Lux Investing

Investing in gold versus the market?

I know the market is down so it should be a great time to invest, but I'm still skeptical so I am thinking about investing in gold, which seems to have a decent rate of return over the long haul. How do I go about invest in it? I don't want to have gold myself, but how do I simply invest in it? Futures or something? Thanks in advance. Well, what would you suggest as an alternative? Nothing really seems that great.

Public Comments

1. It would be incorrect to make the argument that "gold has been good investment for the long hall." According to Chase Global Digest, Gold is the 2nd worst investment in history after diamonds. It took gold nearly 25 some odd years to go from it's previous high to next high again. So basically it took 25 years to break even in gold (not even factoring inflation) if one bought it at it's early 1980's high. This assumes gold was purchased using U.S. Dollars. 30 year gold chart http://goldprice.org/30-year-gold-price-history.html I was trading gold for a while, and exited the position on or about 02-20-2009 when Gold broke over $1000/ oz. (again) and been out of it since. If you have never traded futures before I would not be jumping into that. I have been in this biz for 20 years and still would not be trading futures. It is a very complex investment, and is highly risky. I leave this to the professional futures traders to figure out. I may look at it only if the economy show signs that it is going to plunge further near term, banks are semi-nationalized, or another shoe drops in the market. Most popular gold trading is the indexes: GLD = 1x long gold DGP = 2x long gold edit: If I was to look at an alternative it would depend on one's age, risk tolerance, time frame, and overall financial goals and financial picture. If one has debt such as CC debt, I would pay that first. Long term I have been repeatedly posting this as a basic strategy: S&P 500 Index in a Roth IRA Dollar Cost Average bi-monthly Do this for 15-20 years+ edit/follow up comment - reality check: ------------------------------ "Net adviser fails to mention gold adjusted for US dollar inflation is at $3500 per ounce." I'm not sure how long the other poster has been a broker and a what kind of broker, but that would not be a correct statement. If one factored inflation on an investment one would SUBTRACT inflation from the return of the investment. Example: If inflation was 3% in one year, and you made 6% on your money, your inflation adjusted return would be 3% (6% return less 3% inflation = 3% inflation adjusted return). This is why bank CD's, and money markets tend to be poor investment choices over the long term. They almost always pay less than the inflation rate, thus over time, one loses their buying power. Most people get it that things cost more over time. This is inflation. We don't get free extra money just because there is inflation. Your mutual fund company does not send you an extra check each year based on the inflation rate. The stock your holding does not send you a check because inflation went up. Your car manufacture doesn’t send you a check if the value of your car drops because of inflation. Most jobs don’t have a pay increase each year to keep up with inflation either. Unless one has something like TIPS - "Treasury Inflation-Protected Securities," for example, one will not get paid more money on their investment because of inflation. http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm I ran historic inflation models when I worked at a top Wall Street firm for clients to show what inflation does to money over time - it eats it away (things costs more). Based on historical inflation models, generally over 30 years $1.00 cash will have a buying power of 30 cents. Thus investment in Gold on or about 1980, at $1,000.00 an oz, the inflation adjusted return would be roughly $300.00. This is because gold did not keep up with the net increase of inflation. That is why Chase Global Digest research has said it is the 2nd worst investment after diamonds. To say that gold is worth by any calculation $3,500 or whatever, is absurd. Tell ya what. I'll buy gold in the open market at today's price of about $950.00 an oz, and you tell me you are dying to buy it from me at $2,000.00 oz. right now. If you think your answer is correct, then you'll make $1,500 oz. Now try selling that in the market, and you'll wonder why there are no bids at that price. http://www.hoover.org/research/factsonpolicy/facts/4804201.html One last note: RE: other poster: "Dollar...gold...they will catch up to each other, guaranteed..." As a fmr Securities Compliance Officer, it is unlawful - a violation of U.S. Securities Law to state, suggest, imply, infer, etc., ANY guarantees, on investments. By making such statement, one could be fined, sued by a client following such advice, or suspended by regulators or all three. Here are some compliance law websites a domestic securities, commodities, futures, broker should know and is REQUIRED by law to follow. Broker Misconduct http://www.usinvestorlaw.com/types-of-stock-broker-misconduct.php http://www.securitieslaw.com/complaints.html Fraud and misrepresentation http://www.securitieslaw.com/causesofaction.html#fraud Misrepresentation and Omissions http://www.stockbroker-fraud.com/lawyer-attorney-1133453.html I'm not doing this to censure the other poster, I'm point out that a licensed rep is required to know securities rules and regs. And by posting such info in question, is misleading to the unsuspecting people who are not financial experts and who may incorrectly rely on false and misleading information. This is why I have repeatedly suggested on Y!A and toother to seek professional advisors with no less than 15 years real market experience.
2. Do remember that gold is still near an all-time high, and that it is an extremely volatile investment. That said, the easiest way for most lay individuals to invest in gold is through an ETF that actually holds the metal. One such is GLD, which you can buy through any brokerage account, and holds nothing but the metal itself. Effectively you're buying a portion of the gold stored in their vaults. If you'd rather play the gold mining companies, look at an ETF like GDX, which owns the stocks of many gold mining companies. Good luck.
3. I think there's room for both in a portfolio. Essentially, buy stocks if you think the economy will eventually recover. Buy gold if you think that either: government efforts to stimulate the economy will fail, and global investors will lose faith in the strength of the US, or the stimulus, whether it works or not, will create an inflationary environment in the future. Hedge your bet by buying some of both, but don't forget about bonds- they are a very important part of any portfolio.
4. Forget futures. And forget investing in the market right now. Rates are low, and the DOW's under 8000. Buy gold it worth more than 1000 an ounce and is constantly going up. Buy actual certified bars, you can get them in gram and ounce demonitations. They come stamped w/ weight and purity, you can buy them from many companies. Get a safety deposit box(50bucks/year) and start filling. Ohh also try looking at investing in platinum and pallidium. Pallidium is the up and coming platinum, right now its cheaper than gold and it is stronger and more durible than platinum, jewelers are beginning to use pallidium as well. Check it out.
5. Gold and commodities in general are a great investment in this climate because they have inherent value that is unimpeded by the insolvency of paper investments and equities. When the economy starts to recover, it is inevitable that the huge amount of liquidity that's been pumped into the system will result in large amounts of inflation, and commodities are the place to be to hedge against those losses.
6. For around 1500 dollars you can open a commodity account and buy futures of gold. When the market goes up you buy futures at a higher level than the market. If the market keeps going up your futures increase in value and you can sell at any time and take a profit. Let's say gold is at $800 per ounce and you buy futures for $1000 per ounce. That is far out of the market and they would be cheap. About $100 ea. You are betting that gold will continue to rise. If it continues you can double or triple your money. If it falls you LOSE. Precious metals are risky business and you should seek competent advise.
7. When the economy gets back up the price of gold normally gets slaughtered with most other commodities. You sound like an overall beginner in the commodity markets. I would not recommend futures for you because they are very risky. I would suggest getting a book on commodity investing because it is very different from stock investing. There are certain styles of investing and a whole new vocabulary. I would say try any kind of consumer staple stock. They benefit from this downturn. Their advertising and transportation of goods is much cheaper now. So basically their expenses are lowered.