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Alternatively, if you have assets with capital losses, you should sell those to get a deduction. If you absolutely must incur capital gains by selling rather than donating appreciated assets, try to postpone the capital gains as long as possible. The idea is that you'll end up paying the same nominal amount in capital-gains tax regardless of when you cash out, but if you wait, the cost will have lower present value.

But you don't do that, and you instead wait another five years. You sell it. Index funds with low expense ratios can be a good option. I personally prefer to buy stocks instead because there are complications you have to remember to avoid paying double taxes on mutual funds, and I would rather not have to think about that. Non-Vanguard ETFs can also avoid those tax complications.

That's for mutual funds. But mutual-fund fees accumulate every year, while this stock-trading fee is a one-time cost, so after a few years, it's cheaper to buy the stock directly. In general, it's best to hold a stock as long as possible before selling in order to push the capital-gains taxes as far into the future as possible. Paying tax on the same amount of capital gains is better more years into the future because of the time value of money now vs. As with stocks, it's better to pick mutual funds with lower distributions which are similar to dividend yields.

Fortunately, distributions from index funds tend to be low because of minimal turnover in the underlying basket of stocks. So index funds are a win-win: Low expense ratios and low distributions at the same time. ETFs, like stocks, don't incur capital-gains tax until they're sold, so index ETFs could be an alternative to index mutual funds.

My DAF only allows for investing in mutual funds rather than stocks, but this isn't so bad because the income-tax-deduction benefits of the DAF far outweigh the possibly higher expenses that mutual funds involve, and the tax-reporting complications of mutual funds don't apply here because the funds in the DAF aren't taxed. By the same token, dividend yields aren't a concern for mutual funds in a DAF.

Finally, consistent with the point about equity vs. Holding individual stocks rather than a single mutual fund can be advantageous from a tax perspective, because. For more on the tradeoff between individual stocks vs. See " Advice for Donors with Capital Gains " for details. If you have stocks bought through an ESPP , you may need to wait months before these are considered "long-term" for purposes of a securing lower capital-gains tax rates when selling or b deducting the fair-market value instead of the cost basis when donating.

I modify my W4 to have a larger-than-usual number of allowances to account for the fact that I'll be getting a big tax deduction by donating to my DAF. This means I pay less in taxes now rather than getting a refund next year, since a refund is an interest-free loan to the government. Owning stocks directly involves some extra burden in dealing with special events that arise, like tender offers and subscription rights discussed below.

If you don't act on notifications of these events, you may lose thousands of dollars. If you tend to miss emails a lot, this could be a significant argument against buying individual stocks. The corporate actions discussed below tend to happen mainly for smaller companies, so one way to avoid them is to buy large-cap stocks. However, if there really is a persistent small-cap premium , then buying large caps may imply slightly lower expected returns.

One annoying aspect of owning stocks directly is that every so often, you'll get a letter about a " tender offer " to buy your shares for a fixed price prior to a merger. It seems you should either accept the offer or dispose of the shares before expiration. In a Yahoo Answers discussion , one reply warns of what happens if you don't dispose of the shares:. Take the recent example of Pipex. If you didn[']t tender then you retained all of your shares, which dropped to a[ ]couple of pence, I think. Often there is a secondary tender offer if the deal goes through. If you miss that, you may end up with something that is very hard to trade not listed on exchanges.

You can typically call your broker and ask to accept the offer. Note that a tender offer triggers short- or long-term capital gains just as if you sold the security in any other way. If it's a capital gain, you might consider selling some other stocks at capital losses during the same year to cancel out the gain and thereby avoid capital-gains taxes for the year. The stock price often converges to the tender-offer price, and in that case you can also just donate the stock, which avoids capital-gains implications. Note that " mini-tender offers " are much less well regulated than tender offers, and general advice is to avoid taking them.

In addition to tender offers, I once also got an offer for subscription rights , which allow you to buy additional shares at a lower-than-market price to counteract the effects of dilution when new shares are offered. You should probably either take the offer with maximal over-subscription when available or sell it. Selling should generally give you a fair price including value for the possibility of over-subscription? There may be differential tax treatment between these two choices. In my case, I sold my rights even though I paid a higher capital-gains rate by doing so.

One stock that I used to own required me to fill out Schedule K-1 on my taxes. It took maybe an extra 1.

Selling for Dummies Disc 2

But worse than that, the form wasn't mailed to me until March, whereas I had already submitted my taxes in February. This meant I had to submit a tax correction, which required another few hours of work. In I learned about some " robo-advisors " like Betterment and Wealthfront. I haven't looked into them in detail, but based on reading a few articles, my impression is that they're a good alternative to buying individual stocks for people who don't already have experience buying individual stocks.

From my perspective, 1 and 2 are both unnecessary, but 3 is quite useful and maybe worth the cost on its own. Here's some further explanation:. The book explains that due to various market manias, occasionally one of these asset classes will start to inflate into a bubble, even while others will drop in price. To take advantage of this, you sell the funds that have appreciated, and use the proceeds to buy the assets that have gone on sale. This makes sense if you want to reduce risk, but I'm doubtful whether it improves expected returns if the market is efficient.

If the market is inefficient and actually does have predictable bubbles, then sure, rebalancing to get out of bubbles would help. But it's a huge stretch to claim that there are ex ante predictable bubbles that are not taken advantage of by thousands of the smartest traders in the world. Note: I haven't studied this topic in depth, so maybe there's some counterintuitive math to justify the claim that rebalancing improves expected returns even for a risk-neutral investor.

Moreover, rebalancing incurs capital-gains taxes, since you're selling the securities that had the biggest gains. If the stock market tanks, you just lose out on some potential donations and divert more of your income to personal savings. So just buying an equity index fund or equity index ETF is sufficient. If you want further investment advice, there are plenty of free services online that will suggest an asset allocation between an equity fund and a fixed-income fund. Tax-loss harvesting : This is the feature that may make robo-advisors worth their fees.

If you only own one index fund or index ETF, you may not have a chance to take advantage of tax-loss harvesting because your asset might never decline below its purchase price. You're more likely to be able to harvest if you own multiple securities. But owning many securities is more hassle, especially if you count occasional tender offers, subscription rights, and other annoyances discussed above. So robo accounts allow for harvesting without manual effort.

This would take very little time. Manual control of harvesting may also be advantageous in certain cases. For instance, in , I had such low income that I would have preferred to not harvest losses that year, in order to save my losses for a future year when I would actually pay income tax. But these optimizations are minor and may not be worth their mental cost if you're not used to manual harvesting already. It can help give small performance gains relative to automatic garbage collection but also requires more effort. But if I were just starting out and didn't plan to learn about personal finance much, I might use a robo account.

