Here’s what I can’t tell you: Where the price of gold is going.
Here’s what I can tell you: Over the past several weeks, as investor enthusiasm for gold clearly reached the melting point in a big price spike to near $900, I’ve seen almost every gold teaser in the book. Gold is down a bit again today, but the gold bugs are still out in force and certain that they will be vindicated when inflation and dollar devaluation finally rear their ugly heads.
Most of these teasers for gold investments have been around the block a few times — some of them are remnants of the multi-year bull market in gold the culminated in the $1,000+ high price nearly a year ago, others are less than a year old and being enthusiastically circulated.
Does this mean that gold is going up? Or does it just mean that gold mania has hit the mainstream press, and the investment newsletter marketers are taking advantage of that mania to sell a few subscriptions?
I’ll let you be the judge of that, but since I’ve been seeing so many of these lately — and because I’ve received a lot of questions from readers — I thought I’d run through a couple examples from the current crop of gold teasers and share what I know, with, for the older ones, some links to the articles where they were originally discussed.
Some further ado? No? Without, then …
The U.S. Treasury’s Gold Glitch
I’ve reminded folks about this one a few times, but it’s possible that you missed them (I know, I know, there are at least a couple of you who can’t keep up with reading your Daily Gumshoe — there’s no shame in it, don’t worry).
This one is from Steve Sjuggerud and his True Wealth service, and the ad has been running in this current form for a few months — before that, it was around for several years teasing us about a “secret currency” that was better than gold, and, to Sjuggerud’s credit, if you had listened to him several years ago when these ads first got my attention you would have had a very nice run.
Essentially, the tease is that there’s something that’s not only better than gold, but that goes up in price after gold goes up — meaning you get the perfect situation, an investment that goes up at a predictable time.
The answer is a little bit complicated, and the investment is not necessarily fully liquid or easily handled by folks without experience in this field, but the tease is for collectible gold coins — specifically, high quality early 20th Century gold coins, the mint state St. Gaudens $20 Double Eagles that some collectors believe are the most beautiful coins ever minted. They trade at a premium to their gold melt value, and when gold goes up that premium apparently often increases. If you want to read all about it, click here for the full writeup on the “Gold Glitch” … or if you want to go back in time a bit, check out the writeup on the “Secret Currency.”
What else is coming through the floodgates here at Gumshoe Headquarters?
Gold’s Doubling Effect
This one is from Greg McCoach and his Mining Speculator service. Oddly enough, though he focuses on mining stocks — and often on small, exploratory mining stocks that most folks would consider penny stocks — this is not for a stock.
This ad teases us that Greg McCoach has a “secret source” who turned them on to an investment that goes up twice as fast as gold (and down twice as fast, too, though that particular point is not really emphasized). The ad is, frankly, a little silly (not that I don’t love that sort of thing) …
“After all, how could an investment exist, directly related to gold prices, that pays you DOUBLE the gains gold makes?
“… a 25% gain pays you 50%… a 50% gain doubles your money… and so on!
“It seems completely illogical.”
It may be risky, but it’s certainly not illogical — just like all the double- and triple-levered ETFs, all you have to do is use derivatives or borrow money and it’s easy as pie to double the return of an index. As long as you’ve got some, you know, fancy computers and algorithms and stuff.
So this is, of course, the near-equivalent of a double-ETF for gold — though in this case it’s an ETN, not an ETF, so it’s got a bit of credit risk, too. And so far the record has been fine — gold goes up a buck, the ETN goes up $2, more or less (the exact relationship isn’t quite as clean and near-perfect as the Ultra ETFs that mimic big stock indexes, but it’s close).
In case you’re curious, it’s called the Powershares DB Gold Double Long Exchange Traded Note (DGP) — and if you’re more curious than that, click here for the full writeup from November.
What have other folks been saying? I noticed that there were quite a few comments on my article about Peter Schiff a few weeks back, and I’m sure he’s still touting gold as a significant part of everyone’s portfolio, though I haven’t seen any recent commentary from him to that effect. Andrew Mickey, late of Breakaway Investor and now with Q1 Publishing, recommends buying the gold miners and shorting gold, with the argument that the ratio between those two will converge to historical norms (miners have been clobbered lately).
