As I write this, gold is above $650 an ounce, near quarter-century highs.
With these new highs, an interesting thing is happening…
A few years ago, I couldn't convince anyone to buy gold. Now folks are asking me how to get in. For example:
In June of 2002, the cover story of my newsletter True Wealth was how to buy gold for $250 an ounce. Today, that investment has more than doubled... but nobody cared. Nobody was asking me about gold back then. Instead, I probably lost subscribers for daring to write about it.
Now, at $600+ per ounce, people are finally asking me about gold.
It's a small sign. But the fact that people are showing interest for the first time in two decades tells me this bull market is building steam and getting ready to move much higher.
A warning: No one said speculating was easy. Violent shakeouts may make you doubt your position on gold. Learn to appreciate them. They're the market's way of taking money from the weak hands and giving it to the true believers.
History provides us with a good blueprint, as I explained in a recent issue of True Wealth:
Most people think gold went straight up from $35 an ounce in 1971 to $800 in 1980. That wasn't the case at all...
Gold absolutely soared until mid-1973. (I think the move today is like the move that ended in 1973, the first major move up in a long-term gold bull market.) Then, in mid-1973, gold quickly lost a quarter of its value, shaking out nearly everyone. Gold had gone up hundreds of percent by then, so everyone thought the move was done.
But it wasn't. Gold soon hit new highs in 1974. Then it got obliterated again... falling from about $200 an ounce at the beginning of 1975 to about $100 an ounce by mid-1976. Those that weren't shaken out before were shaken out this time around.
Gold started coming back, and the third time was the charm. Everyone had seen gold jump twice... and they finally believed in it by the third time. The general public started clamoring to get in. That's when gold rose above $800 by January 1980….
The point is, it won't be a straight shot up. Each successive move higher will bring in more believers, until everyone believes.
Then in ten years or so, when everybody loves gold, we'll sell our gold holdings and we'll probably buy regular old stocks once again.
In this report, I'll explain what causes gold to move higher… the reasons you should own some gold… and where to make the biggest gains over the next ten years.
Let's get started…
Money Flows Where It's Treated Best
Gold pays no interest. It's just a lump of yellow metal.
If the bank is paying you 7% interest on your cash, chances are you'd rather have your money in the bank. It makes sense in this case, thanks to compound interest-in 10 years you'd have doubled your money. Hold gold for 10 years and you still have the same lump of yellow metal.
Now consider this... Imagine the bank was paying zero percent interest... then which is more attractive, paper dollars or gold? In this case, a rational investor would choose gold.
Gold is beautiful, rare, and easy to exchange, no matter where you are in the world. Paper money, on the other hand, is just paper. Governments can print as much of it as they like.
As a rule, money flows where it's treated best. If interest rates are high, then gold performs poorly relative to money. If interest rates are low, money flows toward gold.
When interest rates are zero, gold becomes a no-brainer.
"But wait," you say. "Interest rates soared in the 70s… how did gold manage to run from $100 to $800 during that time?"
The "Real" Deal... Considering Inflation
The "nominal" interest rates you might see advertised at your bank or in the newspaper don't give the full picture. We need to consider inflation. Here's why: if the prices of the items you buy on a regular basis like food, gas and accommodation are rising at 5% and - at the same time - the bank is paying you 5% interest on your savings, the bank is not compensating you for holding your wealth in cash instead of gold.
In this case, economists would say your "real" interest rate-the interest rate AFTER inflation-is actually zero.
Back in 1979, short-term interest rates were 8%, but inflation was 13%, so "real" interest rates were negative 5% a year.
Is it any wonder the people rushed into gold and away from paper money?
By 1981, Fed Chairman Paul Volker had driven short-term interest rates to 15% and inflation to 6%, so the real interest rate was almost 10%.
By 1982, gold was back below $400.
Today, we see nominal interest rates advertised at around 5%. At DailyWealth, we calculate inflation to be around 5% and we think it will keep rising. At the same time, Bernanke says he's almost done raising interest rates...
Real interest rates are about to go negative again.
The smart money has already shifted from cash and into gold. It's time you did too.
6 Reasons to Own Gold and Gold Investments
1. It's super cheap. Gold is cheap, while stocks are expensive. In January of 1980, both the Dow Industrials and the price of gold were at the same level: 800. Now, 26 years later, the Dow is 11,000, and gold is $600.