Other inputs used in the calculation below, such as the dividend yield of an index ETF, are based on actual funds I looked at. One complication with the above table is that it assumed that taxes on dividends are only a cost. But in theory, the so-called "dividend tax penalty" should be partly priced in to the security.

In particular, imagine that all investors paid taxes on dividends at the same marginal rate as you. Then securities that paid more dividends would incur greater costs, so investors would demand that those securities provide higher returns before investing in them. In other words, in this world, higher returns would offset tax costs, so the dividend taxes could be omitted from the calculations. This reasoning seems to be recognized in the academic literature, e.


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In practice, not all investors pay taxes on dividends, such as k investors. And those who trade frequently pay short-term tax rates on capital gains, in which case dividends incur no more tax penalty than a comparable amount of capital gain. So in fact, not all investors incur extra tax costs from dividends. It's not obvious to me how to determine the actual return premium of high-dividend stocks over low-dividend stocks when some investors pay extra taxes on dividends and others don't.

For the sake of simplicity, we could assume that the return premium compensates for half of the cost of dividend taxes to a typical taxed investor. Of course, if dividend-paying stocks did have return premiums, we should expect to see non-taxed investors buy lots of them and taxed investors buy few of them, which would eliminate the premium This is all very speculative, but if we do make an adjustment for a dividend premium, then large-cap stocks would look slightly more promising than they did before though still less promising than small caps, ignoring the hassle of owning small caps.

Typically foreign ETFs have higher expense ratios than domestic, but plausibly foreign ETFs also have compensatingly larger expected returns? This isn't clear, since maybe US investors only hold foreign ETFs for diversification reasons rather than expected returns. But insofar as you care about diversification, holding many types of ETFs may be worth it in your situation too despite slightly higher expense ratios. One other factor to consider is whether small-cap stocks have higher expected returns than large-cap. Normally I'm very skeptical of hypothesizing differences in expected returns among types of stocks, but small-cap stocks have historically performed better, and perhaps greater systemic risk plays some role in explaining this.

Other explanations seem plausible as well. For instance : "early on, small cap stocks had bigger premiums and were more expensive to buy and sell, but isn't easily captured in historical analysis, and in reality likely skewed total return for investors. If that's true, then small-cap strategies in the above table will tend to dominate large-cap strategies or full-index strategies. Personally, in , I'm inclining toward trying out buying a few small-cap growth index ETFs with low expense ratios and dividend yields.

However, I'm not sure ETFs are worth their cost relative to just picking individual stocks. Lending Club is another interesting investment option. I haven't explored it fully, but I currently lean toward thinking it's probably not as good as equity, especially in the case of altruistic investing. I might change my mind, though. Daniel Odio and his wife "created a fairly aggressive portfolio that is projecting a Of course, there are biases in historical market-return estimates suggesting that actual returns to equity should be lower in the future than in the past.

But a similar comment could be made about Lending Club, since maybe part of why it has been so successful is that so far it's returns have been good. I don't know how much this is the case in practice. Another minor reason against Lending Club is that it's new and could go bankrupt. The company has a contingency plan for this: "an arrangement with a large established debt collection firm Portfolio Financial Servicing Co that would step in should Lending Club step off. For these reasons, I don't plan to use Lending Club now, but if the company becomes more mainstream and continues its current returns for many years into the future, I'd give it another look.

However, in my case, most of my savings are locked in to equities in the sense that I don't want to sell the stocks and thereby incur capital gains, which I would have to do in order to move the money to Lending Club. If I keep the stocks in equities until I donate them, I won't have to pay any capital-gains tax.

I take full advantage of the ESPP that my company offers. Because I don't care too much about risk, it doesn't bother me to hold a lot of stock in one company. That said, it's also relatively costless to reduce this risk. After the 2-year time limit mentioned above on ESPP-stock disposition passes, I can donate appreciated ESPP stock instead of donating newly earned income; this still gives the same income-tax deduction as donating newly earned income but reduces my stake in a single company.

I max out this matching because the free money is too good to pass up. In a later section of this piece, I discuss k tradeoffs in more detail. A summary is that if you expect to retire early or transition from a high-earning job to a low-income job, then contributing to a k could be a good idea in order to avoid capital-gains taxes and reduce your income while you're in a higher marginal bracket. If you expect to earn a lot and donate a lot indefinitely, then contributing more than what your employer will match to a k is a less obvious tradeoff between possibly modest financial gains vs.

Note that your employer may max out its match on a per-pay-period basis rather than a per-year basis. This means you may not be able to frontload k contributions all to early months, because your employer wouldn't match any more than normal in the early months but would stop matching in the later months when you made no further contributions, which would reduce your total match amount. At most companies the match amount is smaller, but in some cases it can be quite large , implying above-average incentive for altruists to work at employees of that type.

I do my own taxes using TurboTax, and one reason is that I like to learn how taxes are computed in order to organically find out about opportunities for deductions and other tax optimizations. The other reason is that I'm a geek. Take a look at Wikipedia's list of itemized deductions to get a quick sense of what things might be relevant, and if you have any of those, put records of them in a place where they won't get lost.

I track my charitable donations using ItsDeductible , which can be automatically imported into TurboTax. Get started on your taxes early in case complications arise that take more time than you expected, as well as to get your refund earlier. That said, if you expect to owe money on your tax return, it makes sense to wait as long as possible. In effect, your marginal tax rate is a bit less than half of what it appears. If you don't donate huge amounts and don't have a reason to donate every single year such as because of non-trivial employer matching donations , then it may make sense to donate a lot in one year and none in other years.

This means you can take the standard deduction in the non-donation years while itemizing deductions in the donation year. This is better than never getting to take the standard deduction or, if you donate very little per year, always taking the standard deduction and not getting any lowering of your taxes from your donations. This is a standard idea that's called "bunching" donations. A donor-advised fund helps with this strategy because then you can still distribute money to charities regularly every year which is better for the stability of the charities' funding while having an irregular pattern of donations for tax purposes.

Employer matching donations will probably be based on distributions from your donor-advised fund rather than contributions to it, so you might also be able to pull off this strategy even if you take advantage of donation matching. Why doesn't this strategy work even if you do donate huge amounts? Donations should be spread out over each year to keep from bumping up against this limit. Some countries appear not to limit tax deductions for charitable giving.

In this discussion , people report that the UK and Australia don't limit tax benefits from donating, with some caveats. Other things being equal, you might save a bit on taxes by moving to countries without deductibility limits. However, other things may not be equal. For instance, if you work in software, my impression is that pay is better in the US.

Your employer may have a so-called cafeteria plan that allows for choosing between a some benefits defrayed with pre-tax dollars vs. Typically I choose b because the benefits aren't useful for me, with certain exceptions. I'm not sure what to do in the case of life insurance. In general I assume that buying non-health insurance means a net loss in expected value, i. But if premiums can be paid without taxes, does that make insurance a net expected financial gain? I use this to pay all bills that can be paid with a credit card, both because of the cash back and because this gives me a one-month interest-free loan on paying those bills.

