I’m lucky enough to work with two of the world’s top gold experts: Bill Bonner and Lord William Rees-Mogg.
Both are international best-selling authors. Between them, they have probably devoted more pages of editorial to the yellow metal than anyone else. Lord Rees-Mogg edited the classic best-selling collection, The Case For Gold. And back in January 2000, Bill Bonner dubbed buying gold one half of the “Trade of the Decade.” (The other was to sell stocks).
10 years later it has risen some 297% in dollar terms… or 298% for British gold buyers. That trounces stocks, which have fallen 14% and 25% respectively on American and British indices.
Working with Bill and William gives me a unique insight into the number one debate in world finance right now – gold at $1,000, to buy or not to buy?
What I can tell you is that the story everyone is missing is not about gold, it’s about who is tipping it. It’s not about what’s being said, it’s about who is saying it. You see, the people that are talking up gold are not my esteemed colleagues. Neither has joined in the chorus of approval that gold has enjoyed in recent months.
That’s what makes this rally so unusual. The gold bugs have no interest in it.
So, who’s banging the drum then? Tourists – short-term traders. And that is why I recommended gold as a trading idea, not an investment, a few weeks back. It has risen $70 since then, and if the traders who we believe are driving this rally are true to their word, it has much further to go.
The latest call from the chart-watching community is for a rally all the way to $1,600.
Hijacking the best investment idea in the last five years
The gold bugs must be fuming…
Gold has been rising steadily. It’s up more than 130%, over the last five years and now their pet subject has been hijacked and bastardised by these tourists. Short-term traders have a knack for stealing the spotlight. With their racy target prices they tend to drown out the fundamental debate.
The fundamental case for gold is not quite so exciting. Granted, we can expect better jewellery sales in the next 12 months and intensifying Chinese central bank buying. Plus, the long-term prospects of inflation remain intact. However, none of this is breaking news.
Gold has risen significantly but nothing significant has changed in its fundamental story. That’s why we suspect that traders are currently in charge of this market. The risk is that when they have the profit they came for, they will head for the exit as they have so many times in the past...
They pump and then they dump.
What do I recommend you do? Be practical. If you can’t beat them, join them…
How you can trade gold
There’s no point in watching other people make money from the sidelines. We’re three weeks into this trade and it looks like it has further to go. If you’re looking for a way in, I present three simple ways that you too can play the gold trade:
- Buy physical gold
- Buy gold ETFs
- Buy gold mining shares
If you buy physical gold, you take delivery and are allocated the gold. That means a specific quantity of gold belongs to you. For a little extra you can even take ownership. However, bear in mind that for investments over £10,000, HMRC will require you complete a report regarding your owned investment.
If you are looking for ETFs, I would look at the ETFSecurities PHGP ETF listed on the LSE. I like this one as it is 100% backed by physical gold in a vault. That means it doesn’t matter if ETFSecurities goes bust or even the custodian HSBC goes bust as the gold is ring fenced in a segregated pool.
The third option – buying gold mining shares – is more risky, but potentially more rewarding. You see, choosing a mining share requires an understanding of how much gold the mine contains, how long it will take to mine it, how much the extraction will cost, and quality of management not to mention the trends in underlying gold price. In short, it’s not for beginners.
However, those that know the gold market can make a killing by trading individual shares. While gold has rallied 15% in the last 12 months, the UK’s largest gold miner (Randgold Resources) has rocketed 93%.
All three options – gold, gold ETFs and gold shares like Randgold – should hold up well for as long as the precious metal is in vogue with the traders. However, as with all short-term trades, the trend is only your friend until the bend at the end.
What’s my number one tip for newcomers to the gold trade? Don’t get too attached.
P.S. If you’re looking for more advice on how to get into gold plus forward thinking ideas outside of the mainstream media, then you might like to read The Right Side. You’ll receive razor-sharp commentary on the world of investment, politics, the ability to live well in uncertain times and so much more - all absolutely FREE... click here to find out more