How to invest in gold

There is an increasingly wide range of methods available to investors wanting to buy gold, or gain exposure to gold price movements. From gold coins to complex structured financial products, the most appropriate way will depend on the requirements and outlook of the individual investor.

Coins and small barsThe first gold coins were struck by King Croesus, ruler of Lydia in western Asia Minor from 560 to 546BC, whose wealth came from the gold from the mines and sands of the River Pactolus. Gold coins have been legal tender ever since. Bullion coins and small bars offer private investors an attractive way of investing in relatively small amounts of gold. In many countries - including the whole of the European Union - gold purchased for investment purposes is exempt from Value Added Tax.

Bullion coins

Investors can choose from a wide range of gold bullion coins issued by governments across the world (see panel, below right). These coins are legal tender in their country of issue for their face value, rather than for their gold content. For investment purposes, the market value of bullion coins is determined by the value of their fine gold content, plus a premium or mark-up that varies between coins and dealers. The premium tends to be higher for smaller denominations. Bullion coins range in size from 1/20 ounce to 1000 grams, although the most common weights (in troy ounces of fine gold content) are 1/20, 1/10, 1/4, 1/2 and 1 ounce. It is important not to confuse bullion coins with commemorative or numismatic coins, whose value depends on their rarity, design and finish rather than on their fine gold content. Many dealers sell both.

Small gold bars

Gold bars can be bought in a variety of weights and sizes, ranging from as little as one gram to 400 troy ounces (the size of the internationally traded London Good Delivery bar). Small bars are defined as those weighing 1000g or less. According to industry specialists Gold Bars Worldwide, there are 94 accredited bar manufacturers and brands in 26 countries, producing a total of more than 400 types of standard gold bars between them. They normally contain a minimum of 99.5% fine gold. The Gold Bars Worldwide website provides a wealth of additional information regarding the international gold bar market.

Exchange-traded gold

Gold-backed securities

Gold is traded in the form of securities on stock exchanges in Australia, France, Hong Kong, Japan, Mexico, Singapore, South Africa, Switzerland, Turkey, the United Kingdom and the United States. By design, these forms of securitised gold investment, all regulated financial products, are generally referred to as Exchange Traded Commodities or Exchange Traded Funds (ETFs), and are expected to track the gold price almost perfectly. Unlike derivative products, the securities are 100% backed by physical gold held mainly in allocated form. These securities have had a major impact on the gold market, representing an annual average of 32% of identifiable investment and 6.5% of total physical demand over the 5 years to 2008. Financial advisors and other investment professionals can provide further details about these products

Structured products

The market for structured products is dominated by institutional investors - or, in the case of forwards, by gold market professionals - because the minimum investment can be high. The following is a general overview of what these products are like and how they work

Gold Will Hit $1300 An Ounce Shortly

As the economic turmoil unfolds worldwide the future for gold is looking more and more promising. It would literally take an entire essay to map out why gold is going to become the most valuable asset on the planet in the coming times. For the more immediate term I am going to map out why I feel gold will hit $1300 an ounce before the end of the fall. At this point in time everyone knows that gold is the ultimate asset. We have seen billionaires and central banks pouring their wealth into gold or gold related investments as a flee for safety from paper based assets. There are many reasons why gold is going to have precipitous growth in the coming times but I have narrowed it down to my top 3 reasons. Here are the top 3 reasons why I feel gold will hit $1300 an ounce before the end of the fall.

Gold Mining Museums

As many of you know I’m a big believer that most of the significant gold is actually found during your research and museums are an often overlooked place to do research, particularly if you are stumped. I have found that looking at museums often give me a better feel for a project than say just reading or searching for information online, because the museum displays give you both an overview of mining in a given region, but also specific details about mining techniques, equipment, and production that you may not have known. More importantly, even if you know all of the information in the exhibits, seeing the information explain in visual form may help spark some ideas you had never considered about where you might want to prospect and other research ideas.

Also, some of the old gold mining equipment might really be useful to you, because the old timers used a variety of methods that we no longer use for a variety of reasons. However, you might be able to use your equipment a little more effectively or perhaps decide to build a piece of your own gear. Most of the old stuff tends to be heavier and harder to use, but it depends on your situation.

Anyhow, here is the link for Mining Museums

Strike It Rich!

The Many Uses of Gold

Of all the minerals mined from the Earth, none is more useful than gold. Its usefulness is derived from a diversity of special properties. Gold conducts electricity, does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster. Gold is a memorable metal that occupies a special place in the human mind.

When Spanish explorers first arrived in the "New World" they met the native South Americans. These two cultures had been separated by a vast ocean, they had never touched one another, they spoke different languages and lived entirely different lives. Yet they had one thing in common - they both held gold in highest esteem and used it to make some of their most important objects.