About half of my credit-card expenditures go toward groceries, and groceries are one of the special cash-back categories during one quarter of the year. In addition, the interest-free loan on purchases lasts between 1 and 2 months say 6 weeks on average. Assuming, e. It's good practice to monitor your credit card's activity about once a month to make sure you don't see unauthorized purchases.

I had my credit card number stolen once, and I caught fraudulent purchases made with it relatively quickly. Typically the credit-card company waives the costs of all unauthorized transactions, but it's still better to nip them in the bud. Many people I know have had credit cards stolen at least once, so it's reasonably likely to happen to you some day.

This means that if you get an Amex card, you might also need an ancillary card if you expect to shop with merchants that don't accept Amex. The extra hassle of keeping track of two credit cards may or may not be worth the extra cash back from using Amex. In my case I think the hassle is not worth it.

Precious Metals Investing For Dummies (For Dummies (Business & Personal Finance))

When I first wrote this section in , I lived within walking distance of my workplace, so I didn't own a car and didn't have to buy gas or vehicle insurance. I bought big bags of beans from Safeway to help reduce food expenses. I bought all of my clothes at Goodwill.

Since then my job and residence have changed, but my frugality efforts have remained similar. I found a lawyer to write me a simple will that leaves all of my assets to charity. This is important because by default, if I were to die, my assets would go to my family. Even at my age, the average male probability of death is about 0. Maybe your probability of death is much lower if you live in a safe place and don't have a mental illness. Suppose your annual probability of death is 0. To create the will, I looked around for local lawyers, wrote to one of them with my requirements, and set up a meeting to sign the paperwork.

I then sent copies of my will to my family and a friend, and I kept a copy for myself that I store in a known location. During the same visit, the lawyer provided me with documents for durable power of attorney, durable power for health purposes, and a health-care directive. My k account, brokerage account, and employer-sponsored life insurance have beneficiary designations, and these need to be updated as well.

I was able to designate my DAF as the beneficiary for my brokerage account. My DAF, in turn, has a section where I can designate the default charities to which the money would go if I didn't donate it all on my own. My k account can't designate the DAF, so I'm looking into how to set the beneficiary to be a specific charity instead. This section gives some suggestions about optimal donations with respect to capital gains. I've only studied the USA, so this may not be useful for those in other countries.

Also, my view of the landscape of tax ideas has been narrowly restricted to my particular financial situation, so I can't say much about people in other circumstances. Keep in mind that I'm not a tax expert. Most of what I've written is from memory or logical reasoning, so I haven't always cited sources, but you can find a lot of this basic info by searching around the web. Normally when you have stocks, mutual funds, or other property that has appreciated in value, this is bad news for you from a tax standpoint because you have to pay capital-gains tax.

Either way, you pay some amount. The situation changes when you're donating to charity. Common tax advice is that if you have capital gains, you should donate those properties rather than donate cash, because not only do you not have to pay any capital-gains tax, but if you have long-term capital gains, then your charitable tax deduction is equal to the fair-market value of the donated securities at the time of transfer, rather than the cost basis.

The bigger the capital gains, the less you pay in taxes. However, for the contributions of long-term capital gain property, the limit is 30 percent of the AGI of the taxpayer unless the taxpayer chooses to deduct only the adjusted basis of the property instead of its fair market value. Yes, I think this would work.

Of course, you might get a capital loss instead, but if so, you can deduct that as well see below for more on capital losses. However, keep in mind the time value of money: A tax deduction this tax year is worth more than the same deduction next tax year. So there's an elegant symmetry between the options, and in this simplified model, you should be indifferent between them. However, there are several caveats:. In the previous section, I analyzed the choice of whether to invest new money into a stock for the purpose of reaping negative capital-gains tax and suggested that it's not worth it.

However, if you already have a stock that has positive capital-gains, then you should consider waiting for it to be held at least a year and then donate it. It's as though you have just cash in this case. This situation happened to me last year. I had several stocks, but few had long-term capital gains. Among those that had short-term capital gains, some had essentially no appreciation over cost basis, while others had lots of appreciation.

So for the short-term stocks, which were the best to donate at that time? Interestingly, the answer depends on your expectations for future donations. If you plan never to donate again, then you should give the stocks with highest short-term capital gains, because that way you avoid paying the most tax when you sell the remaining ones. But if you plan to give more later, then you should donate the stocks with the lowest short-term capital gains.

Donating these is essentially like donating cash, and it doesn't really matter that you can only deduct the cost basis due to their being held less than a year because the fair-market value is pretty close to the cost basis. But the stocks that already have some appreciation would be wasted if donated right now because you can get a bigger deduction from those gains next year.

What if the stock goes down in value? This leads to the idea of "tax loss harvesting": If you have capital-loss securities, then sell them before the end of the year to incur the capital loss and lower your income taxes. Since in an efficient market, you're indifferent between selling a stock or holding it at any time, there's no harm to selling. When you do, you should wait 30 days until the " wash sale period" is over and then buy something new with the funds. You can buy something new sooner as long as it's not "substantially similar" to the old one, but I prefer to wait to make sure I don't mess it up.

Actually, there's one benefit to holding onto a stock with capital losses instead of selling it. If it does go up later, then because it started with a higher cost basis, you'll have a smaller capital gain. That said, for people who donate large amounts to charity, capital gains can be a good thing because of negative capital gains tax. If you plan to donate most of your stocks eventually, it's important to harvest capital losses regularly. This is because if you wait too long, what was a loss may become a gain again, since on average, stocks go up more than they go down.

If there were no transactions costs, it would be optimal to sell whenever any stock had any loss, in order to accumulate as many losses as possible. Finally, remember that frequent loss harvesting only makes sense for those who will donate appreciated stocks to charity, since otherwise, the losses you harvest now will turn into bigger capital gains that you have to pay for later. Determining the optimal frequency with which to harvest losses is a hard problem.

This benefit isn't true for many other types of deductions. To reduce the burden of recording my donations in a place where I might lose them, I use ItsDeductible. I enter the information when I donate, and then when I prepare my taxes with TurboTax, I can import the data directly from ItsDeductible without re-typing it.

There are probably similar services for other tax-software packages, but I haven't checked. There's a good argument to be had over whether altruists should donate or invest under various circumstances: If you know what types of projects are most cost-effective, then donating now captures social returns on investment due to snowballing of the changes you bring about. On the other hand, if you're gathering lots of new information that drastically changes your assessments of the relative cost-effectiveness of various projects, it's probably better to hang on to the money for a few years.

