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									            What You Should Buy and What You Shouldn’t

Now that you know how to buy gold, below are two types of gold
products—one you should buy and the other you should run away
from.


Semi-Numismatic and Numismatic Gold Coins. Numismatic or
older and rare coins are bought not solely for their precious metal
content but also for their rarity and their historical, aesthetic appeal.
They are leveraged to the gold price, which means that the price of
these coins can increase faster than the gold price in a bull market
(due to their historical and aesthetic value and to their rarity) and can
decrease by more when gold is in a bear market.

  Many investors opt for high-quality pre-1933 gold coins graded MS-
60 or better by either the Professional Coin Grading Service or the
Numismatic Guaranty Corporation.

  These can be great investments. On the other hand, if you’re one of
the people worried about a money panic and a potential breakdown in
society, you have to wonder how well numismatic value will hold in
such a situation.


Physical Alternatives to Coins and Bars. Most people buy gold
bars or coins. But gold buyers and sellers also traffic in gold dust,
nuggets, wire, and even gold chips used by dentists to fill teeth. But
none of these are as fungible as coins or bars and coins are the most
fungible of all. The more a gold piece is a fabricated product of known
weight and purity, the better off you usually are. Gold dust in
particular can be diluted or even counterfeited.

Digital Gold or e-Gold. My personal view on e-gold, e-bullion, or
whatever you want to call it is simply: Don’t. There are a couple of
reputable firms in this
business: GoldMoney.com and BullionVault.com, for example. But
the lax operating procedures of the Internet make this business
attractive to financial predators.

  There are no specific financial regulations governing digital gold
currency (DGC) providers, so they operate under self-regulation.
DGC providers are not banks and therefore do not need to comply
with bank regulations and there are concerns that unscrupulous
operators are operating in this emerging sector.


Gold Exchange-Traded Funds (ETFs). Trading in precious metals
got a whole lot easier when Exchange-Traded Funds (ETFs) and
Exchange-Traded Notes (ETNs) came along.

  As seen in Table 4.2, there are a bunch of gold and silver ETFs.
The iShares and SPDR funds hold physical metal. The GLD and the
Barclays iShares Comex Gold Trust (IAU) are fixed at one-tenth the
price of gold, minus a small amount to account for fees. That is, if
Table 4.2 Gold, Silver, and Metals ETFs and ETNs




  Fund Name                     Symbol Total Expense Ratio
  iShares COMEX Gold Trust        IAU          0.40
  iShares Silver Trust           SLV           0.50
  SPDR Gold Shares               GLD           0.40
  PowerShares DB Gold Fund       DGL           0.50
  DB Gold Shares Double Long     DGP           0.75
  DB Gold Short                  DGZ           0.75
  DB Gold Double Short           DZZ           0.75
  PowerShares DB Silver Fund ETF DBS           0.50
  PowerShares DB Precious Metals DBP           0.75
  Fund ETF


  gold is trading at $800 an ounce, you can buy the GLD or the IAU
for about $80. They are backed up by gold bullion in a vault.
  There are fees associated with gold ETFs, but they’re small, and
you can’t beat the convenience. On the other hand, if you ’re a
stickler for physical gold, these funds aren’t for you.

  And some funds, like the PowerShares gold funds, don’t hold
physical gold. Instead, they track the performance of a fully
collateralized futures position, meaning they capture changes in the
spot price of the underlying metal plus any roll yield and interest
income.

  If a fund’s holdings of physical gold are not important to you, you
might just go with the fund that has the lowest total expense ratio.
However, I highly recommend a fund that is liquid (has plenty of
volume). Just as important as getting into a gold ETF is being able to
get out when you want to.

  And then there are the leveraged Gold ETNs—DGP and DZZ. DGP
targets twice the movement in gold, while DZZ targets twice
the inverse of the daily movement in gold.

  If the metals do well, long gold ETFs will likely outperform. If the
metals do poorly, they will likely under perform. And visa versa for the
short and double-short gold funds.

