We’ve been getting a lot of questions about the basics of gold investing. So today let’s take a couple of minutes to outline a few foundational items that can help you whether you’re just getting started or looking for new ideas.
I know many of you are experienced gold investors, so I’ll make this part brief. We’ll also look at a gold-investing idea that can perform well regardless of the price of the metal itself, so stay tuned for that.
The gold “spot price” is the price at which the market is valuing gold. When buying, you look at the ask price. Without getting too technical, the “ask” price is what a dealer is going to ask for the gold bullion.
It is higher than the “bid” price, which is what a dealer will bid to buy the bars. I’m assuming you’re buying to hold, not to trade, so there’s no reason to worry about the bid price right now.
The dealer you’re buying the gold from is going to ask for a “premium” over the spot price. The premium is going to vary depending on the weight and type of coin or bar you’re buying.
So, the premium for a one-ounce Maple Leaf coin is going to be different than the premium for a one-ounce American Buffalo, which will be different than a quarter-ounce American Eagle.
When I buy gold coins or bullion, I simply ask what the dealer is selling for the lowest premium over spot. It doesn’t matter to me if I’m buying new coins, old coins or bullion. As long as I’m buying the product of a well-respected mint, I focus mostly on the gold.
It is important to make sure you’re buying from a reputable dealer, or else you might not be able to easily liquidate your gold when you do decide to sell.
Be sure, when you do buy, to ask about their policies for buying back the gold they’ve sold you — you want to get as much money as possible, and there are often specific steps you need to take to ensure that happens.
That premium can differ drastically from one dealer to another. For example, a member of my team was selling physical silver at one point. He got an extra 20% for his silver because he made three phone calls instead of just one!
That premium represents the dealer’s profit. Some dealers are willing to sell for less than others. As long as the mint from which the bullion or coin comes is well-respected, you want to pay the lowest-possible premium.
Here’s a hint: If you are seeing ads on TV, the premium is likely higher than you want to pay, because the dealer has to pay for the ads and will need to incorporate this in the price of the metal you buy. Make sure you shop around before you buy!
Now for the opportunity …
Jewelry stores are adept at profiting from a premium in the gold and silver marketplace, for two huge reasons.
First, they market to clientele who, mostly, don’t follow the daily spot gold prices. Second, they aren’t selling the idea of gold as a store of value. Instead they’re selling beauty, or love, or ego, or a thousand other reasons why people buy jewelry.
Their prices are astronomical from the point of view of a gold investor. Their costs are, however, not proportionally higher.
This “hidden premium” is a great way for the jewelry store to profit. That makes the jewelry business a good one to be in … and, depending on the stock, to invest in!
Either way, here is a list of some jewelry store stocks to get you started. Please note that I am not making picks on these stocks. This is simply a partial list of stocks that trade on the U.S. markets to use as a starting point for researching this sector on your own.
- Blue Nile (NILE)
- Christian Dior (CHDRY)
- Charles & Colvard (CTHR)
- LVMH Moet Hennessy Louis Vuitton (LVMUY)
- Signet Jewelers (SIG)
- Chow Sang Sang (CHOWF)
Beyond this group, there are plenty of other plays both within the U.S. as well as on the overseas exchanges. In fact, Sean and Tony have recently given their subscribers some unique ways to play gold without directly playing gold.
And in your Friday-morning issue of Uncommon Wisdom Daily, Rudy is sharing another name with a truly compelling story. Don’t miss out on that issue — or any in-between!
Here are some news items you should be aware of while managing your portfolio:
In Other Market News:
- Yahoo! (YHOO) is buying micro-blogging site Tumblr in a mostly cash deal to the tune of $1.1 billion. You’ll remember the tech sector is one of the sectors I mentioned as a way to find solid returns for your investments, but this deal just highlights how important it is to choose any investments carefully.
