Gold – Why You Should Buy Gold Now!

| May 8, 2009 | 0 Comments

When I started in investment banking, I quickly learned the job was all about the bonus.  While we all made nice salaries, the really big money came in the year-end bonus.  Checks for a million dollars or more were handed out to the top performers regularly.

Real estate agents, boat and car dealers, and the high-end boutiques licked their chops at bonus time.

Inevitably, a few days after bonuses, someone would show up with a brand new Porsche, pictures of a new dream vacation home, or a new Rolex (sometimes costing more than a house).

Now, here’s an insider secret that most people don’t know.

Bonuses aren’t always paid in cash.  For most, the bonus is split between cash, stock, and sometimes other items.  Cash is well, cash… and as one co-worker used to say, “It’s good enough to spend at Safeway”.

Stock is always a double-edged sword.  Sometimes you got stock you could sell right away.  Other times you received “restricted stock”… stock you couldn’t sell for a period of time.  Sometimes you had to sit on it for five years or more.

As you can imagine, this made some people really mad.

The most interesting responses came from employees who received the strange items at bonus time.  Some were handed empty boxes and told to clean out their desk.  Others received old office equipment.  I know of one secretary who received an old TV for her bonus.

However, one of the strangest reactions was the year employees were paid in gold.

That’s right, not cash, not stock, but gold!

I heard this story from a good friend.  One year, the firm he worked for gave away small gold bars.  Each bar was about one ounce in size and every employee got one… from the president down to the secretary. Right after receiving their gold bar, a black market of sorts sprung up.

One of the traders on the desk offered to buy the gold bars.  Of course, his price was at a heavy discount to the current value.  For the next three days, the traders kept an informal bid / ask spread on these gold bars.

Rumors swirled.

One person would buy your gold bar for more, somebody else less.  One guy showed up with a huge roll of hundreds offering to pay cash on the spot.

Some were quick to sell.  Others haggled for a better price.  Work came to a virtual standstill thanks to this impromptu gold market.

At the time, gold was trading between $250 and $270 an ounce… I bet anyone who sold their bars is regretting it now.

As you can see, gold recently traded up toward $1,000 an oz.  And I think it’s heading higher.  That’s more than a 300% return on your money in just a few years.

Lately I’ve gotten a lot of questions about gold.

Should I buy on the dips?  Should I sell on the rallies?  Is it easy to trade gold?  How do I make money?

I think right now is a great time to buy gold.  Here’s two reasons why.

First is the threat of inflation.

To combat the economic recession, the US government is printing money as fast as they can.  Sometimes they don’t even print money.  They just electronically wire it to the banks.  Billions of dollars just suddenly appear in various bank accounts.  No printing needed, it’s all electronic these days.

All of this new money floating around cheapens the value of our currency.  We’ve seen it time and time again.  It happened to Germany prior to World War II, it’s happening in Zimbabwe now.  As the government prints more money, the value of the currency falls, and that leads to inflation.

Gold’s a natural hedge against inflation.  Once we see the first signs of inflation (which could happen in the next few weeks or months), we’ll see gold prices jump considerably.

The second reason I like gold is the rise in commodity prices.

Emerging countries like India and China are gobbling up the world’s resources.  Nothing like what the US consumes, but their hunger is unquenchable.  As these economies grow, their middle class grows as well.
With the middle class comes disposable income.  And, with disposable income comes demand for better products and services.

All of this leads to a jump in demand for commodities and eventually a jump in price.  I believe this demand will drive commodity prices higher for the next few years.  Gold is a key commodity that everyone desires. China and India are becoming big buyers.

I could go on and on with reasons why the price of gold will go up, but I’m running out of room.

If you like the idea of investing in or trading gold, I suggest you avoid the futures markets.

Focus on the gold ETFs.  You can capture big gains in gold without taking on all the risk of a futures contract.  Take a look at E-TRACS UBS Bloomberg CMCI Gold ETN (UBG), the iShares COMEX Gold Trust (IAU), or PowerShares DB Gold (DGL).  Each one is slightly different. But all will give you good exposure to the gold market.

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Category: Currency Trading

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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