5
Apr

Current Thoughts On Gold and Silver Prices and Kiplinger’s Seven Ways Not To Buy Gold

 

There was a recent article on buying gold that Free Money Finance brought my attention to recently. I suggest you take a look at it. It was from Kiplinger and called; “Seven Ways Not To Buy Gold.” I agree with all seven reasons. It’s as if the author from Kiplinger read my book, “Buy Gold and Silver Safely” as I mentioned all of these reasons and more in it.

“Here are the Seven Ways Not To Buy Gold:

1. Don’t pay too much. Don’t pay more than a 5% to 8% markup over the spot price — that’s the typical premium, according to Michael White, spokesman for the U.S. Mint.

2. Don’t buy coins for historical value. Some gold dealers engage in a classic bait-and-switch: They offer gold coins or bullion, then try to sell customers on coins with historical, or numismatic, value. In fact, these coins usually have little or no extra value above their “melt value” — the value of the coin if it were melted and sold as metal.

3. Don’t pay a premium for proof coins. The premium you pay for proof coins may be inflated and may disappear, depending on the market. So, for investment purposes, stick with regular coins.

4. Don’t buy fractional coins. These coins come in fractions of an ounce, such has a half-ounce, a quarter-ounce and even one-twentieth of an ounce. You’ll pay a higher markup for such coins than for one-ounce coins.

5. Don’t buy gold from a cold caller over the phone.

6. Don’t buy based on confiscation scares.

7. Don’t buy using leverage.”

Below is my reply to Free Money Finance. I thought it would give you some good insight as to my thoughts on what is going on with gold and the reasons why, despite any potential pullback in price, we are a long way from any bubble territory or top in price.

 

“Thanks for the plug FMF…

The Kiplinger article has some good info in it. I agree with it. I try to talk people out of buying certain types of gold and silver at the risk of losing a customer. Those that want to buy on credit card for example. Sure, they can get gold and silver at 1% over my cost, but they want to pay a 3% or higher fee for the privilege of getting points? Makes no sense and goes against my entire philosophy.

As to why gold and silver will move higher in the future, the word “unsustainable” is one I use quite often. Pretty much everything our government (congress) and Fed do is unsustainable. Fighting wars that have no end; health care for all; defined benefit plans; bank bailouts, private company bailouts, quantitative easing to infinity.

Until said time congress has passed a Constitutional amendment that holds their spending to the taxable means, one better be diversified in gold and silver as a hedge against that portion of their portfolio that is U.S. dollar based (U.S. stocks, U.S. corporate bonds, U.S. government bonds, U.S. treasuries, CD’s and money market accounts).

What most people don’t realize, is it is impossible for gold to be in a bubble. One buries gold in their back yard 10 years ago, digs it up today, it’s the same gold. What changed? What it is priced in changes. What it is priced in, is the bubble.

Here is a good place to start for those who have the time: What Really Backs the U.S. Dollar? http://buygoldandsilversafely.com/gold/what-really-backs-the-us-dollar/

Thanks again FMF…I understand your thinking about gold being priced high, but even though gold may be due for a pullback, when the price is even higher, and potentially much higher because the Fed’s only solutions is bailouts and quantitative easing, the decision to get in will be more difficult than today when prices are lower.

Keep an eye on treasuries for the clue as to what will come. TBT for example is a good long term play. It is the ProShares UltraShort 20+ Year Treasury and I think it bottomed in September of 2010.

Unless of course people believe that the same Harvard, Yale and Wharton boys who got us into this mess can magically somehow get us out of it. Also keep an eye on the $4 trillion of sub-investment grade derivatives maturing in the next 5 years, more than at the height of the financial crisis. Who will be the counterparty to these derivatives? Answer: the lender of last resort, the Fed.

The Eurozone has their issues too. It’s not just the U.S. who will be buying gold as a hedge moving forward. Remember, pension plans have less than 1% invested in gold. We are still in the second and longest stage. Euphoria in the price of gold doesn’t come until the third stage.”

 

The U.S. dollar is still hanging in there and not breaking down. Until it does, one could still dollar cost average into a position in gold and silver and not care if the price falls, but rather welcome it as an opportunity to buy lower. In the next few weeks we will see whether the dollar moves higher and whether the inverse relationship to gold is still intact or whether both the dollar and gold move higher together as the demand for perceived safety (U.S. dollar and U.S. treasuries) and real safety (gold and silver) around the world increases as money flows from riskier assets to safer assets.


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About Doug Eberhardt

Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534

Disclosure:

Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.

All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.

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