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- Herausgeber: John Wiley & Sons
- Kategorie: Ratgeber
- Sprache: Englisch
In recent years, metals have been among the safest and most lucrative investments around, but they are not entirely risk free. Before you begin investing or trading in metals, you need authoritative information and proven investment strategies. You need Precious Metal Investing For Dummies. This straightforward guide eases you into the precious metals market with sound advice on trading and owning these profitable investments, including gold, silver, platinum, and uranium, as well as high-demand base metals such as zinc and copper. You'll learn how to research their market performance and choose among an array of proven trading plans and strategies. Plus, you'll get savvy advice on how to choose a broker, buy stocks and futures that involve metals, maximize your investment return, and minimize your risk. Discover how to: * Evaluate the different metals * Add metals to your portfolio * Decide whether you're an investor or a trader * Identify your metal-investment goals * Weigh the risks and benefits of metals investing * Buy physical metals * Use technical analysis to evaluate opportunities * Make long-term investments in precious metals * Diversify your metals investments * Analyze base-metals companies * Purchase numismatic coins * Add metals to your mutual fund or ETF portfolio * Understand how politics effects metals prices Metals can be an important and valuable addition to any investment portfolio or retirement plan. Make the most out of your investment with Precious Metal Investing For Dummies.
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Seitenzahl: 550
Veröffentlichungsjahr: 2011
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Precious Metals Investing For Dummies®
by Paul Mladjenovic
Precious Metals Investing For Dummies®
Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com
Copyright © 2008 by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/permissions.
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Library of Congress Control Number: 2007943297
ISBN: 978-0-470-13087-2
Manufactured in the United States of America
10 9 8 7 6 5 4 3 2
About the Author
Paul Mladjenovic is a certified financial planner, author, consultant, and national seminar leader. He is also the editor of the “Prosperity Alert,” a free financial newsletter found at www.SuperMoneyLinks.com. His businesses, PM Financial Services and Prosperity Network (at www.Mladjenovic.com) have helped people with financial and business concerns since 1981. Paul achieved his CFP designation in 1985.
Since 1983, Paul has taught thousands of budding investors nationwide through popular seminars and workshops such as “Ultra-Investing with Options,” “The $50 Wealthbuilder,” and “Rescue Your Retirement.”
Paul has been quoted or referenced by many media outlets such as Bloomberg, CNBC, and many financial and business publications and Web sites. As an author, he has written the books The Unofficial Guide to Picking Stocks (Hungry Minds), Zero-Cost Marketing (Todd Publications), and more recently Stock Investing for Dummies, 2nd Edition (Wiley). In 2002, the first edition of Stock Investing for Dummies was ranked in the top 10 out of 300 books reviewed by Barron’s.
In recent years, he accurately forecasted many economic events such as the bull market in precious metals and energy, the decline of the U.S. dollar, and the mortgage-credit crisis. At press time, he has been warning his students and clients about the coming energy crisis, rising inflation, and the long-term problems unfolding with America’s retirement crisis.
Dedication
For the angels in my life: Fran, Joshua, Adam, and for my mother, Anna, an angel that left us to touch the face of God.
Author’s Acknowledgments
First and foremost, I offer my appreciation and gratitude to the wonderful people at Wiley. It has been a pleasure to work with such a top-notch organization that works so hard to create products that offer readers tremendous value and information. I wish all of you continued success! There are some notables there whom I want to single out.
The first person to acknowledge is Jennifer Connolly, my Project Editor. Calling her magnificent is just not enough. Her professionalism, expert guidance, patience, and kind nature helped me get this book done during a personally difficult summer. She is a true publishing professional who has been extremely helpful, understanding, and patient. Those words are not enough to express my thanks for her fantastic guidance.
My Acquisitions Editor, Stacy Kennedy, has been fantastic from start to finish. I thank her for her efforts and the vision to see this project through from idea to reality. May the folks at Wiley always appreciate this pro!
I send my appreciation to Sheree Bykofsky and Janet Rosen for their professional assistance and personal support during the entire project. Through the years they have been superb, and I look forward to more of the same in the years to come.
To my wonderful wife, Fran, for her love, support, friendship, and devotion. I thank her for the free “tips” on precious metals and the numerous offers to do research at the jewelry outlets. Her tireless efforts will probably put me in Visa and MasterCard’s hall of fame.
My thanks to my technical editor, Noel Jameson, another true professional and a great editor.
To all the great publishing, production, marketing, and distribution folks at Wiley, thank you for your dedication and wonderful efforts to bring For Dummies guides to our readers.
Lastly, I want to acknowledge you, the reader. Over the years, you have made the For Dummies books what they are today. Your devotion to these wonderful books created a foundation that played a big part in the creation of this book and will for many more yet to come. Thank you!
Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial, and Media Development
Project Editor: Jennifer Connolly
Acquisitions Editor: Stacy Kennedy
Copy Editor: Jennifer Connolly
Technical Editor: Noel Jameson
Editorial Manager: Jennifer Ehrlich
Editorial Supervisor: Carmen Krikorian
Editorial Assistants: Erin Calligan Mooney, Joe Niesen, Leann Harney, and David Lutton
Cover Photos: © Stockbyte
Cartoons: Rich Tennant (www.the5thwave.com)
Composition Services
Project Coordinator: Lynsey Stanford
Layout and Graphics: Reuben W. Davis, Alissa D. Ellet, Joyce Haughey, Christine Williams
Proofreaders: Debbye Butler, Cynthia Fields
Indexer: WordCo Indexing Services
Publishing and Editorial for Consumer Dummies
Diane Graves Steele, Vice President and Publisher, Consumer Dummies
Joyce Pepple, Acquisitions Director, Consumer Dummies
Kristin A. Cocks, Product Development Director, Consumer Dummies
Michael Spring, Vice President and Publisher, Travel
Kelly Regan, Editorial Director, Travel
Publishing for Technology Dummies
Andy Cummings, Vice President and Publisher, Dummies Technology/General User
Composition Services
Gerry Fahey, Vice President of Production Services
Debbie Stailey, Director of Composition Services
Contents
Title
Introduction
About This Book
Conventions Used in This Book
What You’re Not to Read
Foolish Assumptions
How This Book Is Organized
Icons Used in This Book
Where to Go from Here
Part I: : Breaking Down Precious Metals
Chapter 1: A Compelling History
Mining the History of Precious Metals
Taking a Look at Track Records
Grappling with Bulls and Bears
Chapter 2: Diversifying with Metals
Working with Rising Inflation
Understanding the Versatility of Metals
Reaching Your Financial Goals
Discovering Your Investing Style
Knowing Whether to Get Physical or Own the Paper
Getting the Amount Just Right
Chapter 3: The Beauty and Benefits of Metals
Protecting Your Portfolio Against Inflation
Benefits for Investors
Benefits for Traders and Speculators
Chapter 4: Recognizing the Risks
What Risk Means to You
Minimizing Your Risk
Risk-Management Tools
Weighing Risk Against Return
Part II: : Mining the Landscape of Metals
Chapter 5: Gold: All That Glitters
The Ancient Metal of Kings
Gold for the Record
Securing a Safe Haven from the Coming Storm
The Gold Market
Gold Bugs
Gold Investing Resources
Chapter 6: Discovering the Secret of Silver
Understanding the Hybrid Potentials of Silver
Researching Silver
Owning Silver
Silver’s Compelling Future
The Legends of Silver
Chapter 7: Platinum and Palladium
The Platinum Group Metals
Platinum Group Investment Vehicles
Research Resources
Chapter 8: Uranium
Controversial Past, Bright Future
Uranium Investing Vehicles
Resources
Chapter 9: Base Metals
Understanding How Base Metals Fit into Your Portfolio
Covering All the Bases
Base Metal Investing Vehicles
Base Metal Resources
Part III: : Investing Vehicles
Chapter 10: Buying Metals Direct
Weighty Matters
The Case for Physical Ownership
Forms of Gold Physical Bullion
Silver Physical Bullion
Bullion Dealers and Resources
Putting Precious Metals in Your IRA
Chapter 11: Purchasing Numismatic Coins
The Basics of Numismatics Coins
Collectible Coins
Coin Services and Organizations
Selling Your Coins
Chapter 12: Mining Stocks
Essential Stock Investing 101
Mining Stocks — Digging Deep
Getting Down to the Nitty-Gritty
Boosting Your Returns
Chapter 13: Investing in Mutual Funds and ETFs
Mutual Funds
Mutual Fund Resources
Exchange-Traded Funds
ETF Resources
Chapter 14: Exploring Futures
Back to the Futures
The Players in the World of Futures
The Fundamentals of Futures Contracts
Metals Futures Contracts
Basic Futures Trading Strategies
Futures versus Options on Futures
Futures Resources
Chapter 15: Options
How Options Work
Working Out Your Options
Something for Everyone
Minimizing Risks with Options
Some Profitable Combinations
Options in the World of Precious Metals
Golden Rules for Options Success
Options Resources
Part IV: : Investment Strategies
Chapter 16: Choosing a Trading Approach
Being a Boy Scout — Being Prepared
Picking Out Your Vehicle
Selecting Your Trading Strategy
Resources for Trading
Chapter 17: Finding and Using a Broker
Getting Down Some General Points
Futures Brokers and Accounts
Selecting a Broker
Dealing with Futures
Stock Brokerage Accounts
Types of Orders
Chapter 18: Using Technical Analysis
Technical versus Fundamental Analysis
Tracking the Trend
Charts
Chart Patterns
Moving Averages
Indicators and Oscillators
Short Term versus Long Term
Resources for Technical Analysis
Chapter 19: Following Politics and Markets
Precious Metals and Skullduggery
Precious Metals and Geo-Politics
Resources on Politics and Markets
Chapter 20: Dealing with Taxes
Taxable Activity
Capital Gains and Losses
Tax-Deductible Activity
Special Tax Considerations
Tax Resources to Keep You Up-to-Date
Part V: : The Part of Tens
Chapter 21: Ten (Nearly) Reminders about Mining Stocks
The Company’s Management
Financing
Earnings and Cash Flow
Balance Sheet Strengths
Regulatory Environment
Hedging and Forward Sales
Valuable Projects or Properties
Extraction on Cost Per Ounce
Political Considerations
Chapter 22: Ten Rules for Metals Investors
Diversifying Your Vehicles
Having Some Bullion Coins
Limiting Your Exposure
Watching the Markets That Affect Precious Metals
Using Options to Boost Performance
Adding Alternatives
Adjusting along the Way
Understanding the Difference between a Correction and a Bear Market
Watching Political Trends
Monitoring Inflation
Chapter 23: Ten Rules for Metals Traders
Faking Out the Markets First
Having a Plan
Avoiding Committing All Your Cash at Once
Taking Profits Doesn’t Hurt
Using Hedging Techniques
Knowing Which Events Move Markets
Checking the Trading History
Using Stop-Loss Strategies
Embracing the Experience of Others
Minimizing Transaction Costs
Chapter 24: Ten Ways to Limit Risk
Staggering Your Entry
Using Trailing Stops
Diversifying Positions
Diversifying in Markets
Diversify among Different Vehicles
Read the Best Sources
Using Protective Puts
Avoiding Unstable Political Markets
Looking at Past Trading Patterns
Taking Some Chips off the Table
: Further Reading
Introduction
The time for precious metals has come. Emerging from the doldrums of a two-decade-long bear market, this millennium is witnessing a historic bull market for precious metals. Yet, the public hasn’t caught on . . . yet. As you read this book, you can catch on as well and hopefully before the crowd does.