- While Tumblr’s 100 million users carry a value, the company’s gross revenue last year was only $13 million. When Tumblr last raised money, a little over a year and a half ago, the $85 million venture capital investment it received valued the company at $800 million.
- So, why the $300 million premium? That’s going to depend, in large part, as to how effectively Yahoo! can leverage Tumblr’s user base. Yahoo! CEO Marissa Mayer thinks the deal will give her company a social-networking and communications hub. She also promised not to “screw up” Tumblr, as some Flickr users have said since Yahoo! took over the online photo-sharing service in 2005.
- Just like the rest of the gaming sector, Micosoft’s (MSFT) new Xbox — which will be revealed tomorrow — is already facing stiff competition from smartphones and tablets. The newest version represents a multiyear attempt to keep it current and “cool.”
- The console game market is a $27 billion a year industry where, according to Andrew House, the head of Sony’s (SNE) PlayStation division, “We’ve seen a dramatic shift in the way people interact with technology.” He also commented, “The consumer is changing us.”
- The aftermath from Hurricane Sandy continues, but there could be some positive developments when it comes to Home Depot (HD) and Lowe’s (LOW), which report fiscal first-quarter results this week. FEMA has approved $1.38 billion in assistance for Sandy victims.
- Cooler-than-normal temperatures have delayed the spring sales season for DIY giants, so it will be worthwhile to also keep an eye on second-quarter results when those become available. For now, “This will be the first quarter that shows people did more of the major work,” said David Schick, an analyst at Stifel Nicolaus. Plus, an upturn in construction has picked up some of the slack.
Your feedback — spanning a variety of topics from gold to tech to income to the economy — continues to be insightful and thought-provoking. A lot of you wrote in over the weekend and I’m going to keep reading through those tonight. In the meantime, I want to share this comment with you.
“I think this obsession with gold has taken a lot of people on a roller coaster ride that, in my estimation, is far from over. While gold bugs remain firmly entrenched in gold, they miss out completely on targeted stock-market gains.
“It’s one thing getting on your bully pulpit to lambast the U.S. for this and that, but you do a great disservice to many who read these articles by continually announcing the disintegration of the U.S. and to park money in gold.
“I listened to the doom-and-gloom stuff for years now and missed one of the greatest bull markets in history.”
Brad — First let me thank you for taking the time to send in your concern, Carl. And I agree with you; it would be irresponsible to suggest someone should invest only in gold. That’s why we have never done it at Uncommon Wisdom Daily.
Just for a point of clarification, there’s plenty of doom-and-gloom in the markets and we actively work to cover investment ideas that are working their way higher. With regard to gold (and also oil, natural gas and the broader spectrum of commodities), Sean Brodrick has made recommendations this year that have his people up 22% year-to-date, and perhaps we brag about that a bit.
After all, even when the markets are in corrective mode, there are plenty of bullish forces at work. Rudy Martin covers powerful trends that are under way around the world in his stock-trading service. And Tony Sagami writes about Asia-focused stock and options plays as well as opportunities to trade international-focused ETFs.
Lately, we have been talking a lot about gold because we have received almost 20 times our normal volume of questions when we ask what our readers think, or want to know, about gold.
From time to time, we do talk about the mistakes we think the presidential administration and the Fed are making, because you have to be realistic in your approach to investing. But we work very hard NOT to beat the “scare you to death” drum.
In fact, recently I have said we should see a bull run in stocks for the remainder of the year as the Fed continues to pump money into the markets. And I think I can speak for Sean, Rudy and Tony when I say that while there may be a few corrections here and there, we also see trends with huge profit potential in a wide array of stocks, sectors and countries that are worth our attention.
And so, if there’s trouble ahead for the U.S. or a particular asset class, we aim to let you know about it … and help you find stronger areas and opportunities to consider.
What would you like for us to cover? Let us know at [email protected]. After all, it’s our job to help you make the highest returns possible, and we take that job seriously.
Good Luck and Happy Investing.
Uncommon Wisdom Daily