The American Gold Rush
Gold Panning And The American Gold Rush
In 1849, several thousands of people migrated to California to find out the gold deposits for making more and more money. Several methods were used by people to achieve gold but the widely used method was panning. People used to make attempts in search of gold for even months.
This was a highly desirable metal and people were not ready to end their struggle without achieving their goal. Their urge to find more and more gold increased with finding gold flake once. They eventually become more enthusiastic in their efforts and tend to strive much harder in lust of having more gold. If they achieved some flakes of gold in their first attempt, they used to struggle for more.
Besides ordinary people, some Government departments also advanced there search for gold by establishing various laboratories, equipped with much advanced techniques than panning. The government institutions also realized the value of this place having large amounts of gold deposits.
Most of these forty-niners at California could be seen wearing long shoes and pans in their hands. Sometimes, these pans used to come up with some gold flakes, while most of the times their efforts were proved to be fruitless. When they used to get exhausted after several attempts, they used to vow to come again the next day to try their luck once again. It is also true that some of these miners had found so much gold that the government felt the need of establishing an official mint there.
In the past, only metal pans were used for gold extraction from the waterbeds, while at present time, the use of plastic pans is more common. However, the methods to place these pans in water for getting gold flakes were different from the ones being used today.
Plastic pans that are used for panning these days are quite lighter in weight and they often have shallower angles that reduce the chances of gold tossing out from the pan. Similarly, slats and bars that are used today were not used in the past. Now, with the help of these tools, it has become quite easier for people to separate gold from other particulars with lots of ease.
However, these earlier gold seekers were using some very good techniques in this connection and most of their gold panning techniques are still in use even after so many years. They used to place their pans at those places where water was noticeably slower and usually they picked large rocks or sandbars for this purpose. Use of tweezers and pipette was not so common in those days, and these people usually used to separate the gold flakes from sand with their hands.
Most of the emigrants arrived California from faraway places in order to get their dreams come true. So, they made utmost efforts for achieving their goal and their determination led them to the way of success.
To Your success
In 1849, several thousands of people migrated to California to find out the gold deposits for making more and more money. Several methods were used by people to achieve gold but the widely used method was panning. People used to make attempts in search of gold for even months.
This was a highly desirable metal and people were not ready to end their struggle without achieving their goal. Their urge to find more and more gold increased with finding gold flake once. They eventually become more enthusiastic in their efforts and tend to strive much harder in lust of having more gold. If they achieved some flakes of gold in their first attempt, they used to struggle for more.
Besides ordinary people, some Government departments also advanced there search for gold by establishing various laboratories, equipped with much advanced techniques than panning. The government institutions also realized the value of this place having large amounts of gold deposits.
Most of these forty-niners at California could be seen wearing long shoes and pans in their hands. Sometimes, these pans used to come up with some gold flakes, while most of the times their efforts were proved to be fruitless. When they used to get exhausted after several attempts, they used to vow to come again the next day to try their luck once again. It is also true that some of these miners had found so much gold that the government felt the need of establishing an official mint there.
 |
| gold panning |
Plastic pans that are used for panning these days are quite lighter in weight and they often have shallower angles that reduce the chances of gold tossing out from the pan. Similarly, slats and bars that are used today were not used in the past. Now, with the help of these tools, it has become quite easier for people to separate gold from other particulars with lots of ease.
Most of the emigrants arrived California from faraway places in order to get their dreams come true. So, they made utmost efforts for achieving their goal and their determination led them to the way of success.
To Your success
Monday, October 25, 2010
Investment vehicles (Part Two)
Accounts
Many types of gold "accounts" are available. Different accounts impose varying types of intermediation between the client and their gold. One of the most important differences between accounts is whether the gold is held on an allocated (non-fungible) or unallocated (fungible) basis. Another major difference is the strength of the account holder's claim on the gold, in the event that the account administrator faces gold-denominated liabilities (due to a short or naked short position in gold for example), asset forfeiture, or bankruptcy.
Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve (non-allocated, fungible) basis. Swiss banks offer similar service on an allocated (non-fungible) basis. Pool accounts, such as those offered by Kitco, facilitate highly liquid but unallocated claims on gold owned by the company. Digital gold currency systems operate like pool accounts and additionally allow the direct transfer of fungible gold between members of the service. BullionVault and Anglo Far-East allow clients to create a bailment on allocated (non-fungible) gold, which becomes the legal property of the buyer.
Derivatives, CFDs and spread betting
Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. In the U.S., gold futures are primarily traded on the New York Commodities Exchange (COMEX) and Euronext.liffe. In India, gold futures are traded on the National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).[44]
As of 2009, holders of COMEX gold futures have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. The delays cannot be easily explained by slow warehouse movements, as the daily reports of these movements show little activity. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.
