Posted on

Why Invest in Gold?

EzineArticles.com Basic Author
I am often asked – why do I invest in gold and gold stocks?  There are many reasons why gold prices are increasing and will continue to increase, but the simplest answer is the basic principles of supply and demand.  In the early 80s, Cabbage Patch dolls were selling 100 times retail price due to lack of supply.  This priced many people out of the market and angered parents around Christmas time.  I don’t believe the company intended to drive prices up with a limited supply strategy – especially since it didn’t benefit from the higher prices as a secondary market evolved.  Thus, to profit from the demand the company had to increase production.  I believe that a similar scenario is evolving in the gold patch.

From 1980-2001, there was very little interest in Gold as it fell to a low of $255/oz.   Mining companies were not able to attract investment capital to bring new mines and projects to fruition, thus gold supplies diminished.  During this same time period, India and China were beginning to see the fruits of their industrialization efforts.  As the countries industrialized, their citizens benefited and began moving from the poor to middle class.  There are literally billions of people in India and China.  Each has cultures that encourage savings and have a strong affinity to gold.  As more move to the middle class and transfer a part of their savings to gold, the investment demand will be tremendous.  This will be exciting for gold investor; however, that will only be a fraction of the demand.  The central banks of Russia, Argentina and South Africa have all announced that they will be increasing their gold reserves with rumors of China and perhaps all of Asia to follow.  

http://www.kitco.com/ind/Hommel/dec122005.html

The gold mining companies do not have the luxury of the Cabbage Patch doll company which was able to quickly ramp up production.  It takes 5-10 years to bring a new gold mine into production.  This will leave the industry in supply deficit for many years to come.  Investment demand alone should be enough to get you excited about investing in gold.  However, there are many more reasons.  The Aden Sisters captured it extremely well in their latest commentary.

http://www.321gold.com/editorials/aden/aden062206.html

The investment demand from individuals as well as governments will put a tremendous demand on an industry that is already in supply deficit.  As with any investment, its price will not go straight to the moon, but will ebb and flow.  However, until supply and demand are in balance prices will continue to increase.  An investor with a systematic approach as described in my previous article, “The No-Brainer Investment Strategy to Double Digit Returns,” will be extremely pleased. 

Posted on

Landlords in Drivers Seat

The days of 20-30% annual real estate apprecation, in some locals even more, are history.  However, if you acquired rental properties during the boom and are not overleveraged you may be in the driver’s seat. 

I just discovered Peter Schiff, President of EuroPac Capital, I like what I have read and heard so far.  The following is from one of his latest commentaries,  “As the slowing housing market increases the perceived cost of buying, renting becomes a far more compelling option. However, due to all the recent condo-conversions, the supply of rental housing is somewhat constrained. As higher interest rates increase the debt service expenses of landlords, many of whom financed with ARMs themselves, they not only have a strong motivation to raise rents, but the means to get away with it.”

Continue reading “Landlords in Drivers Seat”

Posted on

The CEF Experiment

I am setting up a experiment with the objective to demonstrate that the average investor can reap double digit returns with a simple dollar cost averaging strategy.  See the June 9th’s article on the “No Brainer Investment Strategy to Double Digit Returns” for the basis of the methodology.  We will use two ETFs to validate this theory – Central Fund of Canada (CEF) and Market Vectors Gold Miners (GDX).  Each month we will purchase $1000 of CEF and GDX and compare it versus the S&P 500. Purchases will take place at the close on the 4th of each of month unless it falls on the weekend or holiday.  In that case it will be purchased at the next day’s close.

As of June 5, 2006 CEF was outperforming the S&P 500 13.02% vs. -0.64%.  CEF is compounded monthly.  S&P 500 is YTD return without compounding. Continue reading “The CEF Experiment”

Posted on

The No-Brainer Investment Strategy to Double Digit Returns

This has been a painful month in commodity land especially for anyone who bought around May 12, the peak of the most current gold rally.  Since then, investors have lost 20% from its high of $730/oz to Friday’s (6/9) close of $608/oz. Those that purchased on the last day of this past year have a slightly differently perspective.  Gold closed on 12/30/05 at $517.  Over the past five years gold has averaged a return of 15% per year. No one wants to suffer through a 20% draw down in 4 weeks, but a 41% return in 4 ½ months was simply unsustainable. This is why I am a strong advocate of dollar cost averaging.  If you made the decision to try commodity investing and went all in on May 12, you are probably ready to give up now.

Continue reading “The No-Brainer Investment Strategy to Double Digit Returns”