One argument in favor of donating now is that it allows you to take advantage of tax deductions. That said, charitable carryover deductions mean that if you donate more than the limit in one year, you can carry over the excess for up to 5 subsequent years. In addition, you might overcome the difficulty of not knowing right now which causes are most cost-effective by donating not to a particular charity but to a donor-advised fund , which would allow you to choose the recipient later on.

In the remainder of this section, I raise some points to consider when deciding whether to donate to such a vehicle for the tax benefit or whether to hold onto one's wealth privately. All told, I think the arguments in favor of a DAF generally outweigh those against, except in special circumstances. I think the main realistic case where you wouldn't want to donate to a DAF is if you're planning to retire from earning within a few years and won't be paid by anyone else beyond that point.

Are there legal restrictions against funding "your own" charity? I called my donor-advised fund to ask whether you're allowed to donate to your own charity. Here "your own" could mean a one that you founded, b one for which you sit on the Board of Directors, or c one from which you receive a salary.

I was told donating to your own charity is in fact allowed as long as 1 it's a c 3 charity that passes the public-support test, and 2 you don't receive a personal benefit from the donation. Therefore, it seems you can't just donate to yourself to pay your own costs of living while working at your charity. But you certainly can donate to charities that you founded and on which you sit on the Board of Directors. Indeed, Board members are often an important source of donations to a charity. Making a mistake could cost far more than what you would save by succeeding.

The official rate of inflation for was 2. That means that, according to the U. Department of Commerce more specifically, a subdivision called the Bureau of Labor Statistics found at www. The fine print for the official rate of inflation states that it does not include food and energy costs. I find that aggravating, too. Fortunately there are alternate sources of inflation data and analysis available at places such as www.

In , the U. Diversification against all currencies You encounter a purchasing-power risk in any manmade currency that could be produced at will by a government authority such as a government central bank. What does this mean for you going forward? As I mention in other chapters, a growing mismanaged?

Because paper or fiat currencies first started being used centuries ago, governments have never resisted the temptation to print up lots of it. This is why the dustbin of history is top heavy in currencies that were over-printed into oblivion. Could that be the case today? Are currencies being created in ever increasing amounts? Oh yeah. Gold and silver are doing well and should continue to do well regardless if we are talking dollars, euros, francs, yen, or salt. What does this have to do with the benefits of precious metals? The most obvious and familiar precious metals are gold and silver, and these two should suffice for most portfolios.

However, precious metals also encompass the following. For more details see Chapter 7. I also touch on base metals in Chapter 9 because they do deserve a spot in some portfolios. In recent years, some base metals have seen their prices double and triple. Even though copper and nickel are readily found in the composition of your pocket change, they are base metals that offer investment opportunities as well. I think that precious metals in their various formats offer many benefits see the following sections , and the sum total of these benefits makes them a compelling choice as a part of your portfolio.

For newcomers to the world of precious metals that would be an intriguing statement. What does it mean? A currency such as the U. There was a time when the U. At that point, the spigots on producing dollars opened up. Precious metals such as gold were a different story. It has been said that a single ounce of gold could have bought you a decent suit during the s.

In good times and bad, precious metals have retained their value and earned their title as a safe haven. This is especially true of gold and silver collectibles such as numismatic coins. Of course this does not relieve you of the obligation of paying taxes in the case of capital gains transactions. Inflation hedge In early , Harry Browne died. I thought it was a great loss to the investment and political world. He ran for President on the Libertarian platform in and One of the last books that he wrote was a short book that was a concise, true gem of financial wisdom called Fail-Safe Investing: Lifelong Financial Security in 30 Minutes St.

In it he detailed a model portfolio that was easily constructed by the average investor and it had performed very well in a variety of economic conditions. Browne was keenly aware of the dangers of inflation, recession, and other systemic problems that occur because of political and governmental mismanagement such as through inflation, taxes, and regulation.

He recognized that gold was not easily produced and manipulated by government. That physical limitation keeps gold growing at a pace that helps it to retain its value yet plentiful enough to keep pace with population growth. But dollar hedge is more related to those who see the dollar as an entity worth trading against. You can invest or speculate based on the direction of the U. In the same way you can look at the relationship of a common stock to the company it is attached to, you can look at a currency as it is attached to a country.

There are definite similarities. During the s and s, the dollar was considered a Chapter 3: The Beauty and Benefits of Metals strong currency, but in this decade, due to factors including a ballooning national debt and a large trade deficit, the dollar started a long decline. Coupled with the fact that we keep printing more and more of it, that trend will probably continue. A hedge against the dollar can manifest itself in a variety of ways. For example, some will speculate in the currencies of other countries because if one currency declines in value then some other currency is probably rising.

Of course, the other currencies could also decline as well. The bottom line is that gold and silver are solid choices as dollar hedges. Confiscation protection In Chapter 4 I spend some time dealing with the risks of precious metals and in one segment the focus is on political risk. The issue was how government can affect your investment. In the s, the FDR administration authorized government confiscation of gold and essentially banned ownership of gold. But they exempted gold coins, having a recognized special value to collectors of rare and unusual coins.

Even in the extreme case of heavy-handed government intervention, gold can still be a store of value. Liquidity Liquidity is an important benefit for investors. All liquidity really means is how quickly you convert an asset to cash. Securities such as stocks and bonds are very liquid assets. Assets such as real estate are not. Precious metals and their related investments tend to be very liquid. Mining stocks, like other stocks, can easily be sold in seconds either with a call to the broker or a visit to a Web site.

You can do likewise with options and futures you get them and get rid of them through your brokerage account. In terms of physical metals, the most liquid precious metals are gold and silver. Numismatic coins carry a high markup so if you were to liquidate them you may get only 70 cents on the dollar or less. Most people sell their coins to coin dealers but these dealers will basically offer you wholesale prices since they will end up trying to resell the coins at retail. Consider selling coins to other investors or collectors as they are easier to find now through the Internet.

It was important to have stocks in different sectors so that the overall portfolio could be safer yet still grow without you having to reach for the antacid on those volatile days. In this book, I get to tell you what I think is a good part of the diversification. Metals mining stocks and uranium have been among the top-performing stocks in the country in this decade. You already know about physical metals and their performance along with their advantages.

How about the stocks? Take Agnico-Eagle Mines Ltd. Other selective mining stocks in gold as well as other metals and uranium had similar results. Yes, I spill my stock-picking guts there! Why choose stocks in the metals sector if there are also healthcare, biotech, and so on? In the realm of investing and speculating, the past is something you learn from so that you can prepare for the future.

In the event that gold does go into four figures, what happens to gold-mining companies that are profitably sitting on millions of ounces of the stuff? Consider the rest of the metals that are covered inside the pages of this book. Gold is great but there are also silver, uranium, and so much more.