In recent years, I have told my clients and students that precious metals are (and will be) a necessary part of a healthy and growing portfolio. I don’t tell people that precious metals are great because I wrote a book; I wrote a book because precious metals are great. For Dummies guides have become the quintessential nuts ’n’ bolts introduction to a popular or necessary topic. Why not precious metals because I think they are necessary and their popularity is strong and growing? The time is now and the place to be is in precious metals (and some related places, too, such as base metals).
About This Book
Over the years, I have read and reviewed many investing books and lots of stuff on precious metals, but I didn’t see much that could offer enough information and guidance for anyone interested in precious metals, especially if you are a novice in the topic. You may have some headlines on gold or even some commercial from some precious metals firm selling gold coins, but what is there to educate you as you dive into this fantastic topic?
Just about everything a beginner (or investor with rudimentary knowledge) needs to know about gold, silver, and other prominent metals is found right between the covers of the book that you are holding right now. As is the hallmark for For Dummies guides, the topic is laid out nicely so that you won’t have to read from start to finish like so many other books. If the only thing you are interested in is how to buy gold or what you need to know about investing in silver, the information is there, easily found and ready to be read and comprehended in minutes.
Fortunately, (for me and for you), this For Dummies guide is not a clunky, laborious read. The writing is not stuffy and loaded with academic or industrial jargon. I get to write the book in my own voice; otherwise I’d fall asleep myself! It’s a fun way to find out more about precious metals, and you can apply the info from this book immediately.
Conventions Used in This Book
I’ve used the following conventions to make your read through this book a bit easier:
Italics: Although you probably know most of the basic investing jargon, I put words or phrases in italics when I define them for you.
Monofont: Whenever you see a Web address, it will appear in monofont. This makes it easy to distinguish between the entire address and the rest of the text.
When this book was printed, some Web addresses may have needed to break across two lines of text. If that happened, rest assured that I haven’t put in any extra characters (such as hyphens) to indicate the break. So, when using one of these Web addresses, just type in exactly what you see in this book, pretending as though the line break doesn’t exist.
What You’re Not to Read
Okay, so I may not be the wordsmith my brain has me cracked up to be, but that doesn’t mean you can go skipping stuff in this book . . . oh, wait . . . you can actually.
Perhaps you’re in a hurry to get ahead of the crowd and start investing in some precious metals, so you need to cut to the chase and don’t want to be bothered with the stuff that doesn’t apply to you. Well, although I’d love to think that you’re hanging on my every word, you can skip two things:
Any text appearing with the Technical Stuff icon: This text, while meaningful and interesting, won’t hurt you if you bypass it.
Any text included in a sidebar: Whenever you see text in a gray-shaded box, those are sidebars. Of course, I love precious metals, so I’ve tried to include anything and everything about them in this book . . . well, at least as much as my editor allows me to. But some things just aren’t necessary for your complete understanding of investing in precious metals. I’ve tucked those things away in sidebars, which, while interesting, again won’t hurt you if you skip ’em.
Foolish Assumptions
Dear reader, I make a few assumptions about you. No . . . you’re not a dummy but you would like more information on the topic of precious metals. You have some very basic knowledge of investing, and you understand that diversification means considering investments beyond merely stocks or bonds. You understand that inflation is a problem of modern life and that investments that excel in inflationary environments are a good consideration for any long-term investor.
How This Book Is Organized
Hopefully the book is laid out for you to easily find exactly what you want to find and with enough detail to give you some important insight on the topic — but not too much to overwhelm or bore you. Fortunately, every chapter refers you to other sources (such as books, Web sites, or other chapters) that can offer as much detail as you need or want.
Part I: Breaking Down Precious Metals
You need to find the real deal on precious metals — why they’re such a good thing and why the future looks so shiny for this stuff. Chapter 1 gets you started on what’s all the hubbub. Sometimes the brightest futures really have their strongest foundations in history. Precious metals have been a useful part of economic history since civilization got . . . well . . . civilized.
Once you see the significance of precious metals, you can see why a commonsense portfolio needs to be diversified with (at least) a small portion devoted to precious metals. (Chapter 2 gives you more on this.)
The beauty of precious metals goes beyond just having a pretty face or a lustrous quality. It’s also about “beautifying” your portfolio. You find out more about the beauty and benefits of metals in Chapter 3.
Nothing worthwhile in this life is without risk. Precious metals are no different. You can’t have gold and silver and other attractive investments dazzle you, and then ignore the ugly parts. Risk is part of life and it is part of investing as well. It is also the 800-pound gorilla in the world of speculating and trading so a whole chapter is devoted to nothing but risk in the world of precious metals. In that case, make Chapter 4 required reading so that profits are easier to achieve (not to mention being able to sleep at night).
Part II: Mining the Landscape of Metals
Yeah . . . you’re right, “precious metals” can be a vague phrase so I get specific in this part. Each of the major metals deserves its own spotlight so I devote a chapter to each in this part.
You can’t talk precious metals without the king — not Elvis — gold. The allure and prominence of gold throughout history has put it at or near the pinnacle of investment success and it has become an ageless symbol of wealth. Find out more about gold in Chapter 5.
I love silver even though it has been dubbed the poor man’s gold. Silver’s performance in the coming years will probably shock most people so look at it closely in Chapter 6.
Most books stop at gold and silver and tend to ignore the rest. Not I. There are lots of goodies to be discovered, such as platinum and palladium. This is also pricey stuff with a bright future. Find out more about the platinum group metals in Chapter 7.
I couldn’t do a book on precious metals without the hot commodity of uranium. Energy is and will continue to be a major problem needing major solutions. Uranium will keep glowing, so find out why it’s untouchable (no kidding!) in Chapter 8.
When was the last time you read something exciting about zinc or copper? Stop scratching your head and don’t frown because base metals are a hot investment topic. Get the profitable perspective in Chapter 9.
Part III: Investing Vehicles
The variety of ways that you can invest, trade and speculate in precious metals are numerous and span from very safe and conservative to aggressive and speculative. Precious metals can be a vehicle to generate capital gains or income. They can be used as portfolio insurance or as risky venues that could be very profitable. This part covers the gamut.
