Investing in
GOLD
An Overview on Gold •Has been used as currency for thousands of years •Always been a symbol of wealth and power •Today it is used in science, technology, cancer treatment, space travel & dental work •Real asset that is subject to volatile speculation on market indexes (no interest or yield) •Price is driven by low supply and high demand •Is used in diversified portfolios as a hedge against inflation (US dollar)
Where Is The gold? • Τhere is 60 cubic feet of mined gold in the world
Top 5 owners of Gold
Euro Area U.S.A Germany I.M.F Italy
10,793 Tonnes 8,133 Tonnes 3,407 Tonnes 2,907 Tonnes 2,431 Tonnes
Gold Standard The value of a nation's currency was based upon the amount of gold it had. Currency could be exchanged for the amount of gold it was equivalent to Other countries were able to buy gold from the U.S. Nixon ended the trading of currency for gold in 1971, which means our economy is now run by fiat money, which means that money has no actual value except what we artificially give to it Our system is entirely run by trust, which provides far less stability than gold (which likely can never be completely worthless
Gold Formation and Terminology
• Gold is formed from magma from the earths core and is mined out of mountains and mountain river beds. The gold is melted down and during the melting process other metals are metaled down with the gold giving it a gold percentage, the measurement of that percentage is called Karats.
Karats
1 6 8 12 14 18 22 24
Gold Percentage
4.167 25.000 33.333 50.000 58.333 75.000 91.671 100.000
Investing Options •Stocks (Miners, refiners, & retailers) Buy, sell, short and cover •Mutual Funds •Exchange Trade Funds •Futures/Options (Put and call) •Gold bullion (bars, coins, jewelry) •Personal opportunity •(Starting a business) i.e. recycling gold •Real estate (buy, or lease gold properties)
Pro's and Con's of Owning Individual Securities Pro's • Higher risk = higher return • Picking the company that you like • Dividend income • Top 5 companies have low Beta’s • Exposure to growth potential
Con's • Higher risk = more chance that you will lose your money • Equities tend to be highly volatile • Difficult to time entry • Exposure to firm specific risk • Companies tend to hedge operating costs by selling future production at current prices; negating future profits
Top 5 Stocks in Mining • Miners, Equipment suppliers, Refiners or Retailers • Barrick Gold (ABX): Canadian company with operations on 5 continents. Land holder on some of the most productive mineral districts in the world. Market Cap = $47.30 billion Dividend = $ 0.48 • Goldcorp Inc (GC): Canadian company that has low cost of production and high ethical values. Market Cap =$32.72 billion Dividend = $0.18 • Newmont Mining (NEM): Largest American gold company based in Colorado. Market Cap = $30.47 billion Dividend = $0.60 • Kinross Gold (KGC): Canadian company that is headquartered in Toronto. Market Cap = $13.39 billion Dividend = $0.10 • Anglo Gold Ashanti Ltd (AU): Johannesburg South Africa. Note: they have a little more debt than the others listed above. Market Cap = $17.35 billion Dividend = $0.18
Other Companies of Interest • Freeport-McMoRan (FCX): Mine more than just gold and have a more complex business model. Market Cap = $46.13 billion Dividend = $1.20 • Joy Global Inc. (JOYG): Sells mining product i.e. machinery. Company is based in Milwaukee Wisconsin. Market Cap = $7.5 billion Dividend =$0.70
• Publicly Traded Gold
Retailers • Tiffany & Company • Signet Jewelers Limited • Zale • Charles & Colvard Limited • DGSE • Birks & Mayors
Mutual Funds Pro's • Many to choice from and many different investment companies participating ASA limited, Wells Fargo, Vanguard, Fidelity, and many more
Con's • Fee & maintenance charges (penalties for exiting before a prearranged period) • Front-end load
• Takes advantage of economies of scale
• Not tax friendly especially if people stay in the fund when others bail early
• Educated financial managers
• Hard to get in/out of fund
• Well diversified: they make use of money market instruments