Cool profits in hot markets; I like the sound of that. Chapter 3: The Beauty and Benefits of Metals Benefits for Traders and Speculators Traders and speculators want a market that makes profits easier to achieve. The current and pending precious metals market offers an environment for just that. In the next sections, I want you to consider supply and demand as the ultimate factors in your wealth-building pursuits.

Say what? Do you think of Mrs. Krapalbee in your college econ course on the first day of the semester? Let me change that dynamic. The natural resource or commodities sector is wonderfully positioned for gains in the coming years. Breaking it down a step further, natural resources can be neatly separated into two segments: finite natural resources and renewable natural resources.

Renewable natural resources include things such as corn, sugar, coffee, and so on. But you know what happens with renewable resources. These are great markets with great opportunities but I prefer to speculate with finite natural resources. Finite natural resources refer to resources that are not readily renewable or replaceable. Good examples are oil, natural gas, base metals, uranium, and precious metals. In other words, whatever we find that is above and below ground.

No more. Our society ultimately finds substitutes, but only if it really, really, really has to. We go through a painful transition as we move from one resource to the next but we hang on to the 43 44 Part I: Breaking Down Precious Metals original resource until a suitable substitute comes along. A good example is oil.

Put those three together and you have dynamic opportunities in things such as. The benefits for traders and speculators then become obvious. I cover trading strategies in Chapter Options on silver futures were purchased. This was of course speculation but it was done with only 10 percent of her money. Adjusted for inflation it would be in three figures. Trading versus speculating I know an associate who likes to speculate and he hates trading. Trading is too much work and it requires a lot of time, attention, and timing.

Plus you add in the transactions costs. After you factor it all in, you may make a profit of. Now there are traders out there who make some great profits and even a good living at it. As for me. Being in a full-time business and helping to raise my two young boys means that trading is not right for me. Successful trading takes a lot if you are going to make it work.

I prefer speculating because I can do all of my homework and make a few transactions such as buying that small stock with great potential or getting a long-dated option on, say, a silver futures contract and then wait for the fireworks. This has worked better for me.

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Chapter 3: The Beauty and Benefits of Metals The benefits of speculating As I have mentioned before, speculating is akin to financial gambling, but if you do your homework, you can greatly increase the odds in your favor. It is possible to take a small amount of risk capital and parlay it into a much larger sum. During — virtually everyone of my long-term clients either made good money or great money. Many think that to turn a small sum into a great sum that you need more leverage. Not really; you can utilize vehicles that have leverage with the risk of leverage such as options.

Futures is a great area for speculating and I certainly cover futures in Chapter 14 , but my favorite for speculating is options. Futures carry risk beyond your purchase price. This is why it is important that besides knowing the benefits of speculating you should understand the risks before you begin transacting. For those who want to speculate with unlimited profits while limiting risk and loss, consider options. I love options and I get into greater details on them in Chapter This equation states that if you want a greater return on your investment, then you have to tolerate greater risk.

Precious metals guard or hedge against risks that can hurt conventional stocks, bonds, or other fixed-rate vehicles. A good example of the value of, say, gold or silver is what happened in Zimbabwe in On paper almost everyone is a millionaire but most people are really poor! Gee, that might encourage some of their citizens to. As incredible as that hyper-inflation was, it is actually not an odd example because it also recently occurred in Argentina and Serbia and numerous times across history.

In this chapter, you not only get the chance to check out what types of risks are associated with precious metals investing, but you also find ways to minimize those risks. What Risk Means to You Before I make you paranoid about risk, keep in mind that it is ubiquitous and just a normal part not only in building wealth but also in living life.

Heck, just getting out of bed in the morning could pose a problem. It just means that if you have gold in physical form then you have to understand that having it has risks as does owning any valuable property. You have to keep it safe. For some that means keeping your physical metal such as gold, silver, and platinum possessions in a safe-deposit box at the bank.

For others it means in a secure hiding place at home. You have to decide. Gold as a physical holding means you need to be concerned about the risk of loss or theft. Removing some risk always means common sense. Market risk Market risk may be the most prevalent risk associated with gold. Market risk refers to the fact that whenever you buy an asset physical, common stock, and so on its price is subject to the ups and downs of the marketplace.

In gold, as in many investments, the price can fluctuate and it could do so very significantly. What if you buy today but tomorrow there are more sellers than buyers in the gold market? Then obviously the price of gold would go down. The essence of market risk in commodities such as precious metals is supply and demand. Chapter 4: Recognizing the Risks Another element of market risk can occur when you are involved in a thinly traded market — in other words, there may not be that many buyers and sellers involved. This is also called liquidity risk. This can happen, for example, in futures.

Although futures are usually a liquid market an adequate pool of buyers and sellers there may be some aspects of it when it might not be that liquid. Say that you want to sell a futures contract that you recently bought that is not an actively traded contract. What if there are no buyers when you want to sell? Your order to sell through the broker may sit there for a long time. The sale price of the contract would drop and you would lose some gain or even end up with a loss.

Be sure to communicate with the broker regarding how active that particular market is. It is probably appropriate to place in this segment the market risk of mining stocks. The stock of mining companies certainly can go up and down like most any other publicly traded stock. Stock investors can sell stock when they see or expect problems with the company. If, for example, you are considering a gold-mining company, the risk to consider is more that just the fact that it is into gold and the commensurate market risks with gold itself. Also consider the company. Is management doing a good job?

Is the company profitable? Are sales increasing? How about their earnings? Do they have too much debt. Mining stocks are covered in Chapter Exchange risk This one sounds odd. What the heck is exchange risk? The exchange can either purposely or accidentally encourage market outcomes by changing the rules and regulations on an ongoing basis. Silver was rallying nicely as speculators were buying into silver futures contracts.

There were great expectations for silver due to the then-pending silver exchange-traded fund ETF. You can find out more information on precious metals ETFs in Chapter The exchange decided to raise the margin requirements on margin contracts to try to quell over-speculation. When you require people to put more funds in for the ability to speculate then of course you will diminish that activity. If the margin requirements are raised too high that will result in more selling. More selling results in prices dropping. Sometimes that outcome may result either purposely or accidentally in a negative way for you.

This means that the exchange may temporarily restrict the buying side and only selling can occur thus forcing the price down. Another rare event. The exchange may temporarily halt trading in a particular futures contract. It is the one that comes out of the blue and blindsides your portfolio. Political refers to politicians who in turn run government.

As far as we are concerned, political risk and governmental risk can be synonymous. In my seminars I mention that politicians are Dr. The bottom line is that political risk means that government can change laws and regulations in a way that can harm your investment or financial strategy. This can happen in your own country or by another country. Consider what happened in the s right here in America. Had you bought gold in prior years to preserve your wealth in the midst of the Great Depression, well.

