Your Questions About Invest In Gold Stock

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Paul asks…

how to invest in Gold in the form of an equity stock?

Are there any exchange-traded stocks whose prices strictly follow the price of Gold?

financi4 answers:

Yes, there are several gold ETF’s. IAU and GLD are two of them that can be traded as you trade equities. You can even use limit orders on them. Just watch the expense ratio. For more information, go to the AMEX web site and look for ETF.

The alternative is to buy a stock of a gold mining company. There are literally dozens of them, some of the more popular ones being RGLD, ASA, NEM, AUY, GG.

Steven asks…

Is this a good time to invest in Gold producers stocks?

financi4 answers:

That depends on whether you think we will get inflation or deflation. I think we will get the latter. As a result of my bias, it is very easy for me to find evidence of this:
– house prices still falling
– gas prices are coming down, even during the peak driving season
– savings rate is up

Here’s a deflation sign that the mai nstream news competely missed: in current dollar value (not accounting for inflation/deflation), the GDP actually dropped *more* than expected. The better than expected real GDP number was a result of lower than expected inflation: almost 0, actually.

Expectations: -1.5% real GDP + 1.0% chain deflator =
-0.5% current dollar GDP

Actual: -1% real GDP + 0.2% chain deflator =
-0.8% current dollar GDP

This is akin to your salary dropping more than you expected, but your buying power dropped less than you expected because prices rose less than you thouhgt they would.

So my opinion is that this is a good time to SELL gold. We’ll see if the stock market can stay up through the Fall.

Mark asks…

What is the best way to buy gold – etfs or physical gold? Also need info on ETFs…?

I am strongly considering investing in gold. But from what I see on here some people on here recommend buying ETFs and some seem to think physical gold is at least okay. Also, is an ETF like a share of gold stock. Please tell me more about ETFs and how they are traded. For all of the above please provide sources and or your credentials below your answer.

financi4 answers:

Gold ETFs: you trade them like funds or stocks. Pros: fast trading, low premium over the actual gold value. Drawbacks: quality of the management matters, fees vary, you really need to read the prospectus (e.g. Some ETFs lease gold to 3rd parties – i.e. The gold is physically not really there), it may not be backed 100% by gold but just 90%, etc.. It really depends -> prospectus and a lot of research. But, gold ETF is taxed as a mutual fund, which can result in slightly lower capital gain tax than physical gold..

Physical gold: you pay a premium (usually $50-70 over spot with 1 ounce coins). But then, you also get the premium back (partly) when selling gold (even if you sell on ebay, you still get more than the spot price – check out Pros: You hold the physical and you know it’s 100% there, in any type of meltdown. Govt doesn’t need to know you have them or you sold them (purchases under $10,000 or sales up to 25 ounces don’t have to be reported) -> consider capital gains tax. If you buy from BBB A rated dealers you can be sure it’s genuine. Drawbacks: you need a safe place (safe at home or safe deposit $100-300/year), shipping cost when buying online ($30-50). If you believe there may be a serious market crash (exchanges may be down and ETFs not tradeable), this is the better option.

Allocated gold: this is a compromise between an ETF and physical gold. You are a partial owner of a standard 400oz gold bar. The total cost of gold ownership about the same or lower as ETFs. Gold is held as bailment, i.e. You really hold title to it. Only two companies offer this so far: BullionVault and GoldMoney. Pros 24/7/365 instant transactions, low cost, gold is 100% physically there unlike many ETFs. Drawbacks: possibly higher taxation than ETFs or coins..

All in all, my favorite would be probably gold coins (and silver coins too > gold to silver ratio tends to get narrower in crisis times so silver may appreciate more if the dollar hits the fan, plus silver is much more practical – 1oz coin is worth only $20 so you can actually effectively use it for daily transactions etc..) .. But that’s my opinion. I’m very conservative and don’t trust the management of most funds.

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