Buying physical metals directly in bullion form is easier than you think, and I think that serious investors should have at least a small portion of their wealth in physical precious metals. Find out more in Chapter 10.
Another great way to get into metals like gold and silver is through numismatic (or collectibles) investment. It can be a little tricky so make sure you read Chapter 11 before you decide to proceed.
Probably the easier way to play the metals in a brokerage account is through mining stocks. They can be very profitable but there are some things to watch out for. Chapter 12 gives you the lowdown on mining stocks.
Maybe investing or speculating directly in mining stocks is not your bag. No problem — you can find great alternatives, such as mutual funds and ETFs, that are more conservative ways to add metals to your portfolio. Chapter 13 provides some great insights in this area.
For those who want the “high-flying” market where phrases like “get rich” and “crash and burn” are as common as “please” and “thank you” then you might consider precious metals futures (see Chapter 14).
Don’t stop there! There are more opportunities in the world of precious metals by using options. There is an option strategy for just about anyone, and you can find the details in Chapter 15.
Part IV: Investment Strategies
Okay. You know that precious metals can be good and you now know what ways there are to participate. Now what?
If you are going to trade metals for fun and profit, start at Chapter 16.
If you are getting into stocks, futures, or options, you need a broker so check out Chapter 17.
For those who want the short-term moves in precious metals and in markets such as futures and options, find out more about technical analysis in Chapter 18.
You’d be surprised to find out that political intrigue has a big impact on precious metals (and your potential profits). The skullduggery can be found in Chapter 19.
After you start raking in the big bucks, then, of course, you have to grapple with taxes. Chapter 20 is the place to start.
Part V: The Part of Tens
The Part of Tens reads like top-ten lists for common topics on precious metals. Whether you need reminders on mining stocks (see Chapter 21), rules for metals investing (Chapter 22) and trading (Chapter 23), or you just want to check out some ways to limit risk (Chapter 24), take a stop at the Part of Tens.
Icons Used in This Book
I include some handy icons that you may notice in the margin of the book. They point you to certain types of information, so be sure you know which is which.
I include some text that tips you off into certain directions — this icon makes sure you notice. These are not tips of the “Psssst mac, have I got a tip for you” variety. They are more like “hokey smoke...such a great tip!”.
Although I’d like for you to remember everything I say, I do have two kids and realize that’s a losing battle. However, if you see this icon, be sure to ingrain this info on your brain.
Just like I want you to remember everything I say in this book, I’d love for you to do everything I say, but again, having two kids, I can calculate the rate of return on that. But to truly stay away from pitfalls that can cause you serious financial harm, you should heed any warnings you see associated with this icon.
Just like any expert, I do have nuggets of knowledge that only Alex Trebek, my Trivial Pursuit teammates, and my mother could love. But I guarantee that after discovering the value of precious metals could have in your portfolio, you could fall in love with some of this technical stuff, too. However, if you prefer, you can skip the info associated with this icon. This is the only icon that points you to info that you can skip if you prefer to.
Where to Go from Here
At this point . . . browse! Check out the detailed table of contents and go straight to those chapters that pique your interest. This is not a novel that you need to read from start to finish. It is like opening your fridge and pulling out what interests you. As you watch the precious metals markets become more popular (for many good reasons), come back and discover more as well as get pointed in the right direction for more and better ways to profit from precious metals.
Part I
Breaking Down Precious Metals
In this part . . .
Why precious metals? For answers a lot better than “why not?”, check out the chapters in this part. You can find a little history and a lot of reasons why precious metals belong to a diversified portfolio here. I hope you do it with minimum trouble, too, so you can also check out a chapter on controlling risk in this part.
Chapter 1
Chapter 2
Diversifying with Metals
In This Chapter
Getting an idea of how inflation affects metals
Checking out the flexibility of metals
Hitting your financial goals
Getting a sense of your investment style
Knowing how much physical or paper amounts you should invest in
Diversification is always seen as a positive move for investors. Every investor (where possible) should have a variety of investment vehicles in his or her portfolio for obvious reasons. Diversification helps to minimize risk as well as increase the chances of seeing your overall portfolio grow, and the time has come for investors to diversify with precious metals because the economic and financial environment for precious metals is better than ever.
Working with Rising Inflation
The U.S. and other major countries have been increasing the money supply at a blistering pace. The increasing money supply means rising inflation, which is bad news for many conventional investments (such as bank certificates of deposit, bonds, and other fixed investments).
As the money supply grows, this monetary inflation then shows up as price inflation (higher prices for goods and services), which ties into hearing folks say “the U.S. dollar is losing value.” Of course, the more dollars you create, the less valuable each dollar is worth. Inflation, then, is a serious problem that could wreck a traditional portfolio. Precious metals then become a solid addition to your arsenal of wealth-building vehicles.
As inflation and other ominous trends unfold, precious metals become not only a good investment, but also a necessary tool in your overall wealth-building and wealth-preservation picture. Gold and silver, for example, make for excellent long-term inflation hedges.
Understanding the Versatility of Metals
Precious metals have the unique quality (for investors, anyway) of coming in a variety of “formats” to fit a variety of investor needs. Think about that for a moment. If you bought a stock, it comes in one format . . . stock! Well, it could be a paper certificate or a digital blip that you see on your computer screen when you visit your brokerage firm’s Web site but essentially, the only way you could invest in stock is . . . stock.
Precious metals, on the other hand, can be had as a “paper investment” (such as through a certificate of ownership or a futures contract) or shares in an exchange-traded fund (ETF; see Chapter 13 for more details) or in the actual physical metal itself. Unlike many other investments, the form the precious metal takes does indeed have a bearing on its level of risk and appropriateness (more on risk in Chapter 4).
The most versatile precious metals are gold and silver (and sometimes platinum). Gold and silver can be held as coins or jewelry but other metals are difficult to keep in physical form. Platinum, although available, is very expensive and not as widely available in physical form. Uranium? Don’t even think about it!
