Is Gold Right For Me? - or - The Gold Nuggets of Truth on Buying Gold
You've probably seen the commercials and are familiar with the company names like Goldline, Merit Financial, Rosland Capital, Lear Capital and all of those other hucksters of precious metals. You've heard those amazing pitches like, "And you can't print gold." Of course, you can't print gold - gold comes from a mine. Likewise, it could be said, "And you can't mine paper currency", because it's the reverse of the 'can't print gold' statement. I love this next quote, which is totally inaccurate, "And gold has never been worth zero." Wrong! Before it was discovered and used as a precious metal it had zero value.
Okay, now I'm getting somewhere. Let me expose the myths of investing in gold.
Let me start with a history lesson. During the late 1970's (I know, you weren't alive then.), Jimmy (the Peanut Farmer or Peanut Brained President) Carter was running the Oval Office. It was during his lackluster years that we had hyper-inflation and interest rates on mortgages shot upwards of 13% or more. Gold went on an upwards price run and it seemed like the balloon was never going to land. If nothing else, Newton's Law should have reminded everybody that what goes up must come down, but when everything around you seems not to make sense, as it happened during that period, logic goes out the window. There was an Arab Oil Embargo and lines to buy gasoline started building. Then there were those nasty price increases along with a form of gas rationing. Grocery prices went up and pay increases were hard to get. We added soy to hamburger to get more of a yield per pound. Oh, those good old days.
Let's get back to that gold thing I mentioned. In 1970 gold was trading at around $36. per ounce. By 1/2 way through the Carter administration (1978) gold had shot to a high of $196 + change per oz. Fear continued to run rampant while Carter was in the White House and by the end of his 1 term gold was trading at a record high of more than $615.
I had a friend that got caught up in the fear of that decade and the gold frenzy. He took his life savings, which at that time was around $35,000 and sunk it all in gold. I'm thinking, 'Don't do it. Dumb move. Gravity. Gravity.' When he jumped in with all he had gold was at the $600 mark. Then along came a new president with a new vision and interest rates settled down, the Carter recession was in reverse, gas prices leveled, the nasty hostage crisis in Iran was resolved, unemployment went down, and it seemed as if all was right with the world. Oh, except the world of gold, which took a dump. A very hard dump. By 1981 gold had dropped to $460. By 2001 gold was trading at $271. My friend continued to hold the gold. By early 2007 gold was back to $615. So after a 27 year investment in gold, my friend, due to a combination of fear and/or greed ended up with a measly 3% profit. I doubt he could have made a worse investment.
In May of 1985 Apple Computer stock sold for less than $2 a share. As I write this it's trading for $615. If my friend would have invested in Apple in May of 1985 he could have bought 17,500 shares which would have netted him a cool $10,762,500 during that 27 year period of time. Who knew?
So before you plunk your hard earned bucks in precious metals what do you need to know? These are the relevant terms - 1) the Ask 2) the Bid 3) the Spread.
When you call a gold broker, the ask is the price you pay. The bid is the price the they will pay for your gold. The spread is the important number. It is the % difference between the ask and bid. It's the area where the gold broker makes profit. The higher the price of gold the more profit there is for the broker. Get this - the spread varies often between 20 to a whooping 35%. Oh, and there is usually a 1% broker fee on any sale.
Oh, another hidden gem in all of this is some brokers will try to get you to buy specialty gold coins with even a higher mark up. These are called gold collectables which are highly profitable for the broker and of questionable value for YOU. Buyer beware.
Let me simplify all of this for you. Let's say for this equation gold is selling for $1500 and you buy 1 oz. With the addition of the 1% brokers fee paid on both the buy and sell you would be paying $1515. If you then decide to sell it back you'll be selling it for (using a 30% spread + 1% broker fee totaling $465) $1035. For you to sell the gold back and make only a $3 profit (that profit would = 2/10 of 1%) that same gold would have to jump in price to $2200 or nearly a 48% increase over the initial price of $1515.
So then how long does it take gold to move that much? Between 1850 and 1933 it moved about 48%. Oh, quick math will tell you that 83 years. It moved that much again between 1933 and 1968 or 35 years. It only took 4 years to climb 48% after 1968. Between 1972 & 1973 there was another 48% gain and again between 1973 and 1974. There were some crazy upward trends between 1975 and 1980 and then El Crapo met El Bladeo (the s#^t hit the fan) and the plunge was on.
