Your Questions About Tips For Investing In Precious Metals

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Steven asks…

What are some good precious metals to invest?

gold, silver, copper, platinum, aluminum? Are they good? What are some other good ones?

Justin answers:

Iridium. Did you know that most iridium on the planet comes from meteorites? It’s a very cool metal – significantly more corrosion resistant than gold. You can dump serious acids on iridium and it just shines through the whole experience.

Iridium is way more cool than gold. Silver is a completely silly metal next to iridium. Someday, you can lean over to a woman at a fancy restaurant and slip her something iridium and say “Honey, for love that is more forever than gold there is iridium.” You could put an iridium ring on one of those aliens from the Alien franchise, cut its finger off, and the ring would last through the molecular acid spewing out all over the place and dissolving the space ship. Try that with gold!

And talk about space age applications – when they make synthetic gems for lasers they make them in crucibles made out of iridium because of its very high melting point. You can pour liquid iron into a cup of iridium and there is no damage to the cup. Now what happens when you pour liquid iron into a cup made of silver or gold? Just a big mess as the iron melts the cup and pours all over the floor.

BTW – copper and aluminum are not precious metals. That’s why they make flashing for your house and soda containers out of them.

Edit: Sure Monika – thanks for the tip. Buying any LME copper contracts anytime soon?

Ken asks…

I acquired 96K Im 18 want to invest it but dont know where to begin, thinking about gold any tips?

Its okay my grandma died and left me a share of her money!

Justin answers:

I don’t mean to be a hardnose, but the people denouncing gold are leaving out key points. For example, the person that said the one company that said Chase Global Digest ranked gold as the 2nd worst performing asset next to diamonds. It’s interesting that Chase Global digest said “28 years ago”. That’s because 28 years ago, gold reached it’s peak. For 22 years after that gold was in a brutal bear market. Yet, what the poster (and Chase Global) failed to tell you was that from 1971 to 1980 gold went from $35 per oz to $850 per oz – a return of 2,329%. Yet from 1966 to 1982, stocks were in one of the most brutal bear markets in history and for 16 years went no where and showed a loss of 22% during that time.

Yet, the poster also fails to mention that from 2000 to today, the Dow is up a whopping 120 points, a total return of 1% in the last 8 years. The S & P 500 is showing a LOSS of 15.4% during that same time period. Yet, from 2000 to now, gold went from $280/oz. To $886/oz as of today, a return of 216%. And when people say gold doesn’t pay a return/dividends, well, how many stocks pay dividends?

Also, people saying gold is trading near a 20 year peak are making a very erroneous analysis. In terms of “nominal prices”, yes, gold is above it’s all time high set in 1980, BUT you have to look at “real prices”. Adjusting for inflation, gold would have to trade somewhere north of $2500/oz. To equal it’s 1980 all time high. Silver would need to trade at $365/oz. Gold would have to go up another $1400 and silver over $340 to equal it’s 1980’s inflation adjusted high.

And what really baffles me is that gold has only been in a bull market for about 6 years now – after being in a secular bear market for 22 years, yet stocks have been in a bull market since 1982 (26 years) the longest bull run in history and no one even questions that. No asset goes up forever. All assets have cycles. In stocks, from 1949 to 1966 was a 17 year bull market, from 1966 to 1982 was a 16 year bear, and from 1982 to (really 2000) now has been a bull cycle.

Don’t get me wrong, I’m not anti-stocks. During the 80’s and 90’s, I was very pro stocks, but I also knew that stocks also run on a cycle and I saw that cycle ending in 2000. In 2002, precious metals bottomed (gold at $250/oz and silver at $4.50/oz).

Gold and commodities are reacting to the decline in the dollar and when the Fed lowered interest rates a few months ago, they telegraphed to the world that they were not going to defend the dollar. A devaluing dollar is inflationary. Think of it this way; from 2001 to 2008, crude oil is up 130% in Euro’s, 170% in Canadian Dollars, 135% in Australian Dollars – but up 305% in US Dollars. The world is losing faith in the dollar. The US Dollar index is now, just 2 points above it’s lowest level EVER.