Reaching Your Financial Goals
What do you want to do with your money? Money, precious metals, and all the other things that are part of your financial landscape are really tools for living — nothing more, nothing less. In the world of investing, trading, and speculating, precious metals become a means to an end. What is that end for you personally: making ends meet this week, paying off the mortgage next year, becoming financially independent within ten years, or another goal? Regardless of the goal you choose, precious metals provide you with an excellent vehicle to help you reach your future financial goals.
In 2001, a bull market began to unfold when the general investing public didn’t even notice: Gold was under $300, and by the spring of 2007 it was nearly $700; silver was under $5 in 2001 and in the same time frame went to about $14. This bull market should continue, making metals a worthy investment.
You can find many investments and strategies suitable for long-term investing and many designed for short-term results. In the world of precious metals, the longer the term, the better your chances become for building wealth. The short term is more appropriate for traders and speculators, but keep in mind that the short term is fraught with volatility and risk. So short-term and long-term goals should address three things:
Your risk tolerance (see Chapter 4)
Your investing style (see the section, “Discovering Your Investing Style,” later in this chapter)
What your objective or goal is
The following sections give you an idea of how precious metals can help you achieve specific financial goals.
Seeking appreciation
Precious metals are primarily a vehicle for capital gain. In other words, investors seek to buy it at a low price and sell it at a higher price later. Precious metals do not usually generate income. Yes, there are mining stocks that issue dividends but these dividends are not substantial enough to merit consideration for investors seeking income. Precious metals have proven to be great vehicles that appreciate during long periods of economic, political, and financial distress. A good example is the late 1970s but a great example is . . . right now!
Early in this decade (about 2001), precious metals and precious metals–related investments (such as mining stocks) started an impressive bull market. The beginning was, however, a roller-coaster ride that zig-zagged upward. Every 12 to 18 months there was a pull-back or correction in their prices of 10% to 30%. For those not familiar with the volatility in precious metals prices, it was a scary moment, but for those with some patience and fortitude, the rewards were great.
Gold, silver, and other precious metals have shown excellent price growth and have been among the top performing assets so far in this period. They easily beat out financial assets such as stocks, bonds, and certificates of deposit. In the wake of the bursting housing bubble they even beat out real estate (cool!). For the rest of this decade and probably well into the next decade, the environment for rising precious metals prices is very bullish. Precious metals will shine (pardon the pun), but again, some patience and fortitude are necessary.
Looking for the home run
There are investors seeking appreciation (aren’t we all?), but some of you may be looking for only truly fantastic gains. I know personally of one case in 1999 where $3,000 was turned in $80,000 in only four weeks in a commodities brokerage account. The vehicle he used was options on gold futures. During that brief time frame gold rallied from $250 to over $300. Of course, another four weeks later the amount shrunk to $22,000 when gold went back down. Remember: Home runs can also easily turn into strikeouts.
For those looking for home runs, precious (and base) metals offer realistic opportunities for great gains during the coming years. Base metals have been very profitable in recent years, and they are covered in Chapter 9.
Precious metals are part of the natural resource sector, which includes not only metals but also commodities (grains, meats, and so on) and energy (uranium, oil, natural gas, and so on). Because metals are a finite, nonrenewable commodity whose supply is strictly limited to what we can find both above and below ground, it offers the chance for great gains since demand and usage for them keeps going up. The population keeps growing right along with the money supply. As consumer and industrial demand keeps going up and as we print up more and more dollars (along with euros, yen, and other currencies) then what do you think will happen to the price of finite resources? Can you say “powerful, long-term, profitable bull market” three times fast?
Preserving your capital
Keep in mind that precious metals are assets with intrinsic value; value that’s been there for literally thousands of years through all sorts of economic conditions. In recent decades precious metals performed very well but in part it was due to what was going on around the economic and financial markets. Inflation is a dreadful problem. Inflation became more of an issue in this decade, and the prospects look bleak for the next decade. Why? Our government (and governments of the other major nations) is increasing the money supply at record rates. Coupled with persistent problems in areas such as, the war on terror, Social Security, healthcare, budget deficits — just to name a few — ensure (unfortunately) an environment conducive to precious metals. Precious metals have a long record of maintaining and rising value so they can be an attractive part of even conservative portfolios.
Using precious metals to generate income
Although precious metals are best suited for gains, there are precious metals vehicles and strategies that can generate income. This is important to keep in mind because no one says that once you are into a strategy to generate gains that you must stay that way. Au contraire! When your situation changes and you want to start reaping some of the fruits of your labor to augment your income needs then you can do something about it with these income choices:
Dividend-paying mining stocks: If you have grown your money with small mining stocks and you are changing your strategy from capital gain to income, then you can sell your no-dividend stocks and use the proceeds to buy larger, established companies that offer a dividend. Some offer quarterly dividends and there are companies that offer monthly dividends.
Covered call writing: This strategy could easily generate income of 5% to 15% or more from your existing stock portfolio with no added risk. Covered call writing could be done with the stocks of large mining companies no longer looking for gain.
Bonds issued by mining companies: I include this to be complete but they are not that different from bonds issued by other companies. Don’t consider it to be a “precious metals” investment; it’s just a bond so don’t get too excited.
Marketsafe certificates of deposit: Issued by Everbank (www.everbank.com) this has the features of a regular CD (interest) and it’s tied to precious metals such as gold and silver. If gold goes up, your CD (protected by FDIC) can increase in value with no added risk. Visit the Everbank Web site for more details.
Discovering Your Investing Style
When you think of style, perhaps you think of famous labels and famous people, but you probably don’t think about those folks with their colored coats waving and yelling at each other on the stock trading floor. Regardless of what you may think, they’ve got style, and so do you — an investing style. In the following sections, you can nail down your style and match it up with the best vehicles for precious metals investing.
