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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.
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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Stereo Thesis with a financial donation, click here.
Marc