[QUOTE=Scot27;827520]Why buy actual gold? Why not just buy an ETF that tracks the price of Gold? Im not very clued up by precious metals (I have always bought ETFs for them), so was wondering what are the reasons for buying actual coins? [/QUOTE]
Each option has their merits:
1. Exploration shares - if you are a geologist they have more upside, depending on when you buy, very little downside. My best bet on this strategy was 6800% increase on Minotaur Res when they intersected 600m of base metal mineralisation. Porphyry-copper type deposits offer this potential if a small $5mil company is testing the target.
2. Emerging or new producers - less upside, moderate risk. Real potential for cashflow, upside to gold price, but technical risk that reserve grade not as good as expected, or mining costs blow out because of unforeseen issues like poor plant design, strikes, etc. These are really nice if you can get options related to them, i.e. Aquarius Platinum opts - bought at 25c, sold at $8.95 in 2001 I think.
3. Established long life miner - trade at a premium, so harder to find upside, just prospect of increased reserve life, and higher gold price.
4. Standard ETFs - good exposure to gold, only risk is a price risk, no financial risk or technical risk.
5. Leverage ETFs - greater exposure, but its not physical, so if counterparty to ETF fails, you don't get your money back. This is I would suggest a high standard. We don't need to be this careful yet, at least not with all your money. Maybe 10-30% of funds here.
6. Futures - specific closing out date but you can roll over. Leveraged price exposure.
7. Options - time premium which diminished over time, no technical risk, but price risk, leverage upside, limited downside offsets time premium.
8. Contracts for Difference - one of the better ways. They are derivatives so counterparty risk. Many companies use these now, as can trade many products. Don't over-leverage.
9. Physical gold - less appealing because product storage/insurance costs, less upside
10. Jewellery - least appealing as poorer resell value, security issues, less upside.
Gold has broken out into new highs - going to $2400/oz. This is a gold bubble. Why? Govt debt issuance and printing of money is debasing currencies, subdued growth outlook and prospect of low interest rates means negative returns on bonds and money. Where can it go but in emerging property markets and commodities for returns. There is a historic relationship between gold & oil, gold & the Dow Jones, which tells us that gold is going to around $2400/oz. Its not luck, its based on pricing ratios between 1897-present. So when Dow index-gold price ratio gets to around 5, its a good time to sell. The Dow is a measure of excess money in the market relative to real money (i.e. gold). The Dow is priced on equilibration of financial assets, and its the biggest market, so good representation. This is early days still. I have been investing in gold since 1991 at $258/oz low I think, but there is a lot of upside because in real terms, inflation has debased all financial assets since that previous low of $850 in 1986 (I think). So in 30 years, a lot of inflation - and its getting worse.
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Andrew Sheldon www.sheldonthinks.com
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