I personally began buying up silver when it was in the $4/$5 an oz. Range. It’s now trading near $17 an oz. I’ve seen my investment more than triple in 6 years. I saw the cycles in stock ending in 2000 and I shifted my focus. Remember, all investments have cycles, the pros know that and the pros always make money because they know when cycles are completing and act accordingly.

Also, if people tell you that gold is in a bubble, I beg to differ. Their rationale for a bubble is that price shot up. That’s not the true definition of a bubble. When a bubble exists in an asset, there is no fundamental reason supporting such a rapid price rise and there is an overhang of supply and the general public loses any common sense and buys so they don’t miss out. During the equity bubble, within the last 5 years, people were buying just because they could. Companies that had no revenues, no sales, no product saw their stocks skyrocket. People bought just because the company had a “.com” in their name. Every other day there was a new IPO – stocks were greatly out of sync with normal valuation models – and we saw what happened. The housing market was the same – people bidding $80,000 above list, people buying houses sight unseen, people believing that prices would keep rising forever, builders building at a rate of 2 million units per year, when the population was growing at a rate of 1.1 million a year (a huge overhang of supply) – and we are witnessing what happened – everybody was becoming a flipper or real estate investor.

But do we see that same mania in gold? No, most people are still shunning gold. Also, there are fundamentals that are driving the price of gold. The fed is pumping the money supply at an unprecedented rate (along with the major central banks). There is no overhang of supply, as a matter of fact, gold demand is vastly outpacing supply by millions of ounces a year. Remember, gold (precious metals) are sensitive to inflation as are commodities in general. We have seen the price of crude oil more than double in a very short period of time. Are commodities volatile? Sure they are. But to apply that solely to commodities is erroneous. Look at anyone that had stock in Bear Sterns. I do trade commodities, but I’m a true trader, I have no market bias. I will short a asset in a heart beat if I see indications that prices will fall and I will go long just as quickly if I see the signs of a rally. Most people have a market bias.

I personally can not tell you what you should do. What I see is the Fed taking a path that is leading to the destruction of the dollar and I’m investing accordingly. What you MUST do is not listen to me or anyone else in this forum. You’re 18 and asking very wise questions, so you have the mental acumen to make good decisions. Most 18 year olds would blow it on a car and junk, but you’re thinking with a very mature mind. Pay attention to what the fed and government is doing relative to the fiscal policy of this country. Then compare various investments and see how they react to such policies and then make your decision on what to do.

I personally am not investing in stocks or any “paper” assets because those assets are cashed in in Dollars. Why would I want to get paid in a currency that’s about to fall of the edge of a cliff?

During the Weimar Hyperinflation, the people the did well and prospered were the ones that had gold and silver. I see the U.S. Heading down that same path.

John asks…

what do you think of VGPMX and VFSVX?

I am planning to invest in VGPMX and VFSVX for a roth IRA. I am new to it and looked up these funds through morningstar. I don’t know how to analysis their performance so I just looked at expense, yield, and risk vs. return. ??? I am 29, so I can take an aggressive approach.

Can you give me some tips about those funds? What should I consider when I look at a fund on morningstar?

Thanks in advance!

Justin answers:

VGPMX is more of a global mining fund than a precious metals fund. It represents a bet on global growth because mining is very sensitive to overall economic conditions. It also represents a bet against the US dollar. 90% of assets are non-US, with almost 2/3 in Australia+Canada. All in all, it is a pretty effective inflation hedge. If deflation becomes a risk, VGPMX suffers badly as in late 2009.

VFSVX is also a bet against the US dollar, with 100% non-US stocks. It will do best in an environment where the global economy grows, but with the rest of the world leading the US.

I think both are very good funds, but should be a modest part of your overall investing. It is fine to use either one for a single year Roth contribution, but diversify your future investments.

Disclaimer: I am a long term (and very happy) owner of VGPMX.

Thomas asks…

What would be the best thing to invest in during these economic times?

Justin answers:

It depends on what you believe these economic times are.

