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The Gold Investor’s Bible


wealthymatters.comThis is the free e-book advertised in ‘The End of America’. Despite the negative reports I decided to look for a copy and read it just to see for myself if it was really as bad as it was portrayed.

I personally find this is a very good book and it has all the basics in one place.You can get a copy here: http://www.capitalsynthesis.com/wp-content/uploads/2011/07/The-Gold-Investor-s-Bible.pdf .If you are interested in investing in gold,I heartily recommend this book to you.Reading a book doesn’t mean uncritically accepting everything and tossing money into untested ideas.This book will offer you ideas,consider them,test them and if things work for you go for them.

Here is more about what I gained by reading this book with essays contributed by Chris Weber,Jeff Clerk,Steve Sjuggerud etc. :

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I pieced together the answer by reading the essays ‘The Greatest Currency Trade of the Millennium’ and ‘The Only Sure Thing We Know About Gold and the US Dollar’.

  • From the essay ‘The Ultimate Form of Real Money’ I got this short note:

Gold is the Ultimate Form of Money

1.Because it is easily transportable.Land is a good store of value but can’t be moved.

2.Gold is divisible

3.Gold isn’t perishable

4.Gold is consistent across the world

5.Gold has intrinsic value

6.Gold can’t be created by governments.

The above points were well put in the book.

  • From the essay ‘The Simplest Reason Gold Will Soar’: I got this piece -The knock against owning gold has always been that, unlike cash, it pays no interest… Compound interest is almost irresistible.If you can earn 7% a year on a $10,000 deposit, in 10 years time,it will be worth $20,000. Gold will just sit there like a bump on a log.But every so often, like right now, paper money pays you no interest… and the scales tip in favor of gold.That’s the simple version.Let’s add one little tiny wrinkle to it,so you can see why gold has become irresistible now…The forecast for inflation in 2010 is around 2%. Yet the Fed is keeping interest rates near zero. So instead of earning nothing in interest at the bank, you’re actually LOSING 2% a year to inflation. That’s what’s REALLY happening – the REAL interest rateat the bank (minus inflation) is NEGATIVE 2
And this situation leads to the sort of post found here:http://www.wellheeledblog.com/2011/09/21/savers-frustrated-by-low-interest-rates/

On this quote’…when real rates are negative, gold soars and stocks stink. And when real rates are positive, gold stinks and stocks soar.’I’d rather wait and see and decide later.I’d love to see the comparable figures for India.Negative interest rates are pretty common in India so any such relationship if it works will be a good find.

  • ‘The Best Simple Gold Indicator’ :has a pretty interesting ideaYou look at the price of gold once a month. You buy (or keep holding) if the price of gold is above its nine-month average. And you move to cash if it’s below its nine month average.There’s nothing magical about the nine-month average, by the way… You can use the eight-month, 10-month, and 11-month averages for “buy” signals, too. Same goes for the “move to cash” signals.

While I have little experience of stagnating gold prices,my dad definitely remembers long periods when he was in school and college when gold showed no activity.The above technique, should it work, is likely to be very useful in such times.I would love to test this technique,unfortunately I don’t have  enough data in the form of gold price in rupees before 1994.The best data on gold prices I could find is here: http://goldpricenetwork.com/goldprice/india/ .I could not find historic data on interest rates too.The best data on interest rates in India that I could find is here http://hksecurities.blogspot.com/2011/06/india-interest-rates-historical-chart.html.Unfortunately I haven’t been able to recreate the data that Jiggs of hksecurities derived from the RBI website etc.So as of now I’ve just made a mental note to check this method for future use.