Distinguishing between styles
In my investing seminars I talk to my students about the differences in the concepts of saving, investing, trading, and speculating because it matters so much and because I find it unsettling that even financial advisors don’t know the difference. These are important to distinguish because people should know otherwise the financial pitfalls will be very great. The differences aren’t just in where your money is but also why and in what manner. Right now as you read this, millions of people are living with no savings and lots of debt, which tells me that they are speculating with their budgets; retirees are day-trading their portfolios; and financial advisors are telling people to move their money from savings accounts to stocks without looking at the appropriateness of what they’re doing. Make sure you understand the following terms — knowing the difference is crucial to you in the world of precious metals:
Saving: The classical definition of saving is “income that has not been spent” but the modern-day definition is money set aside in a savings account (regardless of the interest rate) for a “rainy day” or emergency. Everyone should have a savings account with money that is safe and accessible just in case you encounter an unexpected interruption in your cash flow. In fact, you should have at least three months’ worth of gross living expenses sitting blandly in a savings account or money market fund. Do you know that 2008 is the year that the first wave of baby boomers (there are a total of 78 million baby boomers) start to retire? These retirees have more debt than any prior group of retirees and their savings rate is around . . . zero! Although precious metals in the right venue is appropriate for most people, including savers, you need to have cash savings in addition to your precious metals investments. A good example of an appropriate venue in precious metals is buying physical gold and/or silver bullion coins as a long-term holding (see Chapter 10).
Investing: This term refers to the act of buying an asset that fits an investor’s profile and goals that is meant to be held long-term (in years). The asset will always run into ups and downs, but as long as the asset you’re holding is trending upward (a bull market), you’ll be okay. Investing in precious metals may not be for everyone but it is an appropriate consideration for many investment portfolios. The common stock of large or mid-size mining companies is a good example of an appropriate vehicle for investors. (See Chapter 12 for more details.)
Trading: Trading is truly short-term in nature and is meant for those with steady nerves and a quick trigger finger. There are many “trading systems” out and this activity requires extensive knowledge of market behavior along with discipline and a definitive plan. The money employed should be considered risk capital and not money intended for an emergency fund, rent, or retirement. The venue could be mining stocks but more likely it would be futures and/or options since they are faster-moving markets. (See Chapter 14.)
Speculating: This can be likened to “financial gambling.” Speculating means that you’re making an educated guess about the direction of a particular asset’s price move. You are looking for big price moves to generate a large profit as quickly as possible, but you also understand that it can be very risky and volatile. Your appetite for greater potential profit coupled with increased risk is similar to the trader but your time frame is different. Speculating can be either short term or long term. Your venue of choice could be stocks, but more likely, the stocks would be of mining companies that are typically smaller companies with greater price potential. Speculating is also done in futures and options. (See Chapters 14 and 15.)
Understanding yourself first
Saving, investing, trading, and speculating aren’t just limited to understanding precious metals. They’re also to a great extent understanding yourself. Sometimes I get asked if an investment vehicle is appropriate and I have to provide a cop-out answer such as, “It depends.” Any investment could be good but it depends on who the person is. How well do you understand yourself? Here are some points to consider:
What are your goals? Are they short-term or long-term goals? Do you want to build wealth to buy real estate property next year or a large nest next decade?
What is your profile? Are you just out of college or are you retired? Are you heading into your peak earning years or are you slowing in your pre-retirement years?
What is your risk tolerance? Do you have the stomach to watch your investments rise and fall? Are you the type that sweats bullets when your nickel gets lost in the deep recesses of your couch?
What is your investing style? Are you conservative or aggressive? Do you quietly sip your drink at the party or do you dance on the table with a lampshade on your head?
You need to understand what type of wealth builder you are or you will have difficulty. Personalities and investing vehicles do have a correlation. Half the battle in successful wealth-building and/or wealth preservation is knowing yourself.
The saver
The saver is actually not worried about a return on his/her money (like the investor, for example). The saver is more concerned about minimal risk and having money for a rainy day. The saver will have money in an account where the doesn’t zig or zag; it just slowly grinds higher with compounding interest, ready to be used later for reasons both good (to finally invest it) or bad (pay for an unexpected problem such as a medical emergency or covering living expenses in the wake of a job layoff).
The investor
Are you an investor? Every investor is marked by the phrase “long-term” and this is indeed important. The classic investor does his or her homework to choose investments that are undervalued and that show great potential. The reason that these investors are “long-term” is that it takes a while for the market (other investors) to notice what you have and then buy it. If you have chosen your asset correctly, then “buy and hold” is your style and it has worked very well.
When people think of a successful investor the first name that comes to mind is invariably billionaire Warren Buffet. I can fairly label his investment style along the lines of “measure twice and cut once.” He spends a lot of time analyzing the investment and if it truly measures up, he will buy it and hold it for a looooong time. I will tell you something interesting about Mr. Buffet that I recently told my clients.
Warren Buffet is not a spectacular investor but long-term you can’t argue with the results. I told my clients that Mr. Buffet, to my knowledge, has never been the “top-ranked investor” in any year during his entire investing career. In other words, find his best year of stock-picking and there will be someone who did better in that given year. I doubt that he’s ever made anybody’s “top ten investors for the year xxxx.”. And yes . . . he’s had some bad or mediocre years. So what’s his secret?
Warren Buffet certainly does his research and then invests but investing does take patience. He takes the phrase “long-term” very seriously. If the investment is growing, why get rid of it? He minimizes the transactions costs (fees, commissions, taxes, and so on), and he holds on to his winning positions indefinitely. In today’s world, investors are impatient and are in a hurry to make a profit. And if they make it they sell too quickly to lock in their gain and then scurry off to hopefully make another choice. In other words, investors are frequently their own worst enemies. These principles and observations apply to precious metals as well.