There are plenty of people on YA, for example, who believe that we are headed into a hyperinflationary period and are buying precious metals to protect themselves. There are other people who believe that we are headed into a deflationary recession and are buying bonds. There are still other people who believe that we are headed toward an economic recovery and are buying equities.

It’s a tough environment out there right now and it seems that the biggest factor right now is simply whether to take on risk or not so almost all sources of risk have become correlated. That means that you can’t escape from risk through diversifying your investments, which means that you probably shouldn’t be fully invested. That means you should keep a significant cash reserve, knowing that it will be hurt by inflation and there’s nothing you can do about it.

I think low duration TIPS bonds are a decent compromise kind of investment, particularly if you can put them in a tax-deferred account. I think precious metals are way too volatile right now to be a significant part of your portfolio. I think lending money long-term to the government when they are fiscally irressponsible is not a good idea, but short-term govt bonds are okay. If the Fed’s Twist program works, your short-term bonds may take losses however. I think everyone in the world hates structured finance products now and you can almost always make money investing in unloved securities. ETF’s that make leveraged bets in these securities are interesting for the risk part of your portfolio (e.g., AGNC) but I emphasize that there are serious risks here. I like energy investments across all asset classes because I think that even in an economic downturn, energy demand can still be robust. I think the Euro is way overvalued so shy away from European investments and consider investments that directly benefit from a falling Euro.

Hope this helps…

Michael asks…

How can you get rich quick?

Some many new homes being built, so many people driving new cars, all these reality shows of people and their wealth. How do they do it? Why is so many people wealthy?

Justin answers:

Sir,

We are talking about a nation that’s been fueled by credit-only growth. This is not real. The people you see there are people who only seem to be rich and wealthy, but what you don’t see is that they are rich and wealthy for only a very short period of time. Is that the goal? I think not.

The goal is to be financially stable for the long run and for that, the best tip is proper planning. Forget about making it rich quick. What easy comes, easy goes. So, my friend, plan and set goals for yourself. Only that way you can reach financial freedom, which is a treasure. And treasures are only possible via sacrifice. It will be difficult, but the peace of mind you get from being financially stable is beyond anything material.

Some of the tips you can start now:

-It’s not always what you make on a return, but rather what you save from your earnings that will compound most in your investments

-Invest diversely. 401k, precious metals, stocks (both domestic and international), bonds

-Never touch that money until the set date (if you want to buy a car, save the money and set a date, but you must be discipline. Again, we live in a society in which money is up there with God. Be careful, save for a bigger purchase)

-Don’t blow your money at the bar or on dumb services like NetFlix

-Minimize your credit card debt, if you must use it, then try to use those stores’ cards like Sears or Circuit City, which could offer no interest for up to 24 months.

-Pay yourself first. Treat yourself as a bill. Pay yourself $100 every month, then live with the rest. You will start piling money that way

Remember those people you see on TV are no one. Most of them are not educated, not organized, and just live the moment. You must be prepared and organized, always focused on your plan. Competition awaits you out there, my friend. So, I don’t promise it will be easy, but I do promise it will be worth it.

David asks…

Are you currently invested in precious metals? Why or why not?

Does anyone else fear runaway inflation?

Justin answers:

Okay, so when did everyone all of a sudden become experts in bubbles (not you Justin, a few of the posters here)? It’s amazing how everyone now is an expert on bubbles, yet these are the same people that didn’t see the bubbles in stocks in the 90’s and housing recently. Prices rising rapidly aren’t the primary key for a bubble. The stock bubbles of the 90’s and the housing bubble of the recent past has something in come. Yes, their prices rose rapidly, BUT the primary difference between them and gold is that there was no fundamental reason (in the later stages for stocks) to be running up like that in prices. It was nothing but pure greed and speculation that drove prices up. People bought tech stocks (in the latter stages) because it was a tech stock and tech stocks are going up. There we several dot com startups that prices soared, yet they had no revenues, not earnings history, just some concept, yet people bid up the prices. And there was no fundamental reason for houses to skyrocket in price other than “no one wanted to miss the boat” and drove prices up.

