Employing your cash

Reasons to say YES to Gold

2009-12-23T00:35:00.000+08:00

- The dollar is weak and getting weaker due to national economic policies which don't appear to have an end.

- Gold price appreciation makes up for lost interest, especially in a bull market.

- The last four years are the beginning of a major bull move similar to the 70's when gold moved from $38 to over $800.

- Central banks in several countries have stated their intent to increase their gold holdings instead of selling.

- The trend of commodity prices to increase is relative to gold price increases.

- Worldwide gold production is not matching consumption. The price will go up with demand.

- Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.
- U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an uncontrollably increasing trade deficits. Both will cause the dollar to lose in international value and will increase the price of alternative investments, such as gold.

- With the recent devaluation of many international currencies, the U.S. dollar was the international safe haven of last resort. We are seeing signs of this ending due to many financial factors, the most important one being a falling dollar.

- There are over One Trillion dollars ($1,500,000,000,000) of U.S. debt owned by foreigners which could be repatriated under certain conditions. This could cause a major decline in the value of the dollar and a soaring gold price.

If you believe in 'buy low, sell high', gold is still low, but climbing.

A beginner's guide to investing in gold

2009-12-22T23:56:00.001+08:00

Physical gold should form a part of a properly diversified portfolio. Gold remains a universal finite currency, held by every central bank of note in the world. And central banks are set to become net buyers of gold in 2009 for the first time since 1988. The Indian Central Bank's purchase of 200 tonnes of gold from the IMF in October 2009 ( and a further 200 tonnes is being acquired) is the biggest single central bank purchase in such a short period of time (at least known to the markets) for at least 30 years.
In the same way that the family home should not be regarded as an investment, gold bullion is not an investment per se, rather a form of 'saving for a rainy day' or of financial insurance. It is to be taken possession of or stored with a secure third party and should not be traded. One does not trade an insurance policy and thus as a form of financial insurance, physical gold should not be traded.

Gold is money and is the ultimate safe haven asset and a great way, if not the best way, of ensuring wealth preservation and for passing wealth from one generation to the next. Once the solid base or core holding of gold bullion is achieved in a portfolio then other investments in gold such as mining stocks and mutual funds and other more speculative gold investments can be considered.

Source:
1. http://www.moneyweek.com/

Gold Sense

2009-12-22T23:36:00.000+08:00

Financial instruments usually carry three main types of risk.
■Credit risk: the risk that a debtor will not pay

■Liquidity risk: the risk that the asset cannot be sold as a buyer cannot be found.

■Market risk: the risk that the price will fall due to a change in market conditions.

Gold is unique in that it does not carry a credit risk. Gold is no one's liability.
There is no risk that a coupon or a redemption payment will not be made.
As for a bond, or that a company will go out of business, as for an equity.
And unlike a currency, the value of gold cannot be affected by the economic policies of the issuing country or
undermined by inflation in that country.

At the same time, 24-hour trading, a wide range of buyers - from the jewellery sector to financial institutions to manufacturers of industrial products - and the wide range of investment channels available, including coins and bars, jewellery, futures and options, exchange-traded funds, certificates and structured products, make liquidity risk very low.

The gold market is deep and liquid, as demonstrated by the fact that gold can be traded at narrower spreads and more rapidly than many competing diversifiers or even mainstream investments.

Gold is of course subject to market risk, as is clear from the experience of the 1980s when the gold price declined sharply.

But many of the downside risks associated with the gold price are very different to the risks associated with other assets
A factor which enhances gold's attractiveness as a portfolio diversifier.
For example, should a central bank announce its intention to engage in substantial sales of gold, as happened prior to the Central Bank Gold Agreement in 1999, this would be unlikely to have an impact on equity returns but could reasonably be expected to affect the gold price in the short run. Similarly, the specific risks to which bonds and equities are exposed, including pressure on the health of the government and corporate sector during an economic downturn, are not shared by gold.

One measure of market risk is volatility, which measures the dispersion of returns for a given security or market index.
The more volatile an asset, usually the riskier it is. The gold price is typically less volatile than other commodity prices.

This is because of the depth and liquidity of the gold market, which are supported by the availability of large above-ground stocks of gold. Because gold is virtually indestructible, nearly all of the gold which has ever been mined still exists, much of it in near market form. This means that sudden excess demand for gold can usually be satisfied with relative ease.

And, unlike many other commodities such as, for example, oil or platinum, the geographical diversity of modern mine production further reduces the chances of supply shocks from any specific country or region having an undue impact on the price. As a consequence, gold is generally slightly less volatile than heavily traded blue-chip stock market indices such as the FTSE 100 or the S&P 500.

The fact is that financial crises of the largest magnitude are really quite common, and a pre-requisite of these accidents is that the huge majority of their victims regard them as impossible.

Stand back for a moment and consider how most wealthy people have secured their accumulated capital.
They have already bought a nice house. Their surplus is invested in stocks, bonds, mutuals, property, their own business, or whatever else their private investment preference dictates.

They may have chosen well on the basis of recent historical rates of return, but all of this wealth is at risk in a general crisis - even on deposit.

In a financial collapse stock and house prices plummet but nothing can be sold.
Banks cannot pay back depositors and government deposit guarantees become hyperinflationary and are worthless.

This recently happened to those around us now.To people globally.

As luck would have it the insurance needed to defend against that type of catastrophe is just about the
cheapest form of insurance it is possible to buy.

The reason for this is because - necessarily - it does not involve any insurance companies or other financial organisations.

In a world of financial crisis gold bullion can be relied upon to hold and multiply its value.

Consider a respectably wealthy individual with $500,000 of invested assets.
He is successful, earning $100,000 a year - probably as some type of professional.
Consider the options of investing in gold or depositing cash to the value of $75,000 - being 15% of capital.
Taking that $75,000 out of the mainstream financial system (where it is earning 1 or 2% max) will cost $750 to $1,500cpre-tax per year, not even covering inflation.

Now justify a capable working person fussing over an additional $1,500 of income when the capital which produced it could be used so effectively to make him rich in a relatively probable crisis of the type which might cost him his capital and his job simultaneously.

This is the justification for making an investment in gold.

All the other principal investment classes of the world depend on the solvency of another organisation bound up in the financial system. Gold does not. It is the quality hedge against the commonest personal financial disaster, in terms of numbers of people ruined. It is a hedge against a failure of the financial system itself.

Sources:
1. http://www.invest.gold.org/
2. http://www.galmarley.com/