And finally, we’re seeing quite a few copies of Peter Schiff’s ads at the moment, too, largely for ads that focus on his book, Crash Proof. You may or may not want to pick up a copy of that, but in case you found the little teasers appealing I’ll just give you my five-cent interpretation.
These are the “teasers” for the book:
“The “Gold Standard” Currency Set to Double Your Money in 18 Months! A forgotten British currency – fully backed by gold and the govt. – could soon double in value versus the dollar. In fact, this ultra-safe money will be the hottest currency of the next 18 months, bar none. Few outside of Britain’s Isle of Jersey know about it yet. Schiff shows you a simple way to invest in about 5 minutes, online! Page 229″
I assume this one is probably the “digital gold currency” system run by GoldMoney.com, with servers based on the Isle of Jersey for tax reasons (Jersey is one of the Channel Islands just off the Normandy coast, they are possessions of the British Crown and protected by the UK, but not subject to parliament). This is essentially a digital marketplace for gold that offers digital trading of gold that’s in vaults in the UK and Switzerland.
Peter Schiff is quoted in Wikipedia (the quote probably actually comes from his book, so this is full circle) as endorsing GoldMoney.com specifically: “There are…several places to buy gold on the Internet, and even several that offer storage programs. In general I would be very reluctant to trust most storage programs, but one exception is GoldMoney.com, founded by James Turk, a long-time gold advocate and widely respected figure.” [here’s the link if you’d like it]
“Save Your Retirement with 3 Gold Coins: It’s the big secret of the gold-investing world. Certain gold coins are about to soar 3-5 times faster than gold, which is poised for another double in 2009! Schiff has identified the next three gold-coin bonanzas. They’re specific plays on Kruggerands, Maple Leafs… and a third coin set to pop between 1,500% and 3,000%!”
Schiff, in the interviews and commentary I’ve read, doesn’t particularly focus on numismatic coins, he is more likely to recommend bullion coins (ie, coins that are generally valued based on their gold content, not on their numismatic value to collectors). I don’t know what specific coins he would recommend, but if he’s worried about gold confiscation he might be staying away from the US-minted gold coins (which are usually a little bit more expensive, anyway). That would leave a few options that are fairly widely available — Krugerrands are the best known, from South Africa, and are often the cheapest (ie, they trade at a tiny premium over their melt value), Maple Leafs are often slightly cheaper than American Eagles, and you can also fairly easily buy Austrian Philharmonics, Australian Nuggets/Kangaroos (I’ve seen people selling them under both names), or Chinese Pandas.
I don’t know why he believes that bullion coins (if this is indeed his shtick here) would go up 3-5X faster than gold — he has stated that he thinks gold will hit $2,000 this year, and $5,000 an ounce within a few years, so perhaps he believes that gold coins will boom in value as the easiest anonymously tradeable form of gold for individuals. Dunno.
“Make 3,600% Gains with ‘Pure Junk’: Schiff reveals how you can turn sacks of silver “junk” into potential gains of 3,600%. It’s his favorite way to invest in precious metals, and you’re guaranteed not to hear about it in the Wall Street Journal! Page 224″
I don’t know if you’ll read about junk silver in the Wall Street Journal or not, but it is a fairly widespread way of trading silver. Silver coins prior to 1965 were minted out of 90% silver, and many precious metals dealers will sell sacks of these “junk” coins (ie, they’re not collectible — they’re often heavily circulated, beat up, dinged or damaged).
The amount of silver in these coins is in proportion to their currency value, so the half dollar would have twice as much silver as a quarter, etc. This means these junk silver coin bags are usually sold in currency amounts, typically $1,000. A $1,000 bag of coins (either 10,000 dimes or 4,000 quarters, usually, or some mix of those) includes roughly 715 ounces of silver.
Why would you want to buy these big bags of coins? Well, there is an underlying guarantee that silver bullion doesn’t carry — these are also legal tender, so they won’t ever be worth less than $1,000 even if silver prices collapse. And in the past, when people weren’t quite as excited about silver as they are now, this “junk silver” often traded at a discount to the melt value. Today, unfortunately, the bags trade at a significant premium to spot silver prices.
So there you have it — a few gold investing ideas from the folks who keep our mailboxes full. There was also a good quick summary of the thoughts of a few of the “gold bug” newsletters over at Marketwatch earlier this week.
I hope you can all skip through the panic and paranoia for a few days and enjoy a wonderful weekend!
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.