Firms such as Cantor Index, CMC Markets, IG Index and City Index, all from the UK, provide contract for difference (CFD) or spread bets on the price of gold.
Mining companies
These do not represent gold at all, but rather are shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise. However, there are many factors to take into account and it is not always the case that a share price will rise when the gold price increases.
Unlike gold bullion, which is regarded as a safe haven asset, unhedged gold shares or funds are regarded as high risk and extremely volatile. This volatility is due to the inherent leverage in the mining sector. For example, if you own a share in a gold mine where the costs of production are $300 per ounce and the price of gold is $600, the mine's profit margin will be $300. A 10% increase in the gold price to $660 per ounce will push that margin up to $360, which actually represents a 20% increase in the mine's profitability, and potentially a 20% increase in the share price. Conversely, a 10% fall in the gold price to $540 will decrease that margin to $240, which actually represents a 20% fall in the mine's profitability, and potentially a 20% decrease in the share price. The amplification of gold mining profits during periods of rising prices can cause a gold rush in mining exploration.
To reduce this volatility, some gold mining companies hedge the gold price up to 18 months in advance. This provides the mining company and investor with less exposure to short term gold price fluctuations, but reduces potential returns when the gold price is rising.
Till i come your way again remain blessed
Many types of gold "accounts" are available. Different accounts impose varying types of intermediation between the client and their gold. One of the most important differences between accounts is whether the gold is held on an allocated (non-fungible) or unallocated (fungible) basis. Another major difference is the strength of the account holder's claim on the gold, in the event that the account administrator faces gold-denominated liabilities (due to a short or naked short position in gold for example), asset forfeiture, or bankruptcy.
Many banks offer gold accounts where gold can be instantly bought or sold just like any foreign currency on a fractional reserve (non-allocated, fungible) basis. Swiss banks offer similar service on an allocated (non-fungible) basis. Pool accounts, such as those offered by Kitco, facilitate highly liquid but unallocated claims on gold owned by the company. Digital gold currency systems operate like pool accounts and additionally allow the direct transfer of fungible gold between members of the service. BullionVault and Anglo Far-East allow clients to create a bailment on allocated (non-fungible) gold, which becomes the legal property of the buyer.
Derivatives, CFDs and spread betting
Derivatives, such as gold forwards, futures and options, currently trade on various exchanges around the world and over-the-counter (OTC) directly in the private market. In the U.S., gold futures are primarily traded on the New York Commodities Exchange (COMEX) and Euronext.liffe. In India, gold futures are traded on the National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX).[44]
As of 2009, holders of COMEX gold futures have experienced problems taking delivery of their metal. Along with chronic delivery delays, some investors have received delivery of bars not matching their contract in serial number and weight. The delays cannot be easily explained by slow warehouse movements, as the daily reports of these movements show little activity. Because of these problems, there are concerns that COMEX may not have the gold inventory to back its existing warehouse receipts.
Firms such as Cantor Index, CMC Markets, IG Index and City Index, all from the UK, provide contract for difference (CFD) or spread bets on the price of gold.
Mining companies
These do not represent gold at all, but rather are shares in gold mining companies. If the gold price rises, the profits of the gold mining company could be expected to rise and as a result the share price may rise. However, there are many factors to take into account and it is not always the case that a share price will rise when the gold price increases.
Unlike gold bullion, which is regarded as a safe haven asset, unhedged gold shares or funds are regarded as high risk and extremely volatile. This volatility is due to the inherent leverage in the mining sector. For example, if you own a share in a gold mine where the costs of production are $300 per ounce and the price of gold is $600, the mine's profit margin will be $300. A 10% increase in the gold price to $660 per ounce will push that margin up to $360, which actually represents a 20% increase in the mine's profitability, and potentially a 20% increase in the share price. Conversely, a 10% fall in the gold price to $540 will decrease that margin to $240, which actually represents a 20% fall in the mine's profitability, and potentially a 20% decrease in the share price. The amplification of gold mining profits during periods of rising prices can cause a gold rush in mining exploration.
To reduce this volatility, some gold mining companies hedge the gold price up to 18 months in advance. This provides the mining company and investor with less exposure to short term gold price fluctuations, but reduces potential returns when the gold price is rising.
Till i come your way again remain blessed
Investment vehicles
Bars
1 troy ounce (31 g) gold bar with certificate
The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Argentina, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars are available in various sizes. For example in Europe, Good Delivery bars are approximately 400 troy ounces (12 kg).1 kilogram (32 ozt) are also popular, although many other weights exist, such as the 10oz, 1oz, 10 g, 100 g, 1 Kg, and 1 Tael, and 1 Tola.
Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. While bullion coins can be easily weighed and measured against known values, most bars cannot, and gold buyers often have bars re-assayed. Larger bars also have a greater volume in which to create a partial forgery using a tungsten-filled cavity, which may not be revealed by an assay.
Efforts to combat gold bar counterfeiting include kinebars which employ a unique holographic technology and are manufactured by the Argor-Heraeus refinery in Switzerland .
Coins
Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand (as opposed to numismatic gold coins which are priced mainly by supply and demand).
The Krugerrand is the most widely-held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation. Other common gold bullion coins include the Australian Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100 Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, French Coq d’Or (Golden Rooster), Mexican Gold 50 Peso, British Sovereign, and American Gold Eagle.
Coins may be purchased from a variety of dealers both large and small. Fake gold coins are not uncommon, and are usually made of gold-plated lead. Like gold bars, large Swiss and Liechtenstein banks buy and sell bullion coins.
Exchange-traded instruments
Gold exchange-traded funds (or GETFs) may include ETFs, ETNs, and CEFs which are traded like shares on the major stock exchanges. The first gold ETF, Gold Bullion Securities (ticker symbol "GOLD"), was launched in March 2003 on the Australian Stock Exchange, and originally represented exactly 0.1 troy ounces (3.1 g) of gold.
Gold ETFs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars. However exchange-traded gold instruments, even those which hold physical gold for the benefit of the investor, carry risks beyond those inherent in the precious metal itself. For example the most popular gold ETF (GLD) has been widely criticized, and even compared with mortgage-backed securities, due to features of its complex structure.
Typically a small commission is charged for trading in gold ETFs and a small annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time.
Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs. The main differences are that ETFs do not sell directly to investors and they issue their shares in what are called "Creation Units" (large blocks such as blocks of 50,000 shares). Also, the Creation Units may not be purchased with cash but a basket of securities that mirrors the ETF's portfolio. Usually, the Creation Units are split up and re-sold on a secondary market.
ETF shares can be sold in basically two ways. The investors can sell the individual shares to other investors, or they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be and may not call themselves mutual funds.
Certificates
Gold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs) by taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk).
Banks may issue gold certificates for gold which is allocated (non-fungible) or unallocated (fungible or pooled). Unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuing bank's gold on deposit.[42] Allocated gold certificates should be correlated with specific numbered bars, although it is difficult to determine whether a bank is improperly allocating a single bar to more than one party.
The first paper bank notes were gold certificates. They were first issued in the 17th century when they were used by goldsmiths in England and The Netherlands for customers who kept deposits of gold bullion into their safe-keeping. Two centuries later, the gold certificates began being issued in the United States when the US Treasury issued such certificates that could be exchanged for gold. The United States Government first authorized the use of the gold certificates in 1863. In the early 1930s the US Government restricted the private gold ownership in the United States and therefore, the gold certificates stopped circulating as money. Nowadays, gold certificates are still issued by gold pool programs in Australia and the United States, as well as by banks in Germany and Switzerland.
1 troy ounce (31 g) gold bar with certificate
Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. While bullion coins can be easily weighed and measured against known values, most bars cannot, and gold buyers often have bars re-assayed. Larger bars also have a greater volume in which to create a partial forgery using a tungsten-filled cavity, which may not be revealed by an assay.
Efforts to combat gold bar counterfeiting include kinebars which employ a unique holographic technology and are manufactured by the Argor-Heraeus refinery in Switzerland .
Coins
The Krugerrand is the most widely-held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation. Other common gold bullion coins include the Australian Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100 Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, French Coq d’Or (Golden Rooster), Mexican Gold 50 Peso, British Sovereign, and American Gold Eagle.
Coins may be purchased from a variety of dealers both large and small. Fake gold coins are not uncommon, and are usually made of gold-plated lead. Like gold bars, large Swiss and Liechtenstein banks buy and sell bullion coins.
Exchange-traded instruments
Gold exchange-traded funds (or GETFs) may include ETFs, ETNs, and CEFs which are traded like shares on the major stock exchanges. The first gold ETF, Gold Bullion Securities (ticker symbol "GOLD"), was launched in March 2003 on the Australian Stock Exchange, and originally represented exactly 0.1 troy ounces (3.1 g) of gold.
Gold ETFs represent an easy way to gain exposure to the gold price, without the inconvenience of storing physical bars. However exchange-traded gold instruments, even those which hold physical gold for the benefit of the investor, carry risks beyond those inherent in the precious metal itself. For example the most popular gold ETF (GLD) has been widely criticized, and even compared with mortgage-backed securities, due to features of its complex structure.
