Tuesday, January 29, 2013

Two Sensational Facts About Gold Investing That You Might Not Know



[Onebornfree /Financial Safety Services commentary: the title of the piece below, "4 Sensational Facts About Gold Investing That You Might Not Know" , includes the words "sensational","facts", "gold" and "investing". However, here, courtesy of yours truly, are two  more"sensational facts" that you might not know about gold "investing" that the article in question does not  even come close to addressing - that will doubtless be exceedingly unpopular with "gold bugs" [ I'm a recovering gold-bug myself], "hard money" types and the average gold-loving "libertarian". Nevertheless, I feel that these facts are important for you to understand if you wish to hang on to your savings long term, or if you are looking to make a lot of money via speculations in gold : 

Sensational Fact [1] :  "Investing" Is Not The Same As "Speculating":
there is a vast difference between the meaning of the word "investing", and  the word "speculation". To my mind, an investor attempts to invest and achieve no more than the average gain as historically measured long-term over a number of years for whatever they choose to invest in. On the other hand , a speculator speculates in various markets in an attempt to achieve gains that far exceed the long term historical average gains for whatever it is they choose to speculate in.

Sensational Fact [2] : most gold "investors" are speculating , not investing:                                                                                        
If you put all of your savings [i.e. money you cannot afford to lose]  into one specific type of "investment", such as gold [but the exact same applies to stocks, or bonds, or whatever],  you  are not investing, you are in fact speculating. Why? Because each class of "investment" [i.e. precious metals/commodities, bonds, cash, T-bills, stocks etc. etc.] , only performs well in one, or possibly two, types of economic environment. Therefor, if you place all of your long term savings [i.e. money you cannot afford to lose] into gold, for example, then you are speculating [with money that you cannot afford to lose], that a particular type of economic environment must occur, in order for you gold to "profit". 

Question [1 a]: are you absolutely certain that the economic environment that historically gold has always done well in [i.e. inflation] has to definitely occur within your lifetime? How do you know for sure? 

Question [1b]: do you understand  that simple economic theory demonstrates that no single person can successfully, reliably, predict the economic future? 

Question [2] : can you really afford to be speculating in gold  [or whatever] with money you cannot afford to lose]?



2  Good Reasons to Buy Gold Now:

 I can think of two very good reasons for buying gold now: 

[1]as part of a fully diversified long term savings plan. [i.e as an "investment" ]

As part of a long term savings plan for money that cannot afford to be lost, a certain percentage of total savings is always allocated to gold bullion. 

This gold is bought regardless of current price or supposed future outlook for the gold market. My long term savings plan recommends that you _always_ keep a certain percentage of your savings in gold, come what may [and so the question of whether or not gold is or is not in a bubble right now is not even an issue]. 

or, 

[2] as a short to medium term speculation for those who think that gold is either [a] in a bubble that still has a long way to go upward [and therefor takes a "long position" betting on continuance of the upward trend] , or [b] is "an accident waiting to happen" and about to suffer a significant price collapse [a "short" position- profiting from a decline in golds price as measured in $US]. 

As nobody can predict the future of gold prices relative to  all others, ALL speculations [i.e both long or short positions] should only be made with money that the individual can realistically afford to lose!  

Regards, onebornfree/ Financial Safety Services . ]

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4 Sensational Facts About Gold Investing That You Might Not Know

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
Posted Jan 24, 2013

Our ever-popular Periodic Table of Commodity Returns has been updated through 2012. Investor Alert readers love this chart as it shows a decade of results across 14 different commodities, providing strikingly rich information in a very familiar format.

Last year, 11 commodities rose in value, with wheat rising as the top crop after seeing a significant decline in 2011. It was a similar rags-to-riches story for the next few leaders, including lead, zinc, natural gas and platinum, which all climbed double digits in 2012 after falling in 2011.

Only three commodities declined over the year: Crude oil fell by 7 percent after rising 8 percent the previous year. Nickel declined for the second year in a row. In 2012, the metal lost 9 percent and in 2011, nickel fell another 24 percent.

Coal was the worst-performing commodity in 2012, falling nearly 17 percent. Coal’s been going through a rough spell lately; in fact, the commodity has not been king for five years (although it did record a 31 percent increase in 2010). As Global Resources Fund Portfolio Manager Evan Smith explained to listeners during our recent presentation, for the first time ever in the U.S., natural gas provided more electricity and power than coal did.

As you can see from the table, commodities often have wide price fluctuations from year to year given the many factors affecting supply and demand, such as government policies, union strikes, and currency volatility. That’s why when it comes to commodities and commodity producers, many investors “leave the driving” to active money managers who understand these specialized assets and the global trends affecting them.

Take gold and gold companies, for example. After investing in the mining industry for decades, we’ve taken note of several facts about gold that continue to surprise our investors.

Here are four of the latest:

1. Gold Has Been A Consistent Performer Over The Decade

While the precious metal did not shoot the lights out in 2012, gold’s bull rally goes on. It ended the year up 7 percent, making it a phenomenal 12th year in a row that gold rose in value. In a special gold bar version of the Periodic Table below, you can easily see gold’s rotation among the commodities from year to year.

What’s fascinating is the three-year rising pattern relative to other commodities that emerges when you focus on the bars. Over the past 10 years, gold has risen in position compared with the others for three years in a row, then fallen in relative position in the fourth year before repeating the cycle. Will it follow the same pattern and be in the top half of the Periodic Table in 2013?

2. Gold Should Remain A Hot Commodity In 2013

Considering the global easing cycle and the continuous running of monetary printing presses, I believe the Fear Trade will continue to be a driver of gold over the next several months. Take a look at the projected rise in the balance sheets as a percent of GDP from the European Central Bank, the Bank of Japan, the Federal Reserve and the Bank of England over 2013. The ECB is estimated to have a balance sheet that is nearly 50 percent of its GDP by the end of the year. The Bank of Japan is right behind the ECB, with its balance sheet projected to be nearly 35 percent of GDP. As Mike Shedlock of Mish’s Global Economic Trend Analysis said, “The race is on to see which central bank can load up its balance sheet with the most garbage the fastest.”......................

Read rest of article here
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Financial Safety Services is a private , mostly off-line, international, person to person consulting service that attempts to show its real-time [i.e. non-internet derived] clients how to speculate safely with money that they can afford to lose. Money that the client cannot afford to lose should never be risked in these speculations

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Regards, onebornfree 

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