Fast forward to our times. Political risk is alive and well unfortunately. In many countries such as Bolivia and Venezuela, the government nationalized properties government taking private property by force by foreign companies, among them, mining companies. Had you owned stock in these mining companies you would have seen the share prices drop. Sometimes the share prices drop at the mere threat of government action. In , for example, the Venezuelan government mentioned that it may take property owned by the Toronto-based gold-mining company, Crystallex International.

As an investor or speculator, you could do all your homework and make a great decision with your portfolio backed up by great research and unflinching economic logic and still lose money because of a government action that could have been unforeseen. An ounce of prevention is worth a pound of cure. It is best to stay away from investments such as mining companies that are too exposed to risk in a politically unstable or unfriendly nation. There are still plenty of precious metals opportunities in politically friendly environments such as the United States, Canada, Australia, and Mexico at least until the next election!

The risk of fraud The risk of fraud is as real in precious metals as in every other human endeavor. Fraud can materialize in a variety of ways but I think that it can be safely categorized into three segments, which I discuss in the following sections: scams, misrepresentations, and market manipulation. Scams Scams are those events that the consumer organizations always warn about. The image is conjured up about those boiler-room operations where a slick con artist calls up a little old lady in Pasadena and talks to her about riches to be made in gold and silver if she could crack open her piggy bank and send off a nice money order chunk of her savings.

This is certainly a real risk and it becomes more apparent when the source of potential fraud is popular. When Internet auctions became a hot consumer area, there were more Internet auction—related scams. When the real estate market became red-hot in , there were more real estate scams. Misrepresentations I put this as a separate topic because it can be a different animal. Basically the point is that you may put your money into a venue and you may not be getting what you think you are buying.

A good example is what the respected silver analyst Ted Butler recently warned about regarding silver certificates. In other words there are purchasers of silver certificates who believed that they could convert their paper into actual silver in due time but in fact will not be able to. That sounds like misrepresentation to me. Some large brokers and their clients have been caught illegally profiting through a manipulative technique called naked short selling. This was an especially egregious activity with the stock of smaller mining companies. In naked short selling, the perpetrator can sell massive quantities of stock essentially created out of thin air to force the price of the stock to come crashing down.

Minimizing Your Risk Including precious metals to whatever extent in your portfolio minimizes risk because precious metals, such as gold and silver, have historically helped investors in times of economic uncertainty and political and financial tensions in the world at large. The long-term picture for precious metals should continue to bear this out. But as this chapter points out, nothing is without risk. Precious metals do carry risks and you can minimize your risks — just check out the following sections. Gaining knowledge I remember getting into options on silver futures some years ago.

It was early and silver was rising very well and my account was performing superbly. The point is that I learned that precious metals futures and options can have very wide and scary price swings. That is the nature of the market. The correction is a temporary pull-back in the price of the asset that is in a long-term bull market or rising market. The term bear market means that the asset is in a long-term falling or Chapter 4: Recognizing the Risks decreasing market.

In other words, the difference between a correction and a bear market is the same difference as fainting and dropping dead. In the former you recover and get back on track. Being disciplined When markets go up and down, it can be difficult to stay disciplined. People can let their emotions overrule their thinking and do the wrong things when they ought to do the opposite. It happens especially in fast-moving markets. Under my guidance he purchased some options on silver futures. I told him to stay the course because my research told me that the underlying asset silver was in a bull market and that this drop in price was a temporary condition.

In addition, the options that were purchased had two full years to go before they expired options are covered in Chapter This is an example of what happens in the marketplace; no matter how solid your research and logic, the market can go against you. If your research and logic were sound then the odds would swing back in your favor in due course. He decided not to panic and stay the course.

For Bob, the discipline paid off. To this day, the account is still growing as we stayed disciplined and bought and cashed in at points that made sense. When you are in fast-moving markets, have a plan in place regarding how much you will put at risk, when you plan to get in, and under what conditions and price points you will take profits or losses. Being patient Everyone wants to get rich quick. Well, people who reach for the fast gains end up with fast losses. I can say with confidence verifiably that the vast majority of my long-term clients made money and in many cases a lot of money, but the key to their increase has been patience.

The year is a great example. At this time, the precious metals and base metals were having a fantastic rally. In this real-life example I want to highlight those that were in mining stocks. There were investors who came in and immediately saw their accounts go down by mid-summer as a correction took place. Take a different client a real client with the fictitious name Fred. A little patience could have made Fred a winner soon enough. Very often, that investment or speculative position you underwent may go down or sideways for what seems like forever.

Sooner or later, if you chose wisely, others notice it too and the payoff can then be swift and impressive. Diversification in precious metals can mean several things. It could mean spacing out your money among different metals some precious metals and some base metals. It could mean spreading your money among different classes of investment vehicles a mix of gold- and silver-mining stocks along with a precious metals mutual fund.

For speculators it may mean deploying strategies that could benefit in up or down markets such as using an option combination like the long straddle — more details in Chapter You can even diversify when you are speculating on a single vehicle. Last year most of my clients with commodities accounts were overwhelmingly in silver futures options. It is indeed a high-risk approach but it paid off very well. But, where possible, the options strategies involved a diversified mix of strike prices, time frames, and some hedging, meaning that you do something in the account that could do well if the market goes against you.

Hedging is covered in greater detail in Chapters 14 and You need to address other areas of your situation such as. Making risk your friend I realize that after writing an entire chapter on risk that you may think that risk is a terrible concept; however, some things in this world thrive on risk. The world can be an uncertain place and many potential events and entities out there have no problem with raining some bad news on the U.

When those types of risks become evident, precious metals revert to their historical role as a safe haven. Without risk, how can you grow your money faster? It is a necessary part of your success and in many cases it is the reason for your success. It is something that you can manage and profit from. Why not? This goes in tandem with the above point. Have some money sitting somewhere safe, liquid, and earning interest waiting for an opportunity. Invest half now and stagger the rest in over a few weeks or a few months. Opportunities go hand-in-hand with risks so do the Boy Scout thing and be prepared.

You minimize loss. Stop-loss orders are a common feature in a stock brokerage account, but they may not be in a commodities brokerage account. Put options are a great way to protect your investment during corrections or bear markets. They can be used as insurance to protect gains or the original principal. The put option is too involved to describe at this point, but I cover it in detail in Chapter Nuff said. Any and all investments have risks, and some investments have great value because they protect you from risk, which is, perhaps, the greatest value of precious metals.

Before you check out the track record, keep in mind that precious metals especially gold and silver are back with a vengeance in this decade. Use it to leapfrog into your investment of choice or. This part goes into the specific metals along with their advantages and disadvantages. You can find entire chapters devoted to specific metals such as gold, silver, platinum, uranium, and more. Get familiar with the specifics of a metal for maximum profit potential. Few things conjure up thoughts of wealth and affluence the way gold does.