Yet, gold had been beaten down for 22 years, and is only now coming alive after nearly a quarter century. Adjusitng for inflation, gold should be trading somewhere north of $2200 – $2400 per ounce, so how can $900 per oz. Be a “bubble”?

And “What?”, your statement that precious metals aren’t a solution to inflation is nothing short of mind-boggling. Precious metals have always been a hedge against inflation. During the German Hyperinflation after WWI, the people that made it through without any problems and prospered where the ones who owned precious metals. During the German Hyperinflation, the Reichsmark (RM) was so devalued and worthless, that is took 1 million RM to buy a loaf of bread. My former boss’s late wife’s family owned one of the largest restaurant chains in Germany during that time and he said that a menu they still have from that era, a sandwich was 550,000 RM. It was normal for German citizens to carry around a 10 billion RM note because the RM was so worthless. It literally took a wheelbarrow full of RM to go buy a loaf of bread. Yet, during that time, an oz. Of gold was worth 87 TRILLION RM, so for 1/10 of an oz. Of gold, you could buy entire shelves full of groceries. So, saying gold isn’t a solution to inflation is like saying seatbelts aren’t the solution to saving your life in an automobile accident.

And to buy TIPS instead of gold? So, your advocating buying Treasury Securities from a Government that is so massively in debt, that the other countries of the world are losing faith in it, a gov’t that Former Comptroller David Walker said that unless we do something, the U.S. Will go bankrupt soon, a country where the currency is devaluing at a fast rate then the rest of the world and this is your solution to inflation “What?”. Inflation is a direct function of the increase in the money supply, the more money you print, the less its worth and the more of it you need to purchase the same amount of good and services, yet you advocate buying TIPS, which is going to pay you back in a devaluing currency – that’s really bright. Also “What?”, you’re making an assumption and a very flawed one at that – that inflation should stay mild because it’s been running some 3% for the last 15-20 years. Okay, the last time I check, the world is older than 20 years. I remember the high inflation rates of the 70’s, double digit rates, and that was 30 years ago. The big difference between now and then, is that in the 70’s we were still a creditor nation, today we are the largest debtor nation in the world and the value of the dollar is starting to reflect that. And if you believe the “official” CPI numbers, make sure you talk to me “What?”, I’ve got some beach front property in Nevada that I can sell you really cheap. The official gov’t CPI numbers are a crook of horse pucky. Anyone that believes those numbers is naive at best. John Williams, the economist that tracks what the true numbers are based on non-manipulated data pegs the true CPI at 12%. Anyone that is paying attention would concur that 12% is more realistic, not some bogus 3% the gov’t manipulates to make things look better than they really are. Don’t believe me? I’ll give you an example: any normal person that wanted to track new home sales would gather data from title companies as to how many new homes went through closing in the month in question. Do you know what the gov’t bases new home sales on? The number of signed contracts. That’s a crock of bovine excrement. Just because a contract is signed doesn’t mean the house will actually sell. And considering that home builders are experiencing record cancellation rates (some as high as 50%), the new home sales data is so skewed that it’s laughable. Existing home sales is the same thing – PENDING sales. I don’t care if the sale is pending, it still doesn’t mean the house will go through closing, yet that’s how the gov’t manipulates the housing data. And I have a friend that works for OFHEO, in the collection and compiling of housing data for reporting purposes, and she tells me that the numbers manipulated because the big boys don’t want bad numbers.

