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How to Buy Gold, Part II: Three "Must-Own" Gold InvestmentsBy
Thursday, May 20, 2010
My good friend Van Simmons knows more about making money in gold than anyone I know – and probably more than anyone in the world.
Yesterday, I published the beginning of a conversation we had this week. But our talk didn't end there. Van also had some surprising things to say about gold stocks.
For example, I was surprised to hear Van admit he has more money in gold stocks right now than gold bullion or rare coins. He explained why:
"Well, put simply, rare coins and gold stocks haven't kept up with the rise in the price of gold. Typically rare coins and gold stocks give you a lot of leverage to the price of gold. A 50% move in gold has historically meant, say, two, three, or five times your money in rare coins and gold stocks. But we haven't seen those moves yet."
Over the last five years, gold has nearly tripled (up almost 200%). But gold stocks have merely doubled (up 110%).
The story is the same in rare coins. Sure, you've made triple-digit returns. But in the last major bull market in gold, coin prices soared. The entire market (as measured by the PCGS 3000 Index) rose 1,195% from 1976 to 1980. We haven't seen anything like that this time around.
Importantly, Van doesn't have all of his gold investment in gold stocks. He thinks of his gold holdings in "three buckets." I like that approach.
The three buckets Van holds gold in are: gold bullion, rare coins, and gold stocks. You choose the mix that's right for you, based on how much risk you want to take and how much you want to "juice" your portfolio to take advantage of a big move in gold.
For your bullion "bucket," Van suggests U.S. Gold Eagles, as we discussed in yesterday's DailyWealth.
For your rare coins "bucket," you need expertise. You can learn all you want from books and doing your own research (which you should do). But Van Simmons is my "go to" guy.
I always say, "You and I can't call Warren Buffett about stocks, or Bill Gross about bonds... but we can call Van about gold and gold coins." He's accessible. You can reach him through www.davidhall.com, e-mail [email protected]. Dana Samuelson and his team at American Gold Exchange also do a nice job.
At the end of the day, I think you'll do great relying on Van and Dana. They've proven to be trustworthy, they know their stuff, and their prices are reasonable.
For your gold stocks "bucket," a great starting point is shares of the Gold Miners Fund (GDX). GDX is an exchange-traded fund that holds the top 30 names in gold stocks. You make one investment, and you've got it all.
If you want to "juice" your returns in gold stocks, you might consider "junior" mining stocks. The simplest way to buy them is through the Junior Gold Miners Fund (GDXJ). This one investment gets you exposure to 58 junior gold stocks.
If you're just starting out in gold, of if you'd like to add more money to your gold position, Van laid out your path...
Choose your mix of these three based on your risk tolerance.
That's it. Thanks, Van!
Good investing,
Further Reading:
Van's "three buckets" are great for getting started in gold investing. But experienced investors looking for even more leverage on a big bull market in gold will find it in individual junior gold miners. Most of these penny stocks are destined to go bust... and bring their shareholders down with them. But if you hit just one, it can mean five to 10 times your money.
Market NotesWE'RE ALMOST IN BEAR MARKET TERRITORY Don't look now... but we're darn close to bear market territory.
Twelve days ago, we ran a chart of the benchmark S&P 500 index plotted with its "200-day moving average." This indicator is a popular gauge of whether the market is in a bullish rally or a bearish decline. Back then, the S&P was well above this important "line in the sand." But the past week or so has produced a big change in this picture...
The S&P 500 ended yesterday near its closing price of May 7, the day of the famous "Flash Crash." This is incredible market weakness. As you can see from today's chart, it is weakness that has the index close to violating its 200-day moving average.
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