The Basics of Gold and Silver Investing: A Musician’s Guide to Speculating and Profiting with Precious Metals (Part 1)

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In line with other articles I’ve written about financial issues musicians face, I thought you might benefit from getting a basic education about investing in gold and silver. Because there’s been so much attention and hype surrounding the devaluing of the dollar and the sharp rise in the price of these two precious metals, having a basic understanding about how to make money from these metals is crucial. Besides if you’ve had some success with your music career and you’ve got the extra cash to invest why not expose yourself to opportunities for growing and protecting your hard earned income? So here’s my synopsis about some of the best techniques for speculating and profiting by investing (or trading) in gold and silver.

Today, you’ll learn how to formulate an investment strategy (for getting in and exiting the market) in line with your financial goals. You’ll also find out about several approaches for collecting gold and silver coins. Not only that, but you’ll also get a basic orientation about gold and silver’s industrial uses and investment opportunities that are available from gold and silver mining company stocks, jewelry firms, electronics, and much more. I’ll also give you a fundamental education in more advanced trading techniques such as gold and silver mining and commodity ETF’s, gold and silver shorting ETF’s, as well as gold and silver leveraged ETF’s for doubling your profits. Because there’s so much to cover let’s begin right away.

Strategy: Capital Preservation or Capital Gains

First and foremost, you will have to decide what your reason is for investing (or trading) in gold or silver. In general, there are two strategies by which to profit from gold and silver. The first is to protect your wealth or purchasing power from loss via inflation through capital preservation. And the other, is to make short or long-term gains from sharp or gradual rises in the price of gold or silver. So you’ll have to decide for yourself what type of investing your personality jibes with best. I strongly suggest that you base this decision on any research you can do or by financially educating yourself as much as possible before you make your final conclusion. 

Gold and Silver Coins

 

 

 

Buying collectible and investment grade gold and silver coins (bullion) is one of the greatest American pastimes and its popularity seems to ever be increasing with time. Especially now that we find ourselves in the midst of a financial meltdown, interest in owning gold and silver coins to replace devalued dollars has been a great boon to many investors who’ve maintained a careful eye on the price and demand for these metals.

There are actually several ways to get gold jewelry, gold and silver coins and bullion into your possession, but here’s just a few. The first is to simply walk into any rare coin, collectible coin, or even pawn shop and buy whatever you can afford. The process is very easy and quick. But the only complication you might experience is them asking for your personal information for tax or legal purposes. If you can avoid it try to convince the seller to go through with the purchase without providing your information to keep the transaction anonymous. The reason why this is important is because the U.S. government already has a history of legally confiscating gold from its citizens by making it a crime to possess it and manipulating the price of gold for its own benefit.

Another way to purchase investment gold coins is to order on-line or through a coin catalogue. The reason why this is also a good alternative to the coin or pawn shop is not because the transaction can remain anonymous, but rather because you can use your credit card to make the purchase. In most cases, the coin or pawn shop will not allow you to buy gold and silver coins with a debit or credit card, so this may be your only option if a card is your preferred method of payment. Now, if you use a credit card or go into debt to acquire gold or silver you’ll have to assess whether or not the interest rate you’ll be charged is lower than the rate of return you’ll receive from your investment in gold or silver. Ideally, you’d come out ahead, be able to pay back the debt, and keep the gains for a new round of investing.

One other way I know of to get gold and silver coins or jewelry is to become a wholesale buyer. You will need to get some training on how to test the quality and value of any gold or silver pieces sellers bring to you. You’ll also need some start-up capital to begin to run advertisements and generate sales leads. An extension to this approach is to use the training you’ve received in testing the authenticity gold and silver to frequent yard and estate sales to find bargains in precious metals, jewelry, coin collections, and more.

Barter is another way to get more gold and silver into your possession. The way to do this would be to simply ask others to pay you in gold or silver coins for products delivered or services rendered instead of in dollars. So whether you’re selling a used car, lawn mower, or a house, you can try to arrange to make the sale by agreeing to be paid in gold and silver instead.

As a small or large investor, you’ll not only have the option to buy gold and silver bullion, but also the more affordable “junk silver.” If you have little money to start with and want to get started immediately, then you may want to begin with buying junk silver. Junk silver coins are pre-1965 U.S. minted coins that were once in circulation, but have since been discontinued. “Junk silver,” along with the gold backed dollar, are relics of a time when the U.S. dollar was money. All of the methods I’ve already shared with you are also ways of acquiring more junk silver. The only difference is a matter of focus (or diversification) on which form of gold or silver you will choose to acquire.

