September 14, 2011 GOLD vs GLD

09-29-2011

In the past I posted about Trading, Investing and Gambling.  Today, I want to kind of delve a little more into this topic.

Well Gold is setting up a nice base here in the $1800 range.  Going up to $1900, down to $1800, up to $1890, down to $1800, and the yo-yo of this precious metals keeps going.

I was recently asked about investing in GLD - the Gold ETF (along with SLV the Silver ETF).  My thoughts are as follows:

"Sure you can trade them but for your primary Gold and Silver holdings you want Bullion.  You want Gold Bullion coins, Silver Bullion Coins, maybe a little Platinum Bullion (seeing as how Platinum and Gold are almost trading evenly vs. the historical 2:1 ration Platinum has held to Gold).  When I say Bullion coins I am referring to Gold Eagles, Gold Buffalo Coins, Australian Bullion Coins, Silver Eagles, Silver Bullion Rounds and Bars.  I am not talking about numismatic coins, like the MS-65 Standing Liberty Gold Coins or even MS-69 "Proof" 2011 Gold Eagles.  Anything that has been graded does not qualify any longer as a Bullion coin.  Your basically paying a premium for someone else's opinion on what "grade" it is and what the value assigned to that "grade" should be.  At any time popular opinion can change and when it does there goes the premium you paid.

Now for GLD and SLV I say "Yes, go ahead and trade them".  I am not talking about investing in them as these are only good for "playing" hunches and market movements.  Like right now, when Gold dropped back to the $1800 level, I know it was too quick and unjustified.  Just like the quick run up to $1900 was too quick and unjustified.  Therefore, buying, or selling as the case may be, at the extremes allows you to capture some short term profits to help pay the bills so to speak.  However, these are not to be considered GOLD and SILVER investments.  The reason I say this is because the ETFs do not have to pay you in Bullion if you want to cash in.  They can pay you in Dollars or Dollar equivalents. In fact, the ETFs do not actually own the TOTAL NUMBER OF OUNCES represented by their "stock".  What they do have are contracts and agreements for storage facilities, producers, miners, banks, holding companies, etc, etc, etc to provide them with the physical gold or equivalent monetary value of the assets at any given time.

Hmmmmmm, sounds like a good setup for some "Fishy" business dealings.  For example, if we sell 100,000 new shares today we need to cover 100,000 ounces so we need to execute another agreement.  But, let's say executing agreements cost $10,000.  Why not hold off a few days and see if those 100,00 shares come back to us at which point the need for the agreement is no longer there and we saved $10,000 that goes to our bottom line now.

GLD and SLV should be used with a "Traders" mentality - i.e. Gambler's mindset.  Take limited risk.  Take measured risk.  Make a few bucks reward. Move on.

Hope this helps some one and as always these are my personal viewpoints posted for educational purposes.  They are meant to get you started thinking about things in a different light or under a different view point.

Standard Disclaimer applies.

Mother

(Moved from original website 09 27 2011)

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