A Valuable Lesson for Gold Bulls
By Tom Dyson
October 10, 2007
Last week, a good friend of mine bought gold futures around $745 an ounce.
Using less than $1,000 in margin, you can buy $30,000 in gold. The thing is, buying gold on a margin like this makes you twitchy. You become very conscious of every little price movement. In this case, my friend found himself checking gold news every 10 minutes and obsessing over its price.
This isn't the mindset of someone who is comfortable in his or her position.
My friend also bought gold at a new high... a 27-year high. I was worried he was taking on too much leverage, especially after my mother told me last week that she was about to buy gold herself. I've been telling my mother to buy gold for five years. The fact that she wants to buy it now tells me the crowd is starting to get involved and sentiment is very optimistic…
The next day, gold dropped $20 in one session. My friend was terrified. He had no business in this position. Gold fell more the next day, stabilized the day after, and then on Thursday, it jumped $7. He took advantage of Thursday's strength to ditch the position for a small loss.
I feel for the guy… I've tried to trade gold this way before. When you trade futures, you cannot have doubts. With all that leverage, the market can kill you. This is why I prefer to keep the stress out of it and hold my gold in the form of gold coins.
There are many reasons to own pre-1933 gold coins. They are beautiful and rare. They are collectible art. And they are part of U.S. history. What's more, they are the cheapest they've ever been relative to bullion. For example, on eBay, I found a graded one-ounce 80-year old gold coin selling for less than a 12% premium to the spot gold price.
But the thing I like most about gold coins is this:
To sell my gold coins, I'd have to line up in the bank, open up my box, take my coins to the post office, wrap them up in secure packaging, buy insurance, and pay postage. These hurdles prevent me from selling. They make it easy for me to hold. Compared to the anxiety you get from futures, owning gold coins feels like a weekend stroll along the beach.
When I tell my family I hold my savings in gold coins, they think I'm taking a big risk. "You ought to have some cash in the bank," they tell me. My response is, gold coins are the safest investments in the world. There is no safer investment, period. Compared to gold coins, money in the bank is a speculation.
Prices are rising faster than they have in years, interest rates are awful, and now Bloomberg reports that some money market funds - the safest cash investments offered by your broker - hold billions in subprime debt. No thanks, I'll keep my gold.
I think it's inevitable that gold will trade for $2,000 an ounce in the future. Right now, it's at $730. I already have a large position in gold coins. If I want more exposure, I will buy more gold coins. They are cheap, stable, and very easy to hold. You should try the "low stress" way to own gold sometime...
Good investing,
Tom
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THE WEALTH EFFECT HITS RUSSIA
The telecom wealth effect has moved to Russia.
We've covered the emerging market-driven bull markets in infrastructure and agriculture several times in the past. As developing nations such as China and India accumulate more wealth, their spending habits change accordingly. Once the four basic needs are covered, folks want bigger houses, better clothes, cheeseburgers, and, of course, cell phones.
We've seen this situation play out in China and Korea. Just take a look at shares of China Mobile and SK Telecom. Or Nokia, which provides one in three of the world's cell phones. Or look at the effects of resource wealth in Mother Russia.
Russia jostles with Saudi Arabia as the world's largest oil producer. It also has unbelievable reserves of natural gas, timber, diamonds, and minerals. Due to strong commodity prices, Russia sports foreign exchange reserves of more than $400 billion.
And now, the Russians want cell phones. Vimpel, the country's largest wireless provider, is leading a global bull market in telecom shares. The Moscow-based company claims 55 million subscribers and a share price
gain of 262% in the past two years.
-Sean Goldsmith
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This morning, your bowl of cereal and milk probably cost you 49 cents. Last year, it was 44 cents. By next year, it could be 56 cents. It's enough to make you cry in your cornflakes.
The forces behind the rise in food prices – China's economic boom, a growing biofuels industry and a weak U.S. dollar – are global and not letting up anytime soon. Grocery receipts are bulging because the raw ingredients, packaging and fuel that go into the price of foodstuffs cost more than they have in decades.
China is the juggernaut. Rapid growth there – and in Brazil, Russia, India and other developing nations – has led to massive demand for raw materials, including energy to run factories and cars, metals to build infrastructure and beans and grains to feed livestock and people.
China will import almost 50 percent of the world's oilseeds within a decade, becoming the world's largest importer, according to estimates from the Organization for Economic Cooperation and Development. |
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The Iraqi government has ordered $100 million worth of weapons made in China.
An Iraqi official said, "We're hoping China makes weapons that are half as deadly as their toys." |
-Conan O'Brien |
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