  Importantly, I wouldn’t use the leveraged gold ETFs as ways to be
positioned in gold for the long term. They’re trading vehicles—you
move in, hold them for a while, and get out. Hopefully, the short-term
trend is in your favor. And the safest way to invest in gold is by buying
and holding physical gold.


One More Idea—Central Fund of Canada. The Central Fund of
Canada (CEF on the AMEX) is a great closed-end fund that invests
90% of its holdings in gold and silver bullion (the rest is in cash).

  As a closed-end fund, CEF is a bit different from the traditional
open-ended mutual fund that you might be used to. An open - ended
mutual fund or exchange-traded fund creates new shares every time
an investor buys the fund and redeems the shares every time an
investor sells the fund.
  A closed-end fund limits its amount of shares. It is a publicly traded
entity that raises capital through an initial public offering and invests
the proceeds according to the fund’s objectives.

  Because closed-end funds limit their shares, they can trade at a
premium or discount to their net asset value (NAV). It carries a
premium because its limited amount of shares means CEF’s price is
leveraged to the price of gold. And as a plus, if silver outperforms
gold, CEF will let you participate in that, as well.



                   Gold Investing—Keep It Simple

In a nutshell, below are my recommendations for investing in gold.
Depending on your personal situation, your investment advisor may
have other ideas, but this is a great starting point:
Investment #1—Buy gold. And I mean physical gold, the kind you
put in a safe. You don’t buy physical gold to get rich; you buy it to
preserve wealth. If Treasuries implode, gold will make a mighty fine
insurance policy. Also, you might want to pick up gold in forms that
you can easily barter if paper money becomes worthless—simple
gold rings, for example. Wedding bands are good for this. I know of a
guy who has hundreds of wedding bands stored on clothes hangers
in his closet.

                  Five Tips for Gold Bullion Buyers

Here is a collection of five tips from expert sources.

    1. Call at least three dealers for a price. The difference between a
good price and an almost good price can be the difference between
getting 100 ounces of gold and 90 ounces of gold.
    2. Make sure you include shipping costs in your calculation of the
price of the coin—shipping costs vary wildly from dealer to dealer.
    3. You need to be explicit on what you are locking in, including
price, merchandise, and terms of payment. If there seems to be any
waffling on the part of the dealer, this is a warning sign to steer clear.
    4. Look for a dealer who has been in business for a number of
years. Ideally, if you go to someone who was in business in the 1970-
to-1980 boom, they’ve seen enough ups and downs in the market to
handle the challenges of price fluctuations and coin availability.
    5. Get to know a local dealer. The advantage is he can call you
when he gets new inventory and there will be no shipping involved.

  The worst time to buy gold is when it’s going higher. Nothing travels
in a straight line, so wait for a pullback and pick up simple gold coins
or gold bars.

Investment #2—Silver. Again, I mean physical silver. If our
economy, financial system, and paper money go south, you ’ll want
gold and silver. Flashing around too much gold could make you a
target. Silver doesn’t attract as much attention and it’s still a precious
metal. In fact, silver is undervalued compared to gold by some
metrics. Local currencies resurfaced in the United States in 1991 in Ithaca,
New York, with the Ithaca HOUR. One Ithaca HOUR is valued at U.S. $10.
It is generally used as payment for one hour’s work, although the rate is
negotiable. It can be exchanged for U.S. dollars at participating businesses,
including a credit union, in Ithaca.

  This local currency was created by Paul Glover, a graphic designer.

  “I had a longstanding interest in local initiatives,” Glover told me. “And it
seemed natural, during the Great Recession of the early 90s, to design
money. We didn ’t have gold for backing—neither does the dollar—but we
had extra hours of time for extra income. As a journalist and graphic artist, it
was easy to make the leap from idea to design to launch.”

  Thanks to the recession, many of Glover’s neighbors were unemployed or
short of cash. Glover hoped that the HOURs would encourage local
spending and stimulate the economy. The first printing was 2,250 HOURS,
but now 10,000 HOURS have been printed, with denominations ranging
from one-tenth of an HOUR to two HOURS.