Throughout the history of our planet almost every established culture has used gold to symbolize power, beauty, purity and accomplishment. Today we continue to use gold for our most significant objects: wedding rings, Olympic medals, Oscars, Grammys, money, crucifixes and ecclesiastical art. No other substance of the same rarity holds a more visible and prominent place in our society. Jewelry: The Primary Use of Gold The production of ornamental objects was probably the first use of gold over 6000 years ago. Gold is found in the pure state, is very easy to work and was probably the first metal used by humans. Today, most of the gold that is newly mined or recycled is used in the manufacture of jewelry. About 78% of the gold consumed each year is used in the manufacture of jewelry. Financial Gold - Coinage, Bullion, Currency BackingBecause gold is highly valued and in very limited supply it has long been used as a medium of exchange or money. The first known use of gold in transactions dates back about 6000 years. Early transactions were done using pieces of gold or pieces of silver. The rarity, usefulness and desirability of gold make it a substance of long term value. Gold works well for this purpose because it has a high value, is durable, portable and easily divisible. Uses of Gold in Aerospace If you are going to spend billions of dollars on a vehicle that when launched will travel on a voyage where the possibility of lubrication, maintenance and repair is absolutely zero, then building it with extremely dependable materials is essential. This is exactly why gold is used in hundreds of ways in every space vehicle that NASA launches.

Gold is used in circuitry because it is a dependable conductor and connector. In addition, many parts of every space vehicle are fitted with gold-coated polyester film. This film reflects infrared radiation and helps stabilize the temperature of the spacecraft. Without this coating, dark colored parts of the spacecraft would absorb significant amounts of heat

Gold is also used as a lubricant between mechanical parts. In the vacuum of space, organic lubricants would volatilize and they would be broken down by the intense radiation beyond Earth's atmosphere. Gold has a very low shear strength and thin films of gold between critical moving parts serves as a lubricant - the gold molecules slip past one another under the forces of friction and that provides a lubricant action.

Huge reduction in LCs’ net short position in gold

Most gold and silver investors are in precious metals because of macro (big picture) economic and financial circumstances in which the world now finds itself after seven decades of Keynesian economics and statist politics. These investors are content to take positions in the metals and hold them, while maybe adding to their positions as opportunities arise.

Still, there are other gold and silver investors who follow the markets closely, which usually means monitoring the activities of the large commercials (LCs), which are major players in the gold and silver markets, certainly on the COMEX where their positions have to be reported the Commodities Futures Trading Commission (CFTC).

Among the LCs, the bullion banks are the guys to watch. They trade for central banks, investment houses, mining companies, refineries, commercial users and other large investment firms when they decide to enter the markets. The thing to watch is the sizes of the LCs’ reported positions, which has been on the short side for more than a decade. The big two bullion banks are JPMorgan Chase and HSBC.

For the reporting week just ended, the Commitment of Traders report (COT) showed the largest one-week reduction in large commercial net short positioning for gold since August 12, 2008, says Gene Arensberg in his Got Gold Report. GGR notes that it’s the fifth largest one-week large commercials’ net short reduction in gold since 2003. In the past, large reductions in the LCs’ net positions have been harbingers of price moves to the upside. Not a guarantee, but it needs be remembered that the LCs are the big boys on the COMEX , and when they move they should not be ignored.

Seasonally, the metals have just entered their weak period, June through August/September. So, the boys backing off on their short positions is interesting. (In years past, the LCs have added to their short positions during the summer.) Additionally, gold is trading only 6% above its 200-day moving average, and it is below its 50-day moving average, which means gold may not be as vulnerable to a big decline this summer as it has in past years. So, the large reduction in the LCs’ net short position in gold may be really significant.

Arensberg’s Got Gold Report presently is free. Log on at www.gotgoldreport.com. In addition to analyses of the gold and silver markets, Arensberg also offers what he now calls his Vulture Bargain Hunting candidates: low-priced and high-risk gold mining stocks that he believes to be good speculations. Purchases of such companies should only be done by persons financially (and emotionally) capable of sustaining losses. Gene does good work, but he would be the first to tell you that speculative mining stocks are not the place for retirement funds.

GGR also offers COT Flashes, which are email updates of the COT reports. This is a convenient way to be appraised of what’s happening with LCs’ short positions in gold and in silver.

As noted, access to www.gotgoldreport.com presently is free. Plans are afoot for Gene’s work to be a subscription service. Now, though, it is free. Gold and silver investors who closely follow the markets may want to visit the site and sign up for the COT Flashes. However, after the site becomes a paid subscription, the COT Flashes will be part of the paid subscription.