Few things have had the endurance of gold both as a metal and as a store of value. It is then the first precious metal to consider for wealth-builders today. It has through the ages become the quintessential precious metal. Gold is an element that is found on the standard periodic table of the chemical elements. Gold is a good conductor of heat and electricity and probably thieves as well.

Because it is generally resistant to rust and corrosion gold quickly became an ideal material to fashion into jewelry, coins and therefore. The desirability of gold now became ensured. However, as you read this book, every major society is inflating its currency at record rates. All the major currencies are subsequently losing their value slowly but surely. Because paper currencies are easily inflated, each unit of currency dollar, euro, yen, and so on looses value — not so for gold.

As a tangible investment, use the sections in this chapter to find out how gold stacks up amidst all the investment choices available today. Paper currencies also called fiat currencies started coming into usage in the days of Mesopotamia when the drachma was used. In other words, a paper currency had value because it had a claim of value from another asset such as grain or precious metals. So, paper currency was really an IOU. Paper currency gained popularity because it was easier to carry and transact with versus carrying bags of coins.

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Many ancient societies used paper currencies as an IOU, attaching precious metals held at a bank or secure storage facility as the asset. So, the paper currency had value as long as you could redeem the currency in precious metals such as gold. During the course of history, paper currency soon decoupled from gold and became a competitor instead. First kings and then governments saw that paper currencies were a better alternative to gold.

They discovered that paper currencies issued by the government had certain advantages over gold — the main advantage was that paper currencies could be printed at will while gold was not easily produced. On the other hand, paper currencies could be produced very easily and very quickly. During the past 3, years, there have been literally thousands of different paper currencies that came into existence and ultimately ended up vanquished. When governments can create money by printing up endless supplies of paper currencies then the temptation to inflate becomes too great.

If you can create money at will, why not? Paper currencies end up with the intrinsic value of nothing, but in the long run, gold is still gold. Gold endures. Aargh, mateys! As the Great Depression unfolded during the s, most of the major industrialized nations abandoned the gold standard in an attempt to stabilize their economies.

Considering the damage that ensued in the coming decades from his policies, I can safely call Mr. Keynes a barbarous relic right up there with Karl Marx and the pet rock. Unfortunately, he was probably right about the gold standard because it was abandoned by governments. The abandonment of the gold standard by so many governments back then and that no major country has one today will probably be the primary reason why gold investors today will ultimately benefit.

In the late s, gold experienced a year bear market, and then the bull market started earlier in this decade. From to mid, gold has begun a bullish, upward slope. Explaining all the bull So after a year bear market, gold awakened at the start of the millennium. Gold and other natural resources was in the early stages of a bull market in the early part of this decade and history suggests that this gold bull market has the makings of a powerful up-trend that could easily last into the middle of the next decade and maybe longer.

Virtually every major economy and financial market will be affected, directly or indirectly. As they modernize their economies and as their collective 2. India is a huge consumer market for gold. China is loosening its formerly strict regulations and allowing its ample citizenry the ability to own gold and build wealth in a freer economy. All of this adds up to great news for gold aficionados like you and me. The tears are welling up in my eyes.

Although these countries wield economic and political clout that offers great challenges to our country, this area is yet another gold-friendly region. Many in the region are using their oil profits to buy precious metals. This means more demand. This means more dollars chasing fewer goods. I cover these in Chapter Telling the tale of the tape: Gold versus other investments Gold has retained its value through good times and bad but make no mistake about it: It has an edge over other investments during difficult or uncertain economic times. In the s, gold was resilient during the Great Depression; stock prices plummeted yet gold was strong.

Gold did drop in price during the s but not because of market supply-and-demand factors; the government banned private ownership of gold so people were essentially forced to sell it. As of December , gold ownership became legal for private citizens. Just in time. Gold shines brightest during periods of inflation especially hyper-inflation. In a period of stagflation, such as in the s, hard assets precious metals, real estate, natural resources, and so on tend to do better than paper assets such as stocks and bonds.

Table is very telling. Certainly there are a year here and a month there that show that gold performed poorly. Gold resoundingly beat inflation while paper investments fell short. By the way, the above table might make you ask about gold-mining stocks and how they fared during this period. A good barometer of the gold mining industry would be an index found at the American Stock Exchange www.

But if gold is rising, then the company foregoes the potential profit. Done too excessively in the wrong market conditions could spell bankruptcy for the company. Anyway, back to the HUI. How did it perform during the time frame as compared to the other investments in the table? At the beginning of the decade, the HUI started at Paper investments have major risk associated with them: the risk of default by the other party. This is also referred to as counterparty risk. The dollar is a piece of paper with official printing on it. It has no intrinsic value; it is a promise of value backed up by the full faith and credit of the United States government.

However, if the government any government for that matter prints up lots and lots of dollars monetary inflation , the risk is that each dollar becomes diminished in value. If the company is in business and doing well, the stock for that company will have value. But what happens if the company goes bankrupt? In that case, what will be the value of that stock beyond just being a printed piece of paper?

Therefore, stock also has the risk of default. If you have a bond investment, it is a piece of paper that states that another party will pay you interest and ultimately pay you back the sum of money the principal that was Chapter 5: Gold: All That Glitters loaned. In the bond investment, you are the lender and the person obligated to pay you back is the borrower. You could lose some or all of your money in a bond. Because bonds are a paper investment they have the risk of default. A sub-prime mortgage is where money was loaned for the purpose of buying real estate typically a home to individuals who have below-average credit.

The point is that mortgages and loans, like bonds, are paper investments that have. All situations of extending credit — whether it is a bond from a corporation, government agency or some cash you loaned to your uncle Stanley — run the risk of default. Securing a Safe Haven from the Coming Storm Understanding the value of gold is like understanding an umbrella without discussing rain.

People quickly see the value of an umbrella when it rains. They also understand the value of buying an umbrella on a sunny day, especially when rain is forecast for the next day. To understand gold as the umbrella you should understand its role in bad economic conditions the rain. Reading and understanding inflation As more and more people wise up to inflation, ultimately they will do something about. This is where I get angry. The reporting of inflation is in fact dreadful. You should understand inflation not only because of how it helps gold go up, but you should also understand it because it is a pernicious and pervasive problem.

The following sections should help you sort through and gain an understanding of inflation. Monetary inflation and price inflation There are two types of inflation. The more a government prints, the more the supply of money grows. This money makes its way into the economy through actually printed currency such as the dollar , electronic transfer, or through loans credit. This is the problem. The end result of the problem of monetary inflation is the next phenomenon, price inflation.

Price inflation is the one everyone talks about. An example occurred as I was writing this chapter. When I put the numbers in a financial calculator I get the annual inflation rate of 2. My dear reader, do you know any consumer necessity that has gone up only 2. He compiles and reports inflation the way the government used to report. Starting in , the federal government changed the way it reported inflation. The change lowered inflation by means such as substitution and other statistical methods that can be used to lower the inflation rate.