The trader
For many, the words “trader” and “speculator” are one and the same. Trading is basically short-term in nature and more active in its scope than speculating. Markets do indeed go up and down constantly, and the ups and downs happen in the course of a year, a month, a week, or a single day. A market can have some amazing price swings that can occur in a single trading session. I’ve seen people buy, say, an option that morning and sell it in the afternoon and make a few hundred dollars (or more) in just a few hours.
Trading is usually about making money with the ripples in the market (the short-term ups and downs) versus riding the overall tide for perhaps greater profits over a longer term. They’re happier, I presume, with lots of smaller profits versus waiting it out a few more weeks or months for bigger profits.
In Chapter 16, you find out more details on the different types of traders and trading styles. You may have heard about day-trading and swing-trading since they have had their moments of popularity in recent years. So trading can be profitable and rewarding, but to me it can be a pain: Trading can require a lot of attention; trades can go against you; then, of course, there are the transaction costs. Day-trading simply presents too many pitfalls for inexperienced folks. Besides, can you imagine me trying to day-trade while I’m watching my five-year-old and my six-year-old? Fortunately, I work on the first floor and the sharp objects are locked away.
The speculator
I love speculating! It’s not for everybody, but it can be done with a small portion of your portfolio (again, if you don’t mind the risks). The speculator does a lot of research and tries to position the speculative portion of the portfolio for a spectacular gain. You do the research and apply some rigorous economic logic and you can tip the scales in your favor. Let me use a great example of someone who did this with oil futures (though you can easily do the same with precious metals).
I’ll call this speculator Joe. Joe opened a commodities brokerage account in the same firm that I use. Being bullish on oil, he opened the account in February 2004 with $90,000 and he concentrated entirely on call options on oil futures. A call option is basically a bullish bet that the asset (in this case oil) will be going up in price. Those of you who remember that year are already salivating — 2004 was a very bullish year for oil as it nearly doubled. Of course, investments tied directly to oil did well. In Joe’s case, he used long-dated call options that he rolled forward. In other words, he would buy the options and sell them at a profit when they rose in value and then use the proceeds to buy new options with longer time values and so on.
The key to powerful profits is leverage and that’s what you get with options. A single option can help you profit from the price swing of an oil futures contract that is tied to 1,000 barrels of oil. Every penny move in oil equates to a $10 move in the futures contract which in turn means a magnified move in the value of the option. If you didn’t follow that don’t worry: Chapter 14 covers futures and Chapter 15 tackles options.
What’s the bottom line for Joe? He was right about the direction of oil and his original $90,000 account value became $1.1 million by December 2004. This does not include the fact that he took out $300,000 from the account! I guess he needed it to buy gasoline. Anyway, that’s a great example of speculating done successfully. Just understand that for every successful “Joe” in futures and options, there are many unsuccessful ones. “Leverage” has made some speculators rich while it’s sent many speculators into new professions where they say things like “Did you want that order to go?”
Knowing Whether to Get Physical or Own the Paper
First of all, let me make this very clear: I think that everyone should own some physical gold and/or silver. If you had to choose between the two of them, I like silver a tad better. In terms of currency problems, we are living in historic times. Currencies are losing value, which will only get worse as the major nations of the world keep their respective money supplies growing and growing. Using precious metals as an inflation hedge or counterbalance to the shrinking value of the dollar will become imperative. Whether you stick to the physical metal or own it on paper depends on your trading style, as the next sections point out.
In the following sections, if I don’t specifically label something “physical” then consider it “paper” such as stocks, mutual funds, and similar vehicles.
For the conservative investor
For conservative investors and other folks who are risk averse, the precious metals area can be an unusual and skittish place. That’s understandable, but they still deserve a place in your portfolio to some extent. Current and future economic conditions warrant it. If you’re a conservative investor, consider the following investment vehicles:
Physical: Bullion coins and/or bars (see Chapter 10)
Large, established mining stocks (see Chapter 12)
Mutual funds that specialize in precious metals (see Chapter 13)
The above may be conservative but that doesn’t necessarily mean unexciting. Those who made it a regular practice to buy, say, some gold eagles (bullion coins issued by the U.S. Mint) every now and then during 2000–2006 would have been handsomely rewarded as the price of gold rose from $288 at the start of 2000 to a 2006 year-end price of $636 (a rise of 121%). Cool!
A good example of a large, established mining stock is Newmont Mining Corporation (symbol: NEM). It started the decade at $24 per share and ended 2006 at $45.15. Over a span of seven years NEM gained 88% not including dividends. Keep in mind that I’m using NEM as an example, not a recommendation. Not a spectacular performance but it certainly did better than the major market averages during that same time frame. The Dow Jones Industrial Average, for example, went from $11,358 at the start of 2000 to $12,463 at the end of 2006 for a percentage gain of almost 10%. Don’t even think about asking about how Nasdaq did during that time.
Mutual funds traditionally have been a major part of investors’ portfolios. For conservative investors, mutual funds are a great way to participate in precious metals. It’s probably not a surprise to you by now; precious metals mutual funds (along with other mutual funds that concentrate on the natural resource sector) were definitely among the top-performing funds during 2000–2006.
For the growth investor
As world populations grow along with the money supply, there will be strong and growing demand for natural resources, such as precious metals. In other words, precious metals and their related investments are a very appropriate choice for investors seeking growth. With that, the following considerations are appropriate:
Physical: Bullion coins and/or bars (see Chapter 10)
A cross section of both small, mid-size and large mining stocks (see Chapter 12)
Precious metals ETFs (see Chapter 13)
Long-dated options on mining stocks and ETFs (see Chapter 15).
By the way, precious metals can be purchased directly for retirement in an Individual Retirement Account (IRA), which I cover in Chapter 10. In terms of acceptance and choices, precious metals have come a long way since the days the government banned private ownership.
A good example of a gold mining company appropriate for growth investors is Goldcorp Inc. (symbol: GG). It started the decade as a mid-size company priced at a very reasonable stock price of $2.59 (price adjusted for stock split). GG ended 2006 at $28.37. The percentage gain would have been over 995% (not including dividends). That’s more like it! Sure the stock price hit bumps and potholes along the way, but patient growth investors reaped an excellent gain.
