How to Profit in Gold
When we invest our savings, we usually limit our choice of assets to mutual funds, bonds, and certificates of deposit. Investing your money in these assets has traditionally been seen as the best and most straightforward way of accumulating wealth for the future… at least, that’s what we used to think. We’ve just had a lost decade in the markets, and bonds and CDs are currently yielding almost zilch. Debt woes in Europe and an ever-blossoming national debt in the USA are casting a shadow of doubt on the future of fiat. When paper assets underperform and are seen as less than trustworthy, where does one turn? Jonathan Spall, the author of “How to Profit in Gold“, may have just the information we need.
Against this backdrop of debt woes and untrustworthy paper, gold has been rising like a golden star. However, gold has not been as easy to invest in as stocks and bonds, and due to the nature of gold and of the market, it is especially vulnerable to sentiment-driven swings. For this reason, one cannot look at an investment in gold the same way one would an investment in stocks or bonds. In fact, the best way to look at gold might be as a contrarian bet against all paper and as a form of money, since it is not an investment in the sense that a stock or bond is an investment. With the future of western economies and their monetary systems in doubt, knowing how to profit from gold is becoming more important than ever.
What’s driving the price of gold?
The author first starts out by examining the various factors driving the price of gold, such as the effects of selling by central banks as well as past central bank agreements, changes in market sentiment, and the increasing ease of investing in gold due to new investment vehicles, such as online pool accounts and ETFs. The author notes that central bank selling has been a predominant driving force in the gold market in the past, though it is experiencing a declining pace today. Market sentiment, however, has changed vastly since the 1990s. In the late ’90s, technology stocks were all the rage, and gold was seen as the barbarous relic of a bygone era. Indeed, at sub-$300 prices after nearly two decades of price declines, it’s hard to imagine how gold could have stirred much excitement at all. This has all been changing in recent times, with the recent global financial crisis as well as the burgeoning debt of developed economies causing investors to look for a safe haven, and gold has traditionally been a safe haven investment.
The gold market
The gold market contains many players, such as the central banks and various organizations such as the IMF, as well as the markets, miners, and dealers. The author covers each of these players, and covers them in depth and detail. You will learn how gold is traded and lent between various players, how it is cleared, and how each major exchange operates. You’ll learn about the London Bullion Market Association and how it operates, you’ll learn about different terms such as contango and backwardation, and you’ll also read about the impact of miner hedging strategies, as well as the impact of hedge funds. The author even covers the gold conspiracy, a belief that central banks and other actors have conspired to artificially suppress the price of gold in the past, and gives his thoughts.
The next steps
Once you’ve learned what drives the price of gold, how the gold market operates, and how the different players interact with each other, you’ll want to know how to invest in gold and profit from it. The author covers the major categories, including ETFs, mining stocks, and physical bullion. As the author has spent considerable time in Asia, he has many interesting insights to share on the differences between eastern and western cultures, particularly in respect to gold. Finally, there is a comprehensive FAQ and glossary which covers all of the major terms, as well as the most frequently asked questions.
I’ve been interested in gold for a while now, and I enjoyed this book as I gained a deeper understanding and appreciation for how the gold markets work and how it’s traded, as well as the various factors that drive gold and play into its price. You won’t learn everything there is to know about a gold investment after reading this book, but if you are interested in purchasing gold, this book will definitely whet your appetite! This book is written for the diligent and responsible investor, so I do recommend that you proceed with caution if you are prone to getting caught up in market sentiment, chasing losses or following the herd.
About the author
From the inner fold: “Jonathan Spall has worked for Barclays Capital for six years. As the product manager for precious metals, he is responsible for commodity relationships with central banks and governments on a global basis. He spent ten years at Deutsche Bank, most recently as a London-based director with responsibility for official sector marketing (commodities) and head of metals marketing (Europe/Africa). Spall earlier worked for Deutsche Bank in Hong Kong and Australia as head of metals.”
So, reader, what are your thoughts about gold? Is it headed for a bubble and a burst just like in the early ’80s, or is this really a story about the declining value of paper assets, with gold as the ultimate safe haven? As always, I’d love to hear your thoughts; in fact, by leaving a comment you will be entered to win a free copy* of “How to Profit in Gold“, courtesy of Invest It Wisely!**
*free copy will only be shipped within Canada and the USA. Giveaway ends when 2011 begins.
**The contest has ended; thanks for your participation!