By 2006 the trend was upward again and all of the gold hustlers, much like termites, were coming out of the woodwork. 2006 to 2009 saw a 48% jump and between 2009 and early 2012 it happened again.
Keep in mind it's not the short times of gold prosperity to watch for but the long times of inactivity that hurts.
As of late gold buyers have been heading for the exits, again.
Oh, and all that glitters with those brokers is not gold. Scott Carter the spokesperson for Goldline of which he was a major part, got in trouble with the FTC last year and had to pay back millions in refunds. Some how, some way these same players keep resurfacing. Carter is now the front man for Lear Capital. And the game continues.
The new gold is now silver. You are now hearing that push but it's still the same game and the same rules apply. Beware of the spread. Read the fine print (always!).
One final thing to remember - "You can't print gold." LOL
© Krystalco LLC 2012 Any publication or reuse of the information on this blog, in part or whole, without express written consent is prohibited.
I had a friend that got caught up in the fear of that decade and the gold frenzy. He took his life savings, which at that time was around $35,000 and sunk it all in gold. I'm thinking, 'Don't do it. Dumb move. Gravity. Gravity.' When he jumped in with all he had gold was at the $600 mark. Then along came a new president with a new vision and interest rates settled down, the Carter recession was in reverse, gas prices leveled, the nasty hostage crisis in Iran was resolved, unemployment went down, and it seemed as if all was right with the world. Oh, except the world of gold, which took a dump. A very hard dump. By 1981 gold had dropped to $460. By 2001 gold was trading at $271. My friend continued to hold the gold. By early 2007 gold was back to $615. So after a 27 year investment in gold, my friend, due to a combination of fear and/or greed ended up with a measly 3% profit. I doubt he could have made a worse investment.
In May of 1985 Apple Computer stock sold for less than $2 a share. As I write this it's trading for $615. If my friend would have invested in Apple in May of 1985 he could have bought 17,500 shares which would have netted him a cool $10,762,500 during that 27 year period of time. Who knew?
So before you plunk your hard earned bucks in precious metals what do you need to know? These are the relevant terms - 1) the Ask 2) the Bid 3) the Spread.
When you call a gold broker, the ask is the price you pay. The bid is the price the they will pay for your gold. The spread is the important number. It is the % difference between the ask and bid. It's the area where the gold broker makes profit. The higher the price of gold the more profit there is for the broker. Get this - the spread varies often between 20 to a whooping 35%. Oh, and there is usually a 1% broker fee on any sale.
Oh, another hidden gem in all of this is some brokers will try to get you to buy specialty gold coins with even a higher mark up. These are called gold collectables which are highly profitable for the broker and of questionable value for YOU. Buyer beware.
Let me simplify all of this for you. Let's say for this equation gold is selling for $1500 and you buy 1 oz. With the addition of the 1% brokers fee paid on both the buy and sell you would be paying $1515. If you then decide to sell it back you'll be selling it for (using a 30% spread + 1% broker fee totaling $465) $1035. For you to sell the gold back and make only a $3 profit (that profit would = 2/10 of 1%) that same gold would have to jump in price to $2200 or nearly a 48% increase over the initial price of $1515.
So then how long does it take gold to move that much? Between 1850 and 1933 it moved about 48%. Oh, quick math will tell you that 83 years. It moved that much again between 1933 and 1968 or 35 years. It only took 4 years to climb 48% after 1968. Between 1972 & 1973 there was another 48% gain and again between 1973 and 1974. There were some crazy upward trends between 1975 and 1980 and then El Crapo met El Bladeo (the s#^t hit the fan) and the plunge was on.
By 2006 the trend was upward again and all of the gold hustlers, much like termites, were coming out of the woodwork. 2006 to 2009 saw a 48% jump and between 2009 and early 2012 it happened again.
Keep in mind it's not the short times of gold prosperity to watch for but the long times of inactivity that hurts.
As of late gold buyers have been heading for the exits, again.
Oh, and all that glitters with those brokers is not gold. Scott Carter the spokesperson for Goldline of which he was a major part, got in trouble with the FTC last year and had to pay back millions in refunds. Some how, some way these same players keep resurfacing. Carter is now the front man for Lear Capital. And the game continues.
The new gold is now silver. You are now hearing that push but it's still the same game and the same rules apply. Beware of the spread. Read the fine print (always!).
One final thing to remember - "You can't print gold." LOL
© Krystalco LLC 2012 Any publication or reuse of the information on this blog, in part or whole, without express written consent is prohibited.
No comments:
Post a Comment