Tips for Investing in Gold

This is a guest post from Vanessa Mackay

A diversified gold portfolio is the best gold portfolio. It is good to have your fingers in every pie, from physical gold to ETF holdings to gold mining stocks. However, at this unique period in time, you should have access to some insider tips to make sure that you can make the best investment decisions.

The price of gold has had a bit of a strange run over the past several months. It hit record highs in September, only to shoot down after a string of gold market margin hikes. This caused gold to shoot back down, and it is only just now recovering from that pain. The fact that the price of gold continues to rise is cause for concern if you don’t have gold and relief if you do.

Of course, if you mainly deal in physical gold, you may not have noticed the difference. This is your first gold investing tip: Margin hikes that cause volatility in the paper price of gold don’t tend to make a difference to gold dealers. Physical gold tends to be illiquid if you’re just trying to cash in on a quick drop.

If you get your gold bullion straight from Uncle Sam, it is a good idea to buy physical on the dips. When it comes to your ETF holdings, however, you might be able to play an entirely different game. The price of gold is going to go higher. As it breaks $2000/oz, people will start to mumble. Eventually, the people on the fence will sell gold, margins will be hiked again, or some artificial stop will get in the way of the natural rise in the price of gold. The paper price will fall, but don’t panic.

This is your second gold investing tip: Pay close attention to the price of gold, and if it starts to drop precipitously, go short your ETFs and long your physical holdings. Once it hits bottom, usually about $300/oz less than its top, start going long your ETFs again, and keep on buying physical until you don’t have the cash for it. Chances are, it won’t see that bottom line for a while.

You should think of your gold portfolio as a complex set of instruments. You can make quick bucks with the paper fluctuations which tend to be as volatile as the rest of the market. At the same time, however, you can make sound investments by buying physical gold from Uncle Sam on the dips in price. This is the nature of the market these days.

Bullion vs. Numismatics – Tips for Buying Physical

There are two main types of physical gold investments: bullion and rare numismatics. Bullion is what you typically get from dealers or from the U.S. government. Its value is in its poundage, or ounce-age. On the other hand, rare numismatics consist of pre-1933 gold and pre-1964 silver coins whose main value is not in their heft; it is in their history. Like fine wine or collectible artifacts, these coins will only increase in value over time. While gold is, by its very nature, insulated from the markets, numismatics are even more so.

This is your third tip: If you see numismatic coins at below-market prices, buy them! They are your long-long term investments.

You should never sell your numismatic treasures unless you desperately need the cash. If your children sell these coins when they’re your age, they may be able to make hundreds of times what they’re worth today. You could set up your great grandson’s trust fund for life.

Final Things to Consider

With world currencies on such shaky ground these days, one would recommend that you keep from selling your physical gold. Your stocks and ETF holdings will be as volatile as anything else, and these should be your hedges against a decrease in volatility. If the markets start to recover their sanity, you will want to gradually sell off some bullion if necessary and keep on playing the paper markets. On the other hand, keeping bullion is a good hedge against financial disaster. You will have spending money and a future if the entire financial system collapses, because with a debased currency, only gold will retain any semblance of value. The smart investor hedges against everything, because he knows that while some things go down, others go up. His goal is to be able to make money and provide for his family no matter what the vicissitudes of the market may bring.

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