And to say that precious metals won’t keep up with inflation, what is the color of the sky in the world you live in “What?”? Precious metals always keep up with and outpace inflation. The average price of a car in 1990 was about $19,000, the price of an average home in 1990 was around $150,000 and the average price of gold in 1990 was $383/oz. So it took 50 oz. Of gold to buy a car and 392 oz. Of gold to buy a house. Today, the average car is $30,000 and the average home is around $300,000 and gold is averaging around $914/oz. So it takes 33 oz. Of gold to buy a car and 329 oz. Of gold to buy a house – 36% less gold to buy a car and 16% less gold to buy a house, so where in the world do you get that fact that gold doesn’t keep up with inflation. And that platinum and palladium are only rising because of fears of S. Africa temporarily cutting supplies? In 2001, Platinum was trading around $400/oz. Today it’s trading at over $2,000/oz. In 2002, Palladium bottom at $200/oz and is now trading around $400/oz. In 2001, Rhodium was trading at around $500/oz., today it’s over $9,700/oz. Does that sound like “temporary” supply problems? Considering these are rise in prices over the past 6-7 years? And isn’t it interesting that precious metals prices bottomed and started to take off right at the time the fed started cutting interest rates and flushing the system with liquidity after the tech stock bubble popped and the dollar index started to fall from 120 to around 72 today? Coincidence? Not at all, precious metals are reacting to the inflationary policies of the Fed and world central banks.

Now mind you, stocks can do well during high inflationary period (although during the high inflation of the 70’s, the major indices went nowhere), but inflation generally lifts stock prices up also. During the German hyperinflation, the German stock index went from 21,400 to 26,890,000 – a return of 125,554%. But big whoop, because if you cashed in, you be getting paid in Reichsmarks, which were worthless. Yet gold went from 170 RM per oz. To 87 Trillion RM per oz. – a rise of over 51 trillion %. Now, compare that to the value of the USD/RM exchange rate. It went from 4/5 to 1 to 2.4 Trillion to 1 – an increase of 48 Trillion % —- Yes, these numbers are what really happened during that hyperinflationary period, that’s how worthless the Mark was. So, let’s compare:

RM – Devalued by 48,000,000,000,000%
German Stock market – up 125,554%
Gold – up 51,176,470,588,100%

Gold prices surpassed the devaluation level of the RM, while the German Stock Index grew only a fraction compared to the RM Devaluation and he gold price increase. So anyone invested in stock.

But, let’s look at your Microcap stock. The iShares Russell Microcap Index (IWC). The data I have only goes back to 2005, so we’ll compare gold and the IWC during those periods. In 2005, the IWC was around 50. Today, it’s at 50 – Zero growth in 3 years. In mid 2007 it was at 62, today it’s at 50 – a NEGATIVE growth of 19.35%. In 2005 gold was around $444/oz. It settled today at $886/oz. – a POSITIVE growth of almost 100% (even after falling from 1,033 oz.). In mid 2007 gold was around $650/oz and today is $886/oz – a POSITIVE growth of 36%. So, tell me “What?”, where are you getting that gold is a bad investment and Microcap is good? There’s been ZERO growth in Microcaps over the past 3 years and gold is up almost 100% in that same time period. Unless of course, you life in the world of George Orwell, “War is Peace, Freedom is Slavery and Ignorance is Strength”. Heck, then Zero growth is good and 100% growth is bad.

Justin, I wasn’t ranting at you, just the people who spout off like this without actually checking history and the numbers. They may sound good at face value, but when you get into the real analysis, you can see they are lacking.

Yes, I am buying precious metals. Because metals have always been a hedge against inflation. Like I said, the world central banks (Fed too) have been pumping the money supply to stave off economic contraction – which is inflationary, that’s why the metals markets (and commodities in general) have been skyrocketing. Like I said, during the Weimar Germany Hyperinflation, the people the made it through and prospered were the ones that owned precious metals. There is a story from that era which I believe is true. A child had a wheel barrow full

William asks…

Does anyone here currently believe the hype about silver?

I have done some brief research online regarding investing in silver. All the arrows point to the price per ounce going through the roof. What do you think has it peaked at 13.50 an ounce or will it rise to the projected 50 an ounce by the end of the year?

Justin answers:

Some southern fellows, called the Bass Brothers, have tried to corner this market a couple of times. The precious metal roller coaster keeps collecting riders but only the brokers make any money.
The ONLY way a precious metal goes up sharply for any period of time is if a new use is found. If a silver gas additive gets 100 mpg, or NASA needs silver tipped rockets for the next shuttle I would be interested.

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