INVESTING IN GOLD

Let’s look at all the different ways that you can invest in gold. Remember that these all are applicable to silver as well.

First, there are gold futures.

With gold futures, you don’t actually buy real gold. You simply buy a contract that says sometime in the future you will buy gold at a set price. When that day comes, you may, depending on what type of future, get a choice to fulfill the contract or you can let it expire.

Traders who operate to make trades rather than investments like the gold and silver future markets more. They are more concerned with making more trades, because they get paid by the trade.

However, unless you are a sophisticated investor, it is very easy to be eaten up by the future markets. They operate much more according to the laws of the traders who trade in it than the things happening in the outside world. Futures’ trading demands an understanding of the psychology of other traders that is best developed over long periods of time through observation, participation, networking, note taking, and so on. Beginning investors could try to trade in these markets with their own amateur knowledge, but it is not recommended unless you are an amateur bordering on lay expert.

Then, there are gold ETFs.

An ETF stands for an exchange traded fund. These are traded more like stocks than gold. It packages the value of gold into a certificate that is traded on stock exchanges by commissioned and professional brokers. The certificate tries to approximate the price of gold but many of these certificates are not backed by physical gold. This means you usually can’t cash out your ETF and get the equivalent in gold.

Once again, this is highly complex and demands far more of an investment of time and money than investing in physical gold. As a result, I do not recommend this unless you are already experienced and established in the gold ETF markets.

Another way to invest in gold is through gold mining stocks.

Here, you are not investing in the many companies that extract gold and often partially refine it. These are quite complicated. They depend on a lot of microeconomic factors, socio-political realities, and the particular business practices and paradigms that the mining company uses. There is always the possibility that mines can be closed without warning because of environmental regulations. Many successful mines live under the spectre of being nationalized by the local governments. All of this introduces much uncertainty into the price of gold mining stocks.

Beyond this, there is the very important fact that you don’t have a mining stock as a tangible asset. As a result, gold mining stocks should be carefully considered. I don’t like them, since there’s too much volatility.

In fact, I personally like physical metals far more and have had more success investing in them.

Here’s why.

Physical Gold is far Superior

Physical gold is the real thing. These are coins, bars, or bullion made from gold. This is the metal that finances mining companies. Tangible gold is what underlies ETFs. It is what is being imaginarily traded in future markets. It is the real thing, the source of these other instruments of wealth.

Physical gold is also a simpler investment. It isn’t flashy and isn’t a complex way of betting against another person’s bets. There is no need to make gold investing into your life like the really successful investors do in other markets. This saves you valuable time and mental energy, although that isn’t to say investing in physical gold is overly easy or simple. It’s just that relative to being an ETF trader or someone savvy in the futures markets—who have to get special licenses and build networks in exclusive and elusive groups—investing in physical gold is easy and simple.

It has less risk than mining stocks. It has less risk than currencies, which are being manipulated by government actions and central bank printing presses. Fiat currencies have never lasted, and it should come as no surprise when a major currency needs to be replaced or rebooted in the coming years and decades. These are historically normal happenings and should not be overlooked or ignored.

You can also have it on hand or nearby, instead of stored far away or floating around the hard drives in some computer bank at a commodities exchange. If very hard times fall upon you, it can be easier to trade that gold for money. I have personally had to do this with some of my gold due to an unforeseen emergency. This was immensely helpful and allowed me to ultimately save money because I didn’t use a credit card or take an emergency loan. Thus, gold helped me avoid interest rates in this situation. This is yet another bonus to physical gold.

Bear in mind that all I’ve just said about physical gold applies to other physical precious metals. The most important factors for these metals are the rise in the purchasing power and demand around the world outpacing the increases in supply. This will continue so long as the global middle class swells synchronously to an overall increase in the human population, unless some very efficient mining technologies are invented.

If you have time, then pay attention to increases in mining technologies and when they will go online. This can give you an idea how limited the ability to mine certain metals is. Since it takes years and sometimes decades to develop new technologies and to build new gold, silver, platinum, and palladium mines, I still think these precious metals will still soar because I think every single commodity will soar. Combine it with the fact of increasing uncertainty and the relative safe haven value of these metals, and you have a recipe for a rapid rise over many, many years, likely a decade or more. Remember, there will be ups and downs, some of them scary, but pay close attention to the mining fundamentals (supply) and the safe-haven buying (demand).
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