Gold and Silver Asset Plays

Here’s another great approach for finding profits in gold and silver by investing in wonderful companies that use gold and silver in their manufacturing processes. This method of investment allows you to invest in gold and silver in an indirect manner. Any company that requires large amounts of gold or silver for their products needs a massive stockpile of these precious metals on hand at all times. In other words, they can’t run out of the metals or else they can’t make products to sell so they’ll go out of business.

Now because these stockpiles of gold and silver are essential to their manufacturing of jewelry and many other industrial purposes, for example, investing in companies with large stockpiles of these metals is known as an “asset play.” An asset play is an investing strategy where the investment isn’t necessarily in the business, but rather in the assets of the company. The assumption underlying this approach is that the commodities or assets the company owns will appreciate quickly, thereby adding value to the company, and consequently bringing the stock price higher. An asset play can be done with any commodity including rubber with a shoe company (Nike), sugar with a candy manufacturer (Nestle), and coffee with a chain of coffee shops (Starbuck’s).

Almost everyone understands that gold and silver are used to make jewelry. So one thing you can easily do is look into jewelry companies to find ones that are publicly traded in order to research their stock price, performance and company information. DGSE Companies Inc. (DGSE: AMEX) is an example of just such a company. Currently, the company is trading around $6.50 a share and for last 3 months has outperformed the S&P 500 by roughly 13%.

Here’s part of DGSE company profile, courtesy of Yahoo! Finance:

DGSE Companies, Inc., together with its subsidiaries, buys and sells jewelry and bullion products for individual consumers, dealers, and institutions in the United States. The company provides jewelry products, including bridal jewelry, fashion jewelry, custom-made jewelry, diamonds, and other gemstones, as well as watches and findings; and jewelry repair services. It also offers gold, silver, platinum, and palladium precious metals products comprising the United States and other government coins, private mint medallions, wafers, art bars, and trade unit bars; and numismatic items, such as rare coins, currency, medals, tokens, and other collectibles. The company markets its products through its 34 retail locations in Alabama, California, Florida, Georgia, Illinois, South Carolina, North Carolina, Tennessee, and Texas under Bullion Express, Charleston Gold & Diamond Exchange, Dallas Gold & Silver Exchange, and Southern Bullion Coin & Jewelry banners, as well as through various Websites comprising BullionExpress.com, CGDEinc.com, DGSE.com, SouthernBullion.com, AmericanGoldAndSilverExchange.com, and Fairchildwatches.com.

To learn more about this company and to see its stock chart, click here.

What this means is that you do some research into gold and silver to find out how it’s used for industrial purposes. In other words, find companies within those industries that are thriving either by analyzing their stock information, financial statements, or calling their investor relations department to get as much information as you need to make an informed decision about the company, its management, and ultimately the stock.

Opportunities to profit from gold’s industrial uses include, but are not limited to companies that manufacture metal alloys that require gold for their processes, companies that supply medical companies with the gold they need for crowns and bridges in dentistry, colloidal gold preparations for applications in biology, companies that prepare the gold flakes which are used in gourmet foods, as well as companies that use gold to create electronics devices such as electronic wiring for high-energy applications, spacecraft, jet engines, semiconductor devices, and so much more.

Similarly, silver’s industrial purposes range from jewelry and silverware, use in dentistry for dental instruments and dental fillings, electrical contacts for computer keyboards, the production of mirrors and architectural glass, the construction of high quality musical wind instruments such as flutes, and medical purposes for its antimicrobial qualities.

 

Use these links to learn more about gold’s industrial purposes or silver’s industrial purposes.

 

This concludes "The Basics of Gold and Silver Investing: A Musician’s Guide to Speculating and Profiting with Precious Metals" (Part 1). Part 2 will be published later this month, so stay tuned.

 

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Related Articles:
 
The Basics of Gold and SilverInvesting: A Musician’s Guide to Speculating and Profiting with Precious Metals (Part 2)

The Cash Flow Quadrant - What Is It? And What Should It Mean to Musicians and other Artists

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Marc

http://stereothesis.bandcamp.com/