2. Governments will make our money worth less to pay off their record debts. Governments can print money to pay off their debts. But they can't create gold. The supply of paper money can be infinite. But the supply of gold is extremely limited (they say that the entire gold production in the history of the world could fit on the basketball court at Madison Square Garden). And it's difficult to extract. Bill Gates could buy all the gold mined in the world in a year from his checkbook.
3. Precious metals do well in major international conflicts. The price of gold was fixed during World War I and World War II. But silver, for example, rose by over 100% in both world wars. Gold has risen for the duration of the War on Terrorism. It all comes back to #2, above... governments ultimately print money to pay for wars.
4. Gold should do well in extreme bear markets. Silver more than doubled in value from 1932 to 1936 during the Great Depression (the price of gold was fixed by the government). The next long bear market was 1968-1980. Silver rose from around $2 in 1968 to a peak near $50 in 1980.
5. Gold will rise during inflation... and during deflation. Gold is good inflation protection... gold rises as the value of the dollar falls. But what many people don't understand is that gold will do even better during deflation, as the government lowers interest rates and wildly prints money (creating inflation) to offset that deflation... leading to substantially higher gold prices.
6. Gold lowers risk in your investment portfolio. In the past, gold has tended to do the opposite of stocks: It skyrocketed in the 1970s, when stocks did horribly. Then in the 1980s and 1990s, when stocks soared, gold lost over half its value. Now, in the new millennium, gold has soared while stocks are still below their year 2000 highs. Holding a portion of your portfolio in gold will smooth out your portfolio fluctuations.
You should own some gold, even if it is purely to lower some of the risk in your investment portfolio, as gold and stocks often move in opposite directions. If you're not there right now, it's time make the move.
Of all the different ways to invest in gold we like the gold ETF and rare gold coins. Let's start with rare coins…
Rare Coins - The Hybrid Coin
When it comes to gold coins, there are basically two types… rare ones and common ones.
The common gold coins are called "bullion coins," because a one ounce gold bullion coin generally sells at about the same price of (or at a small premium to) an ounce of gold. Famous bullion coins include South African Kruggerands and Canadian Maple Leafs. If gold is $650, you might buy these for $660 or $675.
The rare gold coins are called "numismatic coins." These coins trade based on their rarity, scarcity, and collector demand. Though gold may be at $650, a rare and highly prized one-ounce gold coin can easily fetch tens of thousands of dollars.
Then there is a third type of gold coin… The hybrid coin, I call it. And this is what I like. These have characteristics of both of the types above, but they're not really either. The typical Saint-Gaudens is a prime example of these…
Saint-Gaudens dating from 1924-1928, for example, have a high collectible value, yet they are easy to buy and sell, like bullion coins there are enough of them to go around, and they contain just under an ounce of gold. I expect these will likely be the first coins snapped up when people discover how cheap the coin market is right now.
Mint State Saint-Gaudens coins from these dates are currently selling for around $1000 each. That's only about $350 over the price of gold, or about a 45% premium to the current price of gold. Not too bad for what is unquestionably the most beautiful coin in the history of U.S. coins. It's almost an insult to Saint-Gaudens himself.
When the price of gold rises, we get an increase in the value of our coins from two places: the increase in the price of gold, and the increase in the St. Gaudens premium over the price of gold. So if gold goes up by $75, you can expect the price of a Saint-Gaudens gold coin to go up $150.
Our recommendation is to buy Saint-Gaudens $20 coins, graded MS-63 or above.
Note: When you buy collectible coins like the one we recommend above, only purchase from a trusted dealer and make sure they come in a tamper-proof casing from one of the official grading services. DailyWealth can provide you with a list of reputable dealers. Keep and eye on DailyWealth for more information and frequent price updates...
The Gold ETF: A Great New Way to Own Gold
There are several ways to own gold through the stock market. You can either buy stocks of companies involved in the production of gold, shares in a gold fund or exposure to the metal itself, in share form.
We like the third option: owning gold bullion in share-form.
The instrument we'll use is called the Gold ETF. The symbol is GLD. Each share of GLD is worth exactly one-tenth of an ounce of gold. Buy ten shares of GLD and you own one ounce of gold.
When you buy the stock of mining companies, you take on all sorts of additional risks… like working in politically unstable countries, higher energy costs, labor shortages, industrial action and bad management decisions.
With the Gold ETF, you own gold without all the baggage.