For example, if beef is too expensive and the consumer switches to chicken, which is cheaper. The inflation rate is lower. Anyway, SGS reconstructs the data to report inflation in the real world. Guess what? In other words, people think that inflation is lower because of the reporting. What does all of this mean for you in this chapter on gold? The core rate of inflation In the s, the Federal Reserve started reporting something called the core rate of inflation. What is it? The core rate is inflation excluding food and energy.


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Are you insane? What good is it? Why does the CPI under-report price inflation? The GDP is the total market value of all final goods and services produced in our country in a given year reported for the four quarters. This number is equal to total consumer, business and government spending plus exports, less imports, and less inflation. The emphasis is mine. What all that means is that if inflation is lower, then the GDP is higher. Lower inflation makes the economy look better and higher inflation does not. When you calculate inflation the old way, guess what? But there is another reason that is more significant that you should know about.

As you may know, millions of senior citizens get Social Security checks and other pension checks. It is calculated from the official CPI. The lower the CPI, the less money government has to pay all of those retirees. The reason often stated for why the Fed and the financial media report the core rate is because food and energy prices are too volatile.

This is not an adequate reason since food and energy are pervasive, and they are found in every corner of a typical budget. But here is what irks me: The core rate gets more headlines than even headline inflation. The good news causes the Dow to rally points. Stock prices in stratospheric rise! As a financial planner I ignore it. After all, what consumer necessity has only gone up 1. I rest my case. Why should gold investors and the public in general be annoyed at the core rate?

If investors either by design or by accident get the idea that inflation is only 1. Then they would adjust their portfolios to include more of those investments that would meet or beat the rate of inflation; such as. In other words, consumer staples, natural resources, energy and. Got gold? When you look at the long-term chart of gold versus the U. It stands to reason that the more and more dollars you add to the system, the less each unit is worth. Figure Dollar Chart juxtaposing gold and dollar price movements Gold from — July Of course, when you adjust it for inflation, it is actually worth 1, words.

To monitor the price of the U. Futures markets-related Web sites also track the dollar along with other currencies so you can check out places such as Future Source www. Finance www. Stop it, you win! I see the light! How do I do it? However the investment return on it is not based on interest but is instead tied to the price of gold.

If gold goes up, your CD rises in value. However, if gold goes down, the CD does not. They even have a similar CD for silver. Go to their Web site for more details. The Gold Market Gold is a worldwide market and the long-term supply-and-demand fundamentals are very bullish. The following sections give you some insights into the gold market. The lead executives, Philip Klapwijk Chairman and Paul Walker CEO , are active on the conference circuit and their articles are regularly published and worth reading.

Its Web site is www. GATA advocates and undertakes litigation against illegal collusion between financial institutions such as central banks and large brokerage firms that intervene in the gold market. More information on the topic of political market intervention in precious metals is in Chapter Its mission is the promotion of investment and usage of gold by consumers, investors, industry, and central banks.

Total demand and supply Let me give you the big picture first. In recent years, total average annual worldwide demand has been in the range of 3, to 4, tons. Total average annual worldwide supply coming on board from mines, and so on is in the range of 2, to 2, tons. Because of the slight reporting differences from several sources, I thought it best to give a reliable range. The bottom line is that there is an annual shortfall in the range of 1, to 1, tons, depending on which numbers you calculate. No matter which way you slice it, the big picture in the long-term is that supply-and-demand factors for gold are bullish.

Demand Demand for gold comes from two places: investment and industry. Gold has unique properties which mean more applications of it in technology, healthcare, and other vital industries. Gold is extremely resistant to corrosion and it has high thermal and electrical conductivity. Therefore, it is an excellent component in electrical devices. Gold is also used in medical equipment because it is resistant to bacteria. New uses for gold have been found in pollution control equipment and fuel cells.

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In addition, gold has promising application in the new area of nanotechnology. The practical uses for gold keep growing. Supply Gold is mined on all the major continents. There is no mining in Antarctica but then again, why would you want to? At present there are over mines active across the globe. It has outlived thousands of currencies, and in due course, it will outlive more currencies. Part of the reason for its durability as a desirable form of money is directly tied to its rarity.

It is easy to inflate manmade currencies and history tells you this has happened very, very often. It is happening today! In addition, it often takes mines 5 to 10 years sometimes longer to go from discovery to production. It does take years to translate higher market prices into new gold mine discovery and production. Scrap is basically recycled gold. As the price of gold goes up, it becomes more economical to recover scrap to refine it and reuse it. Actually, according to market studies by the CPM Group, a very unusual situation had arisen during — In that time, private investors as a collective group owned more gold than the group of central bankers.

The first time in world history! Much of the new investment demand comes from two sources: the popularity of precious metals-related exchange-traded funds ETFs: more on those in Chapter 13 and from international investors such as from China, India, and the Middle East. More and more investors are seeing the big picture, and they understand that gold has unique advantages and is a good part of a well-balanced portfolio.

Central banks Central banks play a pivotal role in the gold market and sometimes that role can be a controversial one. On the one hand, central banks are the single largest holders of gold in the world. Most governments have gold as an asset in their official reserves.

Keep in mind that not all central banks work in unison. Some are buying gold while others are selling. Although the central banks have much autonomy about how to manage their individual gold reserves, most of the major central banks have agreed to do their buying and selling according to guidelines stipulated in agreements such as the Central Bank Gold Agreement CBGA.

You do see some interesting developments in recent years. Federal Reserve and central banks in Western European governments such as the United Kingdom, France, Spain, and others have been net sellers of gold. Meanwhile, central banks in the East both middle and far have been net buyers of gold. This tends to generally reflect attitudes about gold in both spheres.

Folks in Asia and peripheral regions as groups embrace gold far more than those in North America and Europe. As a total group, it has been a net seller which was a contributing factor to some of those steep corrections that have been experienced by precious metals investors in recent years. They are also involved in activities such as gold derivatives and in leasing gold. More about some of these activities in Chapter Central banks report their gold position and activities to the International Monetary Fund IMF and you view some of this information at the Web site at www.

What these folks have in common goes beyond an affinity for gold investing. Through the years they have offered research and insights that benefited the gold-investing community for decades. Drum roll please! Gold Investing Resources The gold market can be a fascinating one and if your money is riding on it then it better be a well-researched one as well. I got another tip for you. If gold goes as high as I think it will, you can actually celebrate with.

Oh wait. Well, really. I like silver most because of the great profit potential that I think it will generate. Understanding the Hybrid Potentials of Silver Silver is a fascinating metal and it has the unique, dual quality of being both a monetary metal used as money and an industrial metal. This lies at the heart of its potential.

There are countries that are reconsidering the use of silver again in their currencies.