Should You Buy Gold Now? How About Gold Stocks?

Buying Gold and Buying Gold Stocks Have Very Different Risks & Rewards

Let me start this with my opinion on the differences between buying physical gold and buying gold stocks. Both have risks, but the risks are very different. 

First: Yes – I see this as a time to buy gold.  

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gold-barsVery few people under 35 have ever seen a period of high inflation in this country and have absolutely no idea how devastating it can be. The reason for that is that we have had interest rates under solid control since the 1980’s. I personally believe that is about to change. No matter what the Fed does on interest rates, the national debt is so substantial that we are likely to see their efforts begin to stop working. On top of that, there are forces outside of our country that simply do not want to use the US Dollar for international trade. We are seeing China, Russia and other nations not loving our financial strength begin to speak up the alternatives they truly have.  The dollar has been the solid currency worldwide for more than eighty years. If that ever stops being the fact, our dollar will fall and inflation will take off massively. 

The last huge round of inflation started in the 1970’s and went down precipitously once spending was under control in the 1980’s.  Increases in price of energy (mostly oil) and decreases in supply are really what stampeded across our country in the 1970’s causing interest rates to move into the teens. Will that happen again? That’s not likely. But- even going half way there and we have a huge problem – that’s also a huge opportunity for those that play it right. I personally think that someone reading this two years from today will be saying, “Damn! I wish I had read this two years ago. That StockGuru was right about gold!”I see gold moving up sharply. I see it moving back well above $1500 per ounce, and possibly crossing that $2000 per ounce barrier. I don’t see much of a downside. I don’t see why it would do anyone any good to sell off gold at this point. I think the political and economic realities make lower prices in gold almost totally impossible. Nothing is truly impossible. WE ARE BULLISH ON GOLD. gold-bullA Note: Asset allocation is always the single most important thing to consider when you start adding gold or precious metals to your holdings. You don’t want to go crazy and buy too much gold. You want to decide on a percentage of you portfolio that you are comfortable with.  The idea is that if stocks go up and your gold goes down, you are still okay.  If gold goes up and your stocks go down, again, you are still okay. That’s not saying make it a 50/50 mix. I would never allocate more than 25% to precious metals when things are relatively stable. And things are relatively stable. With our nation’s debt, it is not perfect. But there is no crisis here. It is a risk of a future crisis that you are trying to avoid. 

Buy Coins from the US Mint or the Royal Canadian Mint Only. Don’t buy from smaller mints that do private coins and small country coinage.

Before you buy gold stocks or precious metal stocks, the very first choice is to be real gold. You don’t want to buy “gold bars” from some gold service on television. If you have a brain, you want to buy gold coins at coin shows. The reason for this is the markup is far less than dialing up some toll free number that some former actor recommends. They have to pay for that spokesperson and all of the marketing efforts to get you to call. You might end up paying way over what you could get if you do some homework.  At a coin show, you can either buy or sell gold coins. The truth is that if you walk in with cash, you can buy gold coins for about 5% over what you would be paid for the same coins at that same show if you were the seller.  Silver is also a great buy right now. Again – buy coins – not bullion bars.Understand the definition that I use when I say a “coin.”  A coin is issued by a government. Not some “private mint” that just stamps out pretty coins in “collectors editions.” Nobody wants to buy bars or non-government coins for anything other than pure bulk price. Those firms that sell these with elaborate designs, calling them collectors editions, are simply selling the metal at a huge premium. 

Typical Display at a Coin Show

You want to buy recent gold coins and recent silver coins from the United States Mint if you can. If you are buying gold coins from the 1930’s and before or you are buying silver coins from 1964 and before, you are not talking metal value. You are really looking at the “numismatic” value.  Even rolls of silver dimes, quarters and half dollars from the 1940’s through 1964 can be bad purchases. Every coin dealer I know buys “collections” from estates and individuals. They throw the slick, thin, damaged, hole punched and otherwise bad coins in “rolls” and sell rolls of coins online. Those they take to a coin show will be higher quality. If you are not sophisticated and knowledgable about coin condition, stay away from older coins. Just buy the gold and silver coins produced by the US Mint in the last forty years. You can find many places online that will have buy and sell prices for these coins listed on their websites. 

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Don’t buy bars of gold unless you are an expert. I wouldn’t even buy gold bars!

There is a huge risk here. Many jewelers and other purchasers of gold bars bought very well made fakes. What happened in some recent cases from 2012 was tungsten was put in the middle of serial numbered bars. (Read about it here.) Remember, gold bars are a true commodity. That means there is really very little markup if you buy at the right place.  I am not going to recommend where to buy these, but I will say don’t buy them from the television advertised firms. You can do far better at other places where there is a much lower markup. 
THIRD CHOICE: GOLD STOCKSDon’t be a fool here. Don’t buy a maybe stock that might be on to something. Buy producing stocks only that are sitting on proven reserves from several mines that are all actively producing. I have know personally too many smallcap gold stocks that never really got the gold. Don’t fall for it. Let’s say you are set on getting a smallcap gold stock. You can lessen the risks if you make sure it is actually producing. On top of that, avoid any gold stock that has preferred shares that would essentially allow the holders of those shares to do a reverse split or otherwise do something that might destroy your holdings in the company. I remember a stock from a decade or more back that I knew well that sold a key asset to the CEO just weeks before he sold it privately for a whole lot more money. That was a tech stock, but the same thing can happen here. Pick the big gold stocks for best success. Make sure you read all of their filings. For Canadian stocks, there is usually a lot more information on what is below ground. 
I GET ASKED…I have people ask me all of the time “Is holding a gold stock just like owning gold?”No. That’s a simple one. Gold stocks will rise and fall for a lot of different reasons. Gold is gold. It does what the gold markets do. If gold were to go up 80% or so and cross the $2000 mark, then – of course – most gold stocks will rise significantly. That said, even pretender or long shot gold stocks will rise when they have nothing to show in the way of gold.
WHAT TO LOOK OUT FOR IN SMALLCAP GOLD STOCKS:Are they real? Do they even really have people and equipment on the land they list as “claims?”  Do they answer the phone? Do they answer emails?When you are looking at smallcap gold stocks, dial them up. Don’t just email them. Call them. If they don’t answer the phone live, there is a problem. If they are operating, someone will be answering a phone. If they are pretending, you will get voicemail every single time. When I say dial the company, I mean dial the company. Not an investor relations guy at some IR firm. I mean the company. If you get them on the phone, ask them if they have “people and equipment on the land right now as we speak?”  That is not “private information.” That is public information. Screenshot 2015-04-03 17.14.12Some filings and other reports on the claims will give you GPS coordinates on their lands. Look on Google Maps /or/ Google Earth at those coordinates. The Google Earth Pro images will have dates. You can usually see an image from just days or weeks ago if you use the Pro edition. You will see if they are real very quickly. You will also see if they have nothing going on. IDEA: Ask the public company for the GPS coordinates for an active property. Tell them you are going to be using the very public Google Earth Pro, and you would like to take a look and see what’s really happening.  (Do they get nervous?)Feel free to ask any questions! Good luck getting the gold!

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