Tuesday, November 6, 2007

The Golden Bull

I don't know what it is about my posts lately, but the day after I posted recently that the Chinese yuan would be increasing in value, it made it's largest gain since it was allowed to float a small amount against a basket of currencies. Then in yesterday's post, I made the case for the coming bull market in gold. Sure enough, gold then shot up today to $824 per ounce as of the time this post is being written.

It's also interesting that after writing a post a few days ago that was fairly critical of FOREX trading, my FOREX trading account (which is equally divided among gold, silver and Canadian dollar positions) was up by more than 125% just today. I quickly moved up all my stops since what 50:1 leverage gives, 50:1 leverage frequently takes right back!

So what is the best way to play the bull market in gold? I'll save my opinion on that subject for a future post. Today, as promised, we will start by taking a look at the most conservative way to invest in gold - buying physical gold. Then in future posts, we will discuss progressively riskier (and potentially more rewarding) methods of investing in gold.

The easiest way to buy physical gold is at a reputable coin shop or dealer. Some people like to purchase rare coins that are made of gold in an attempt to increase the return on their investment, but for most people it is better to just purchase one ounce national gold bullion coins, unless you are a coin collector or hobbyist who really knows what you are doing. The most popular such coins are the South African Krugerrand, Canadian Maple Leaf, American Gold Eagle, and Australian Nugget. These coins are very portable, easily hidden, and instantly recognized as a store of value worldwide. Of the three, the Krugerrand is your best bet because it has the lowest dealer markup for obscure reasons that date back to apartheid days. If there is no coin shop or dealer in your area, it is possible to order gold coins online as well, although if you choose to go that route, be sure to thoroughly check out any prospective sites before you send them any payment.

As mentioned in yesterday's post, for American citizens, you might want to go a different route in case President Clinton at some point takes away the right of American citizens to own gold again. If this possibility concerns you, I recommend a unique entity known as the Perth Mint, which is run by the Government of Western Australia. They run the only government-operated gold and silver bullion certificate program in the world. You can purchase any amount of gold that you desire through their website. You receive a certificate in the mail, and they store the gold in their vaults in one of the safest and most politically and economically stable countries in the world. For an extra annual fee, you can choose segregated, allocated storage under your name. Otherwise your gold and silver is stored together with everyone else's.

Tomorrow we will take a look at how to invest in a gold Exchange Traded Fund (ETF).

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