Gold Powers On, Silver Catching Up

Posted: Aug 08, 2012 12:01 AM

The euro continued to advance against the dollar, bringing commodities along for the ride. 

Gold was up $3.08 in early trading to $1,614.48 and silver was up $0.17 to $28.02, lowering the silver/gold ratio to 57.6.  Also higher in early trading were platinum, palladium, crude oil and copper. 

This rally in gold prices is starting to look pretty solid as Asian demand picks up in advance of the holidays in India.  While nothing like last year’s meteoric rise it is good to see some stability coming back to prices. 

To clarify a point from yesterday, your gold and silver investments are not so much growth investments as preserving the wealth you have.  Gold won’t pay a dividend or split; silver doesn’t expand into new markets with the latest high tech gadgets, which is precisely the reason for buying it. 

Precious metals investments are like buying insurance against inflation and currency devaluation.  They are hard assets that maintain a certain relative value to currency.  Over time you may indeed get more cash for your gold and silver than you paid for it; not because prices have gone up, but because the value of your money has gone down. 

Some people use that excuse to go to extremes with gold and silver purchases, putting a huge percentage of their wealth into precious metals.  I don’t agree with that investment strategy and don’t recommend anyone do that. 

A better strategy is keeping a fixed percentage of your wealth in physical gold and silver, but no more than 10 to 15 percent.  Unless you have a lot of time to learn the coin collecting business, I recommend staying with bullion-priced bars and rounds.  Shop for the lowest premium over the spot price and remember to include the cost of shipping and handling when calculating your cost basis. 

I don’t buy anything smaller than 5 gram gold bars because the markup is higher and they’re too easy to lose.  Also avoid industrial bulk silver and gold used in making jewelry. 

Spread your purchases out into small, regular buys when prices dip.  Follow those simple guidelines and your gold and silver investments will be happy ones. 

Chris Poindexter, Senior Writer, National Gold Group, Inc