• Individual funds are subject to bad press
Exchange Traded Funds (ETFs) Pro's • Easy to get in/out • Low costs • Less firm specific risk • Tax benefits • Trades like a stock i.e. you can play it short • Less risk as underperforming and outperforming securities within the ETF are replaced; keeping the ETFs value close to the Net Asset Value (NAV) of the basket of securities
Con's • Newer investment instrument • Still carry the risk of fluctuating gold prices
Exchange Traded Funds (ETFs) -Have become very popular in last few years -Set up like a mutual fund but can be traded like stocks -Excellent way to get exposure to Gold without the volatility and risk -Examples of good ETFs on the market -Street tracks gold shares (GLD) -iShares Comex Gold Trust (IAU) -Power Shares Global Gold & Precious Metals (PSAU) -Market Vector Gold Miners (GDX)
Futures/Options (Put & Calls) • Speculative trading (or simply gambling) • Most first time future traders lose their money Call Contracts:
Put Contracts:
You agree to pay current prices at some You agree to sell at current prices in the determined future date future Price goes down = you lose money
Price goes down = you make money
Price goes up = you make money
Price goes up = you lose money
Gold Bullion (Jewelry)
Buying
Selling
• Go to a trusted dealer
• “NO” Pawnshops
• Get certifications
• Large amounts can be sent to private dealers who can find buyers
• Buy the highest quality that money will • Top Gold Buyers buy i.e. 24K
• Empire Gold Buyers
• Make sure that the item fits well i.e. the • Midwest Refineries ring will not fall off your finger • Gold Fellow
• If you get the ring resized (smaller) ask • Cash4Gold for the difference of weight in cash
• Note: Make sure you certify the weight and karats of the piece you wish to sell
• Understand that it is a long-term investment of personal value and not • NEVER: “Fast Cash” option because then you cannot an investment to get rich refuse their offer • Price of selling is negotiable, try not to settle for the first offered price (it will be too low)
Gold Bullion Pro's vs. Con's Pro's • Unique/Specialty craftsmanship • Varity of options (pure 24K, 18K, 14K, 10K) and different colors (white, rose, greenish cast) • Symbol of power and wealth
Con's
• You pay premium prices
• Hard to say if the gold is what it says it is i.e. is it just gold plated
• Low resale value
Gold Coins and Bars • Many types of coins to choose from; the most popular are: • South American Krugerrand • Canadian Maple Leaf • American Buffalo • American Eagle • Euro Philharmonic • Coins are made in different sizes • You can also purchase gold bars of various sizes • 1 oz coin will sell at a premium to a 1 oz bar, however bars are usually sold in bigger sizes • Older coins that are rare will have a higher value based on demand • One trusted source is Monex Precious Metals
Other Gold Opportunities • Start your own business: Gold recycling has become very popular and there are still opportunities to be a business owner • Buy or lease prospective gold properties: The depressed real estate market has led opportunities to own property that may contain mineral prospects • Recycling computer parts, which contain gold wafer, it is a better option than simply waiting to repair or sell a computer part
Conclusion •
Always do research when investing in gold.
• Pay attention to the dollar index, negatively correlated. • Rising gold prices will continue to cause a drift between the rich and the poor • Apocalypse gold myth
Sources http://www.gold-eagle.com http://www.monex.com/prods/gold.html http://www.thestreet.com http://goldstockmania.com/gold-vs-the-us-dollar-what-a-knock-out/ http://seekingalpha.com http://www.rapidtrends.com http://www.chartoftheday.com http://bigcharts.marketwatch.com http://www.sciencedirect.com/science/article/B6TGF-4RSRDNX4/2/f3778475e4ef5f1142c42a0c9791e114 http://www.sciencedirect.com/science/article/B6VDX-4GMGWDT1/2/a88841f2d181ff72aba6e5b8be311ca3 http://economics.about.com/cs/money/a/gold_standard.htm http://reviews.ebay.com/Buying-a-Gold-Mining-Claim-whats-good-whatsnot_W0QQugidZ10000000008925192