Investing in Gold, Why? How?

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Investing in Gold, Why? How?

The rich and the wise invest in gold when recession is on the horizon, and carry on doing so until recession is past. then they switch to stocks and shares. Why? Here is an illustrative and true story.

An old school friend of mine, Samuel (not his real name but close enough) had been investing in stocks and shares quite heavily and sucessfully for almost 12 years. The value of his portfolio had risen to nearly 800,000 pounds. He never tired of offering advice on anything to do with investments. In early 2010 along with millions of others he had  a very bad day. within 48 hours the value of his shares had dropped to around 300,000. When he told me I said, ‘Sell them and put the money into gold, real gold not futures.’ He said ”Ah but the price of Gold has just gone up, now is the wrong time to buy!’ and decided to keep his money in shares and make no changes. The gold price was £720 per ounce at the time.

A month later he was worried about his future pension because his shares value had shrunk to barely £250k so he sold the boat he had on the south coast for £35,000. Again I said to him ‘Put the money into gold, real gold not futures.’ he said to me ‘No , gold is far too expensive at the moment, the market will recover.’ The gold price was almost £800 an ounce by then. He picked a company he felt could not lose. A huge conglomerate with assets in the hundreds of billions and invested his whole £35k in shares in a company which he was already heavily exposed to ihis existing portfolio but which (so far) had weathered the storm. He bought BP at £620 per share

Another couple of months down the line he saw his BP shares tank at £300 a share, valuing his whole portfolio (including his recent 35k purchase) at £180k or so. He rang me. I said, ‘look you know what I said. I said buy gold. If you had done that when I asked you then you would be sitting on £280k in gold right now, thats 100k better off than you are right now, and you would still have the boat.’ (Gold by then was £810 an ounce) He said … you guessed it … ‘No I am sure the market will recover.’

As I write this his BP shares are at £403 which with other losses he has had on other shares place his portfolio in the 210K area. Gold Price? Oh that gold which was too expensive to buy at £720 an ounce and far too expensive at £810 is currently sitting at £820 (the high for the year was £863).

The thing is that in a recession the rich and the wise all buy gold. Gold Bar, Gold Jewellery, Gold Coins, anything so long as it  real gold. In fact a classic indicator of a recession on the horizon is a sharp rise in gold price. During a recession gold-buying businesses suddenly spring up and buy up all the scrap gold, this is the rich trying to buy it in cheaper than market value.

Why? Well Gold is the only commodity that is always desirable, has a genuine rather than an artificial scarcity, and has a built in mechanism (industrial use) that guarantees its constant rise in price.

People often say what about diamonds? The problem there is that the scarcity is artificial. The Diamond Cartels hold literally tons of uncut diamonds in storage in South Africa, London, Antwerp and Amsterdam. It only takes one player to buckle under the pressure of recession and sell a few hundred kilos and the world price of diamonds could halve overnight. A similar problem exists with Silver, which is a far more common metal than people realise.

You have to think about what the comodities will do if the recession gets really bad. this includes property. In a really bad recession not only does property price drop like a stone but rental income dissapears too.

This brings me on to ‘virtual’ gold. There are companies which ‘buy the gold’ and ‘hold it for you’ in a vault for a small fee. Did they really buy the gold? Is the gold really yours? Can you decide to take your gold from their vault if you wish? All too frequently the answer is no, no and no!

What puts most people off buying real gold is the image they have in their head of bank truck and hundreds of bars of gold weighing tons… if only!  At todays prices of £820 an ounce a half a million pounds (£500 000) worth of gold is 675 ounces, or 18.9 kilos or 41.79 pounds weight. In terms of size a half million pounds worth of gold could fit into a cube 10cm (4 inches) on a side!

So what sort of gold should you buy? The answer to this depends on how much you have to invest. If you have a large lump sum then Gold Bars are an unbeatable buy. Dont forget that if you buy more than a certain amount (£5k per year) you must declare it to the taxman because it will give yessentially an investment income he will want to tax (as your share dividends are taxed). Possibly the best way of buying gold in smaller quantities is in the form of coins. Gold Sovereigns and Krugerrands are internationally recognisable and easy to sell. In addition over long periods of time their value as coins can outstrip their value as bullion. Coins are also good for continuous investment, buy one a month or whatever you can afford. As I write this half-sovereigns are about £110, Sovereigns £220 and Krugerands £830 reflecting their differing weights.

When should you sell gold? My advice would be dont until you need the cash or there is a lift from recession. Look at the gold price histories over the long term, its better than most share price rises! However if you want to maximise your return you should sell when you are SURE the recession is over, buy shares cheaply, then keep an eye on the price of gold. When gold starts to rise steeply check for a new recession and if one could be looming sell your shares and buy back into gold.

FMX Ventures Inc. and Tolima Gold Corp. Announce Strategic Investor and …
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Buy Gold question by Poko: What are some legit websites to buy real gold from asia?
I would like to buy gold bangles and bracelets with lots of charms.

Anyone know legit websites?

Buy Gold best answer:

Answer by Steve B
Ha ha ha ha ha … good one .. next you will be asking for a legit site that gives loan to those with zero credit rating …