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10 Commandments For Investing In Bullion
There are some ways to protect a stock portfolio, and increase leverage, through investing in bullion, which cannot be found in any other investment. For one thing, bullion can be kept at home and traded at the local store. Many of the investors who survived the 1920 stock crash did so by using their gold. The more volatile the economy becomes, the higher the demand for bullion grows. The more risk banks’ take one, the higher the price of bullion grows.
There are two main bullions traded in North America, gold and silver. Silver is starting to interest many investors because the stock piled supply is gone. Every year the demand outstrips the supply by a larger percentage.
However, investing in bullion is not risk free. An investor can lose if they do not manage their portfolio wisely.
#1 Volatility Increases the Value of Bullion
In most cases, when fears increase, inflation climbs, banks fail, stocks spiral in a bear market, and the gurus stop making predictions then bullions increase in value.
#2 Timing is Everything
Many investors like to follow the reports, however, most of the time the moment has passed by the time the report is released. To pick the right time to buy and sell bullion the investor needs to take a global look at the markets. The central banks are not the ones to follow – in fact, they are the ones following the trends.
Bullion investors should be leading the markets, taking advantage of the economy dynamics, and paying attention to the non monetary considerations.
#3 Do Not Trust Strategies
Bullion does not follow the strategies and trends the way other markets do. Returns from a "buy and hold" strategy can overcome inherent volatility. Many investors try to outsmart the market by hyperactive trading. Success depends on the occurrence of "fat tail" events that lie outside the trading models.
#4 Beware Passive Investing
Many investors sit on bullion as if it was cash that can be sold at a profit when they want to sell, whenever that is. This is not true. It is impossible to decide one morning to sell some bullion and earn a bit of extra cash without understanding what is happening in the world.
#5 Invest in Mining
Equities of mining companies offer more leverage than ownership of a metal. Metal equities appear expensive in comparison to regular companies because they contain an imbedded option component for a possible increase in the metal’s price.
The share price sensitivity to a possible increase in metal price is related to the cash flow from current production.
#6 Gold Fever
Bullion is a solid investment, but being caught up in gold fever. Avoid offbeat "exploration" mines with little or no current production and large appetites for money. Speculate only with solid companies who have done their research.
#7 Bullion Coins
When buying bullion, do not accept certificates. If the gold is to be stored, then expect it to be stored in a segregated vault, subject to unscheduled audits. Better yet, if possible, store the gold yourself.
Do not value a coin on the ‘mint’ value it has. Dealers may try to increase a coin’s value based on the year it was minted, or a certain face value it may have. Bullion is invested based on its purity, not its face value.
#8 Bullion Purity
Not all bullion is the same quality. There are different purities. Buying bullion from a less than reputable dealer may have the investor with a greatly depreciated portfolio.
#9 Do Not Trust the Gurus
Gold is a controversial, anti establishment investment. Its value is not controlled by the banks, or by a single government. Conventional financial media and brokerage house commentaries will not help the gold investor.
#10 Observe the Intangibles
A natural disaster, a pandemic, an airline crash, can send the price of bullion far higher than its current price – by several multiples. This is what gold investors wait for.
These 10 commandments of investing in bullion can help an investor build wealth and protect their portfolio through the next few decades.
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