Posts tagged as:

ETCs

How to buy and own pure gold with Bullion Vault

by The Investor on February 18, 2008

Welcome to my site about making more of your money. You may like to subscribe to the RSS feed for the latest articles. Thanks for visiting!

Gold bars

Thanks to the recent stock market volatility, investors are increasingly turning to gold, which is traditionally a safe haven in troubled times. This article introduces Bullion Vault, a company that enables you to buy and securely store small amounts of the highest-grade gold, which the company claims offers unique advantages for small investors buying gold.

Why are investors buying gold?

Sales of gold via exchange traded instruments have soared recently, with funds that invest in gold mining shares such as Merrill Lynch’s Gold and General Investment Trust have produced returns of around 500% over the past five years.

In 1999 gold was trading at around $275 per ounce, which was when Gordon Brown, the UK’s then Chancellor of the Exchequer, decided to sell half the nation’s store, further depressing the price. Gold has since rallied very strongly. Having broken through the $900 per ounce mark in the past few months, it’s threatening to sail through $1,000 an ounce in 2008. (Thanks a bunch, Gordon!)

Fans of gold (so-called ‘gold bugs’) make the following case for investing in the yellow metal:

  • As a real asset, gold is a hedge against inflation.
  • Demand for physical gold is increasing, with new money from India and China said to be particularly keen on gold. (Indian farmers traditionally buy gold jewelry as a store of value.)
  • Production difficulties are constraining supply. Power supply problems in South Africa are the current bugbear, but exhausted mines, political instability and environmental concerns perennially hamper production.
  • Most gold in the world has probably already been mined.
  • Even though gold has increased nearly four-fold in dollar terms since its lows in 1999, the previous high reached in 1980 would be around $2,000 today, adjusting for inflation.
  • China and certain other central banks are now increasing their gold reserves.
  • In a world of ‘paper’ or ‘fiat’ currencies, gold is the ultimate wealth preservation tool. The US can print all the paper money it wants, but it can’t conjure up gold.

There are also convincing arguments against gold

[click to continue...]

{ 2 comments }

How to harvest wheat and mine gold using ETCs

by The Investor on February 7, 2008

CornI wrote recently about how you can improve your diversification with Exchange Traded Funds tracking government and corporate bonds.For some investors, further tweaks to their asset allocation can come courtesy of the new generation of Exchange Traded Commodities, which enable you to follow everything from the price of iron to the rising (or falling) price of a basket of agricultural goods.

My usual disclaimer about your own investments applies here as elsewhere. Arguably, you need to do even more research before you track commodities, as they’re a much more esoteric investment than a FTSE 100 tracker, say.

Why would you want exposure to commodities?

Commodities are an asset class that rise and fall over time, and are subject to bull and bear markets. In this, they’re not dissimilar to other assets – but they’re not closely correlated either. The price of, say, corn isn’t particularly related to the performance of the stock market, for example.

By buying commodities you can therefore diversify your portfolio over the long-term so it’s less dependent on the returns from shares. You might also hope to trade commodities, if you think you can buy when they’re priced low and sell when they’re high. (Far easier said then done, and plenty of boys in braces will hire you if you manage it regularly).

Commodities also offer a hedge against inflation. If the price of everything is going up, it usually starts or ends with commodities rising in value, too. Therefore, devoting a portion of your funds to commodities can help offset inflation-risk.

If the stock market doesn’t affect the price of a commodity, what does?

Lots of things. [click to continue...]

{ 4 comments }