Typically a small commission is charged for trading in gold ETFs and a small annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time.
Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs. The main differences are that ETFs do not sell directly to investors and they issue their shares in what are called "Creation Units" (large blocks such as blocks of 50,000 shares). Also, the Creation Units may not be purchased with cash but a basket of securities that mirrors the ETF's portfolio. Usually, the Creation Units are split up and re-sold on a secondary market.
ETF shares can be sold in basically two ways. The investors can sell the individual shares to other investors, or they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be and may not call themselves mutual funds.
Certificates
Gold certificates allow gold investors to avoid the risks and costs associated with the transfer and storage of physical bullion (such as theft, large bid-offer spread, and metallurgical assay costs) by taking on a different set of risks and costs associated with the certificate itself (such as commissions, storage fees, and various types of credit risk).
Banks may issue gold certificates for gold which is allocated (non-fungible) or unallocated (fungible or pooled). Unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuing bank's gold on deposit.[42] Allocated gold certificates should be correlated with specific numbered bars, although it is difficult to determine whether a bank is improperly allocating a single bar to more than one party.
The first paper bank notes were gold certificates. They were first issued in the 17th century when they were used by goldsmiths in England and The Netherlands for customers who kept deposits of gold bullion into their safe-keeping. Two centuries later, the gold certificates began being issued in the United States when the US Treasury issued such certificates that could be exchanged for gold. The United States Government first authorized the use of the gold certificates in 1863. In the early 1930s the US Government restricted the private gold ownership in the United States and therefore, the gold certificates stopped circulating as money. Nowadays, gold certificates are still issued by gold pool programs in Australia and the United States, as well as by banks in Germany and Switzerland.
Factors influencing the gold price
At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves.Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production. According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 2,000 tonnes goes into jewellery or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds. This translates to an annual demand for gold to be 1,000 tonnes in excess over mine production which has come from central bank sales and other disposal.
Central banks and the International Monetary Fund play an important role in the gold price. The ten year Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year.European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period.In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.
Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold which has led to a surge in prices.
The price of gold is also affected by various well-documented mechanisms of artificial price suppression, arising from fractional-reserve banking and naked short selling in gold, and particularly involving the London Bullion Market Association, the United States Federal Reserve System, and the banks HSBC and JPMorgan Chase.Gold market observers have noted for many years that the price of gold tends to fall artificially at the start of New York trading.
Bank failures
When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and issue an executive order outlawing the ownership of gold by US citizens. There was only one prosecution under the order, and in that case the order was ruled invalid by federal judge John M. Woolsey, on the technical grounds that the order was signed by the President, not the Secretary of the Treasury as required.
Low or negative real interest rates
If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals.
War, invasion, looting, crisis
In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.
for you to be successful as an investor in the bullion market you must understand this aspect of the market and it's relation to price movement.
Gold as an investment
Of all the precious metals, gold is the most popular as an investment.[1] Investors generally buy gold as a hedge or safe haven against any economic, political, social, or fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is also subject to speculation as other commodities are, especially through the use of futures contracts and derivatives. The history of the gold standard, the role of gold reserves in central banking, gold's low correlation with other commodity prices, and its pricing in relation to fiat currencies during the financial crisis of 2007–2010, suggest that gold has features of being money.
Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries. Many European countries implemented gold standards in the later part of the 19th century until these were dismantled in the financial crises involving World War I. After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.
Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets forth the gold price versus various assets and key statistics:
Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries. Many European countries implemented gold standards in the later part of the 19th century until these were dismantled in the financial crises involving World War I. After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat currency system. The last currency to be divorced from gold was the Swiss Franc in 2000.
Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets forth the gold price versus various assets and key statistics:
In March 2008, the gold price exceeded US$1,000,[9] achieving a nominal high of US$1,004.38. In real terms, actual value was still well below the US$599 peak in 1981 (equivalent to $1417 in U.S. 2008 dollar value). After the March 2008 spike, gold prices declined to a low of US$712.30 per ounce in November. Pricing soon resumed on upward momentum by temporarily breaking the US$1000 barrier again in late February 2009 but regressed moderately later in the quarter.
Later in 2009, the March 2008 intra-day spot price record of US$1,033.90 was broken several times in October, as the price of gold entered parabolic stages of successively new highs when a spike reversal to $1226 initiated a retrace of the price to the mid-October levels.
On October 14, 2010, Gold closed at a new nominal high of $1373.25 in NYMEX.[10] On October 14, 2010 gold prices touched an all time high with an intra-day spot price reaching $1,387.30.
In my next post we will look at factors that are influencing the price of Gold.
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