2010 American Gold Eagle Release Date

After a year of heavy demand, the United States Mint will begin offering the 2010 American Gold Eagle bullion coin with a slight delay. Typically, authorized purchasers are able to order the coins in late December for delivery in early January. This year orders won't be accepted until January 19, 2010.

The reason for the delay is because the US Mint continued to produce the 2009-dated Gold Eagle bullion coins up until the end of the year, amidst the continuing high demand. This demand resulted in the fourth highest annual sales total of gold bullion in ounces.

Typically, production of coins bearing the following year's date will begin by early December. This, in turn, allows the US Mint to accept orders earlier and begin delivery a few days into the new year.

The only gold bullion coin offered will be the one ounce 2010 Gold Eagle. The status of fractional weight offerings has not been provided. During 2009, the US Mint sold only the one ounce coins for the first eleven months of the year and offered the fractional Gold Eagles during December.

Proof Silver Eagles Possible… With Change in Law

There might be a chance for proof versions of the American Silver Eagle after all.

Shortly after my post on the dimming prospects of the 2010 Proof Silver Eagle, US Mint Director Edmund Moy delivered testimony to the Subcommittee on Domestic Monetary Policy and Technology on "The State of U.S. Coins and Currency". Within the testimony, Director Moy mentioned that the subcommittee was considering amending the existing law to allow the Mint to produce collectible uncirculated and proof versions of the Silver Eagle, even if full demand for bullion coins was not being met.

It was revealed that the US Mint has already, in fact, provided drafting assistance for the amendment to the law. If it could be enacted soon, the Mint could begin production of Proof and uncirculated Silver Eagles in September at a rate of 200,000 coins per month. This would allow total production of 830,000 coins before the end of the year.

Frankly, after two years of stalled production, a change in law is not really the solution I was expecting. Two years should have provided the US Mint with sufficient time to either find additional precious metals blank suppliers, or set up their own production of precious metals blanks in-house. During the course of the subcommittee meeting, the US Mint Director was questioned on these two options and did not provide satisfactory responses. If the US Mint sought to change the law to legitimize the fact that they cannot satisfy bullion demand, then they could have taken this step two years ago.

As it stands, the US Mint claims that there is plenty of gold, silver, and platinum in raw material form, they just can not get it fabricated into planchets fast enough. This is another tough statement to accept without scrutiny. As covered in prior posts, other world mints quickly managed to adapt to the increased level of demand for precious metals. The US Mint has apparently been staring down the same bottleneck for two years.

During the course of the questioning, Director Moy was asked about the possibility of producing back dated 2009 Proof Silver Eagles, to fill the gap left by last year's cancellation. He stated that this was not allowed.

Etude du Marché de l'Or - 1er trimestre 2010

La dernière étude du Comptoir National de l'Or est faite à partir des études les plus sérieuses sur ce marché et notamment celles du Conseil Mondial de l'Or.

Aujourd'hui, l'Or ne cesse de battre des records. Cela va t'il continuer ? Quels sont les fondements du marché de l'Or ? Qu'est ce qui détermine l'offre et la demande sur ce marché et quelles sont les perspectives d'évolutions plausibles ?

Nous vous proposons de répondre à ces questions par l'étude rigoureuse de ce marché. Notre objectif est de mettre à votre disposition tous les éléments susceptibles de vous apporter une vision global des fondamentaux du secteur de l'Or.

Voici quelques extraits :

"Le WGC (World Gold Council) anticipe une forte demande d’Or en 2010 stimulée par la demande du secteur bijoutier en Inde et en Chine ainsi que par la demande d’Or d’investissement en Europe et aux USA (car l’accroissement des dettes publiques renforce l’attraction de l’Or, réserve de valeur stable aux yeux des investisseurs)."

(...)

"Les volumes totaux enregistrés au sujet de la demande mondiale d’Or au T1 2010 sont 25% inférieurs à ceux enregistrés un an auparavant, au T1 2009, équivalent à un recul plus modéré de 9% exprimé en valeur du fait de l’appréciation du Dollar américain sur cette période. Une comparaison entre la demande au T1 2010 et celle au T1 2009 montre que le recul provient de l’investissement dans l’Or qui a chuté de 69% en regard du niveau exceptionnellement fort au T1 2009. La croissance fut quant à elle concentrée dans les secteurs de la bijouterie (+43%) et de l’industrie (+31%)."

(...)

'L'investissement dans l’Or physique, correspondant à la demande de lingots d’Or et de pièces d’Or, a quant à lui cru de 26% entre le T1 2009 et le T1 2010, à 182,5 tonnes (augmentation de 54% en valeur en Dollar US à 6,5 milliards de Dollar US). Là encore, la situation procède d’un profond contraste séparant les marchés occidentaux des marchés non occidentaux, bien que quelques exceptions soient à relever.

."

(...)