  • How and Why China Will Flood the Gold Market:Gave me some interesting stats on Chinese Gold production and consumption.I wonder if China’s race to buy mineral assets in other countries might not just be a way to secure steady supplies for its economy but a way of diversifying out of US Dollars.I think the author,Jeff Clark ,has also made a good case for why Chinese Gold Consumption might continue in future.
  • The Best One – Click Ways To Own Gold:My takeaway was that in general the bullion funds track the actual gold price much better than futures funds over the long term.Futures contracts expire,so the funds that use gold futures are forced to sell their old ones and buy new ones…Each time they do it, it costs a little bit. That’s why these funds consistently under perform the commodities they track.There was also some Interesting information on the close ended Central Fund of Canada and Physical Swiss Gold Shares.
  • Finally,Precious metals ETF’s I can Safely Recommend: Zürcher Kantonal bank or ZKB offers ETFs in gold, silver, platinum, or palladium that trade on the Swiss stock exchange.The ETFs do not carry any premium or discount to the metals prices.One ETF-1 ounce.The law requires the bank match its ETFs by actual physical storage.Under the law the canton of Zurich bears responsibility for all the bank’s liabilities should ZKB’s resources ever prove inadequate.
  • Get Paid To Protect Your Savings:Selling Call Options is supposedly a way to get some income from your ETFs.Selling a call option simply gives someone else the right to buy your ETFs at a specific price (the “strike” price) before a specific date (the “expiration” date).In exchange for that right,the investor pays you money upfront (called the “premium”).Now here is what can happen 1) If your ETFs never trade for more than the strike price, you keep the premium and the ETFs. You can continue to sell call options against your shares.2) If the ETF price exceeds the strike price on or before the expiration date, your shares are automatically sold for you,you book any profit up to the strike price, and you still keep the premium.The best calls to sell have a strike price 10%-20% above the current price and expire in six months or so. Those will give you plenty of cash upfront and still leave you some upside on your gold.This strategy is  a hedge against calamity and the collapse of the dollar. Plus, with 15%-20% annual gains at times like this, you can earn more income than the best dividend-paying stock in the marketplace today.I’m not certain if this strategy is implementable in India but I’d definitely like to read more about it.
  • How to Buy Precious Metals at a Discount Any Day of the Year:Selling puts on gold stocks, silver stocks and exchange-traded precious-metals ETFs helps you buy them at a discount. When you sell a put, you agree to buy an asset at a predetermined price at a predetermined point in time. When you agree to buy the share/ETF for X price per share in about 6 month’s time you do that by selling a put option on the instrument with a “strike price” of X and an expiration date 6 months down the road. This trade plays out in 2 ways:

            1) The instrument stays above X price or continues to rise. No one will sell their                             instruments to you at X price in that case. So you simply pocket the premium you                       collected from selling the puts. You can repeat the process and collect another round              of income. OR

            2) The price falls below X over the next 6 months. When the time comes for                                      your option contract to expire, your broker will automatically buy the instruments                    you wanted for X, just as you agreed to Since you received a premium for agreeing                      to buy the instrument for X, your real cost is (X-the premium).If you’re looking                            for even bigger discounts, go farther out in the calendar.This sees an interesting idea.

  • How to Keep the Government’s Hands Off Your Gold Profits:Reminds us of the tax treatments of various gold investment options.
  • How To Buy And Store Physical Gold:Here are some takeaways
  1. Buy coins that are easily recognizable.
  2. If you have a larger portfolio go for bars as a second choice.Coins are always preferable as you can then sell gold in small quantities.
  3. Gold is easily transportable.
  4. http://www.davidhall.com – I have not personally used this merchant.But his coin portfolio idea looks interesting
  5. http://www.kitco.com/ for 1 ounce coins ,as markups are a set amt of dollars not a percentage of gold price.Also consider their pooled accounts for bullion.Again a merchant I have not dealt with personally so no comments.
  6. http://thecoinagent.com/ -No comments as I have no personal experience of dealing with this merchant.
  7. http://www.bordergold.com/ – for Maple leaf coins.Again no comments.
  8. http://www.assetstrategies.com/ No comments
  9. Eagle, Maple Leaf, Krugerrand, or Philharmonic
  10. Shop around to find out the exact markups over the spot price.
  11. Numismatic Coins have a higher mark-up
  12. Some ideas on keeping old safe
  13. Gold is insurance, you cash it in when calamity hits, either you personally or the economy.
  • 3 Best Bullion Coins To Buy: The recommendations are:Canadian Maple, Australian Kangaroo and American Buffalo.The national mints sell these coins to wholesalers at a 3% premium to spot gold. The wholesalers take another 0.5% and the retailer takes 1.5% in profit. So you pay a 5% premium to spot. When you sell you should expect to receive the spot gold price plus about 1%.
I’m hardly the final word on this matter but I’m not so certain about these coins being the best ideas.I see PAMP and Valcambi coins here.The former distributed by banks and the latter by the post offices.There is also bullion from the local refineries and coins cast by local jewellers.Swiss gold is purer and has a higher premium.And banks do not buy back their gold.Jewellers however are willing to buyback their gold with less hassles.And incidentally sovereigns are still popular with the local jewellers.
  • How To Legally Smuggle Gold:  the idea seems to be little different from Thai Baht Jewellery or the customs of a lot of Asians.
  • Watch For This Signal To Sell Your Gold: Dishoarding
  • I Don’t Waste My Time Thinking About When To Sell My Gold:Watch for gold prices going parabolic,government measures to tackle inflation seriously and wait for really high interest rates on cash before exiting gold.

 

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About Keerthika Singaravel
Engineer,Investor,Businessperson

6 Responses to The Gold Investor’s Bible

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