Now options can be a dicey matter. Some call them vehicles that can be part of the growth portfolio while a larger crowd would label them speculative without question. The honest answer is “it depends.” Did I shock you? Options are very versatile and they can be applied in various strategies of differing risk levels. There are even some options strategies that are appropriate for conservative investors and for income-oriented investors. For those buying options, be they call options or put options check out Chapter 15.
For the speculator
In recent years, I have had the pleasure of seeing some of my clients (who didn’t mind the added risk exposure) see $40,000 in risk capital (money, if lost, that didn’t force you to eat dog food) and turn it into $250,000 in less than three years. Speculating, again, is like financial gambling, but I don’t do it justice calling it that because enough knowledge and research can greatly offset the “gambling” portion of it. There is nothing wrong with speculating (heck, I do a lot of it), but it does require more diligence, research, and risk tolerance than other styles investing. The “thrill with your money” can definitely turn into the “kill of your money,” and it can happen all too suddenly.
With all that said, here are good considerations for speculators:
Small mining stocks
Options on mining stocks
Precious metals futures
Options on precious metals futures
My favorite of the four choices is options but hey . . . all the choices I list are good. In addition, even speculators should get some physical gold and/or silver as well because inflation will affect speculators, too.
For the trader
Even people who trade also have some savings and investments elsewhere in their financial picture. To me, trading is an active pursuit whereas the other areas are technically considered passive. I even consider speculating passive because it’s a case of having your money work for you in spite of the added risk. Speculating could be long-term as well as short-term, but trading is exclusively a short-term pursuit. Therefore, trading best occurs with assets in a market that can move far and fast. Also, successful trading tries to create or find profit opportunities in both up and down moves in the markets.
Therefore, the best venues for trading are:
Precious metals futures
Options on mining stocks
Options on precious metals futures
I cover more on trading in Chapter 16.
Getting the Amount Just Right
I can’t give you any hard and fast rules for what percentage of metals should be in your overall financial picture. I can’t turn to you and say, “Yup . . . 11.3% is a must for you.” I know guys in their 40s who will have a fairly small portion of their assets in precious metals, and I know some senior citizens in their 70s with large holdings. Some guidelines you just can’t find inside this or any book — they’re inside of you. You’re an individual, and what’s a right amount for you may not be for others and vice versa. Remember that I am writing this in 2007. I definitely would not have written the same guidelines in 1997 and I have no idea what I’m going to write in 2017 but now . . . today . . . precious metals are a necessity. I don’t see that changing for the rest of this decade. With that said, the following sections give you my take on what amounts each different type of investor should shoot for.
For the conservative investor
I think that conservative investors ought to consider having 10% of their financial portfolio in the physical metal (coins, and so on) and 15% in paper such as mining stocks. This should span both the precious metals such as gold, silver, and platinum along with base metals and uranium. The emphasis should be on larger, established companies in politically friendly countries. Of course, if you do more or a little less that’s fine since your personal style and comfort level come into play as well.
Although this book is intended for precious metals let me say (as a public service going beyond the call of my author duties) that some of your other portfolio holdings ought to be in areas such as consumer staples, energy, and other necessities. Take it up with your financial advisor and tell ’em I sent ya.
For the growth investor
Just as with the conservative investor, I like the 10% in physical and the 15% in paper approach. Of course, the character of the 15% paper portion can be different and certainly more aggressive. Look into junior stocks and mid-size companies. Learn about options and how they can boost your portfolio.
For the speculator
After you get past the 10% in physical, consider 20% in the same type of venues as the growth investor and 10% in the speculative area, maybe more if you feel you’re up to it and you have enough diversification in the rest of your financial situation. The 10% (or more) speculative portion can be options in a stock brokerage account or futures and/or options in a commodities brokerage account.
For successful speculating, I believe that you shouldn’t try to spread that speculative 10% portion around in a batch of metals. I know that I am speaking heresy in some circles but hear (or read) me out. Successful speculating requires time, research, and attention. Watching half a dozen different speculative vehicles makes it difficult. It reminds me of that guy I saw on the Ed Sullivan Show (yup . . . I’m that old) who would have a bunch of plates spinning on sticks and he would keep running to each one while his lovely assistant smiles from a distance . . . close to the nearest broom.
In the past few years I traded silver options almost exclusively, and I got to know the silver market very intimately. It paid off since the average account gain for my clients and dedicated students for three consecutive years was about 100% per year on an annualized return basis. It was very gratifying to accomplish that. The broker servicing the accounts at the commodities brokerage firm tells me that this is very difficult to do and is a higher success rate than most of the programs in the industry. For me the secret was that speculating is best done like a laser beam and not like a shotgun blast.
Before you take the plunge, test the water first. Do some simulated transactions. Web sites such as www.Marketocracy.com and www.stocktrak.com have great programs for simulated or paper trading without risking your money.
For the trader
This is a different animal. I hope that traders do put 10% into physical and maintain a diversified portfolio not unlike the growth investor. After that they can take the risk capital portion of their portfolio much like the speculator and start trading. If you are considering trading as a part-time activity, then you may want to consider the simulated trading programs that can be found on the Internet to test your approach before you decide to risk your money (see above section for suggestions).
As in speculating, trading is best done if you watch a single market like a hawk. Because the transactions are more short-term in nature and you’re catching the ripples, it is important to have a plan in place. The first thing you should plan to do is simulated trading (see above section for suggestions). Next, instead of trading futures directly, do options so that you greatly limit your risk. Options have great leverage but you can also limit your risk going in. Lastly, plan to read up on the trading styles of successful traders. One of the greats in the history of financial markets is Jesse Livermore. His thoughts on trading can be found in the book Reminiscences of a Stock Market Operator (John Wiley & Sons). Just a thought . . . speaking of which, I have many more thoughts on trading in Chapter 16.