  “HOURS bring new skills into the market, reinforce small local business
and farms, strengthen community capacity to meet needs with least reliance
on distant board rooms and bureaucracies,” Glover explains. “And they
introduce us to one another as resources for assistance, rather than as
competitors for scarce dollars.”

  Glover says interest in local currencies is steady, and increasing “as the
formal economy stumbles. I’ve been contacted by many people interested in
creating their own cash.”

  When he talks to potential currency printers, Glover emphasizes that
successful currencies will have at least one full -time employee. That’s
because, just as dollars have armies of brokers moving money, each local
currency needs a regular Networker to promote, facilitate, and troubleshoot
circulation.

  Does Glover think the U.S. dollar is in trouble? In a word, “yes.” “All
national currencies will lose value, some faster than others,” Glover says.
“U.S. dollars are particularly vulnerable since we’ve relied on cheap
imported fossil fuels to warm our homes and move our cars. ”

  Glover believes the future is bright for local currencies. “They’ll move in
to take up slack as dollars fade. The more they prove stable and useful, the
more they’ll contribute to rebuilding America’s economy.”


  For example, certain stores would take payment in Snickers bars and make
change in chewing gum. If you needed a driver’s license, you’d bring along
some nice women’s hygiene products to pay the clerk.

Pros: Easy to stock up on these small items now.

Cons: As long as these are things you’ll use yourself, there aren’t many
cons.

Black Market Currencies. Alternative economies are typical of decaying
societies. Orlov relates that in the Soviet Union, people would engage
in asset stripping—pulling the copper out of the wires of abandoned homes,
carrying off the vinyl siding and the fiberglass insulation. In a functioning
society, this would be called stealing. In a collapsed society, this is raising
capital. This junk was a treasure trove of currency for future transactions
over food, water, or medicines.
  Black market drugs became a premier currency in the New Russia, and
there was plenty of value in drugs, alcohol, and cigarettes. Doctors and
nurses traded their services side by side with carpenters and electricians.
And since licensed professional currency carried a premium, some
consumers chose discounts from back-ally medical practitioners and Crazy
Ivan’s Cut-Rate Carpentry.

  Much to my lawyer’s relief, I am not going to recommend anyone engage
in the illegal drug trade or unlicensed electrical work. However, you can see
how a medicinal herb garden could become a secondary source of income if
TSHTF.

  Indeed, the black market already exists all around you. Social
prostitution is the name sociologists give to the practice of women, mostly
single moms, trading sex for getting a broken car fixed, plumbing patched
up, etc. We ’ll probably see a lot more of it in a collapsed society.

Pros: Just using medicinal herbs as an example, you’ll be able to grow your
own money.

Cons: Getting arrested. Also, it’s easy to get scammed by a bum passing
himself off as a carpenter or electrician.

Note: The police will probably stop arresting people for growing weed about
the time they stop answering 911 calls. As with everything else, there are
trade-offs in a collapse.

Even more alternative currencies: Copper wire, salt, sugar, chocolate,
tobacco, alcohol, bread, and bullets could all become currencies in a real
hyperinflation/currency collapse.

   Just keep this in mind: As of this writing, we are in a deflationary
environment. Inflation is probably a ways down the road, and hyperinflation,
if it comes, probably won’t be soon. You have other things to worry about,
because your next big disaster could be around the corner.

  Could we see hyperinflation? It’s always possible. Widespread
hyperinflation would eliminate current debts but it would probably also end
future borrowing. And trading with other countries becomes problematic
when the currency you use loses its value every day.
  This is a real problem for the United States, because we are a consumer-
oriented society and we import so many of our consumer goods. But this
also represents opportunity for a savvy survivalist.

  Inflation takes place, causes, and is caused by credit expansion. A virtuous
cycle causes GDP to expand. This is what the government and the Fed are
trying to revive.

  Hyperinflation takes place when money velocity increases and GDP
declines. In a hyperinflationary environment, trading with other countries
probably will not work very well either.

								
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