Need advice on GOLD (or more accurately, GLD)

[eckstein88]

Hopefully someone here can help me out with this.


I have heard a few people talk about investing in gold through a stock market trust called "Streetracks Gold Trust", or GLD. Does anyone have any information or suggestions regarding investing in this?


Some background on my situation:

I am a college student who was fortunate enough in high school to end up with a little money (dont want to give exact numbers, but in the low 4 figures) to invest in the stock market. I have about 75% of my portfolio in stocks such as Microsoft, Information Game Technology, Corning, and a couple others, and the other 25% is liquid because i recently sold a couple stocks.

I also have a couple student loans and money from my job in a savings account.




Basically my question is this: With the market the way it is and with the likelihood of gold going way up, should I put the 25% into GLD, sell more of my stock and put it into GLD, take my money out of my account and buy actual gold/silver, or sit on my hands and wait for the sky to stop falling :o ?


Much thanks to anyone that takes the time to reply. I greatly appreciate it.

 

[eckstein88]

Also, if this would be more appropriate as a PM conversation, please feel free

 

[jonahtrainer]

I don't trust GLD .... their prospectus is shady. You will get exposure to the price of gold but don't think you own gold.

Equities will continue crashing as the Kondratieff Winter continues.

Where to allocate depends on your risk tolerance and how you determine your risk-free rate. Cash denominated in gold held in allocated storage is my risk-free rate. I've not found much to purchase for a while. Good luck.

 

[AceNZ]

Basically my question is this: With the market the way it is and with the likelihood of gold going way up, should I put the 25% into GLD, sell more of my stock and put it into GLD, take my money out of my account and buy actual gold/silver, or sit on my hands and wait for the sky to stop falling :o ?

Although the price of gold might go "way up", what's also happening is that the dollar is losing purchasing power. Buying gold, particularly in the long term, is really a way of preserving purchasing power.

GLD is certainly one way to go. It is by far the largest gold ETF, with holdings now that exceed many European central banks. There is also a similar ETF for silver: SLV. If you're focused on the short-term, then the ETFs are a good way to go, because they're very liquid, with low spreads. However, if you're more interested in the long term, and since you have direct control of your funds (unlike an IRA, for example), then there are other options.

Personal ownership of gold is one alternative. Some things to keep in mind are: higher transaction costs (margins and spreads), security, storage, shipment and transport risk, etc. You also need to be careful to deal with a reputable dealer, and you need to know what kinds of coins you want (I prefer gold maples myself). There's nothing quite as comforting as holding the yellow metal in your own hands.

Vaulted storage is another option. One downside to the ETFs is that they don't hold your gold in allocated form. In other words, if the investment company were to go bankrupt, the gold they hold could be used to satisfy potential debts -- you are basically a creditor, and would need to stand in line for your assets like any other creditor. With allocated gold, you have direct ownership. If the investment company goes bankrupt, the creditors can't touch your gold, because it belongs to you, and not to the investment company. I like BullionVault for allocated, vaulted storage, because of their relatively low fees and a number of other features. GoldMoney and the Perth Mint are the only other companies I know of that offer allocated gold.

Here is a rough plan. Specifics and percentage allocations will depend on your personal situation, financial goals, comfort level, etc:

1. Move out of stocks and bonds
2. Pay down your student loan debt
3. Buy gold as bullion coins and/or vaulted bullion
4. Buy agricultural commodities (corn, wheat, etc) through ETFs
5. Move out of US dollars and into commodity-based currencies like the Australian or New Zealand dollars
6. Buy stocks in commodity-oriented or other recession-resistant companies outside of the US that pay dividends in foreign currencies
7. Avoid silver, platinum, copper, etc; they are mostly industrial metals, and might take a hit in the recession
8. Avoid oil companies in the short term -- oil use will go down in a recession, and the price will likely follow.
9. If you have a mortgage and still have some equity left, sell your house and move into a rental. Not pleasant, I know, but you'll come out ahead in the long run. House prices are likely to be going down for a long time.
10. Don't buy into the end-of-the-world scenarios. Shortages are much more likely than an outright collapse. Even in the most inflation-ridden countries in the world, they still use money. The chances of returning to a barter system any time soon are very very low.

 

[scooter]

I think you are on the right track. I am not a "sky is falling" doomsdayer, so I'd say you have good allocation as long as your stocks are spread out. The economy is getting bad and might stay that way for a while, but stocks always come back.

GLD is a very good option for your gold exposure, but I wouldn't recommend putting more than 20% of your investment money in any one particular area. Also, if you are 25% cash you might want to hold onto some of that to be able to buy good stocks when they drop.

10. Don't buy into the end-of-the-world scenarios. Shortages are much more likely than an outright collapse. Even in the most inflation-ridden countries in the world, they still use money. The chances of returning to a barter system any time soon are very very low.

It's very odd that you would include this number 10 especially after your outlook in numbers 1 and 3.

 

[goldismoney]

There's only one chart you need to look at to figure out when to sell the majority of your gold and silver bullion and get back into stocks, the Dow/Gold ratio (how many oz. of gold it takes to buy one share of the Dow). No one yet to this day has convinced me that there's a better, more obvious chart in a gold & silver bull market.

See http://home.earthlink.net/~intelligentbear/com-dow-au.htm for some Dow/Gold graphs.

Also, I strongly suggest checking out Mish Sherdock's blog, http://globaleconomicanalysis.blogspot.com/, as I found him to be one of the most accurate bloggers regarding the market.

And, strongly, strongly, strongly suggest you at least sell your MSFT stock if none of the others. If the Yahoo deal goes through, MSFT will have given up all of the billions of cash reserves they have (approx $21 billion on hand, deal calls for $22 billion in cash and $22 billion in stock), thus negating one of the main reason many portfolio advisers give to hold large cap tech during economic recessions (cash on hand).

 

[davver]

I own SDS (short SP500), DJP (broad commodities), DBA (agricultural commodities), and a little physical PM (maple leafs).

 

[Pauliana]

I've held GLD for about a year now. Works just like a stock, and it is true its not the same as owning physical gold (we have some of that too) it is good exposure to the price of gold. I also own the oil ETF USO. That takes a little of the sting out of gas prices for me. But 25% might be too much. I agree with 20%

 

[juice797]

Loans in an inflationary world

Is it really that important to pay off student loan debts when the interest rate is less than real inflation?

 

[davver]

Is it really that important to pay off student loan debts when the interest rate is less than real inflation?

I actually think you should hold on to these. Take the extra money you would use to pay them off and put them in a higher yielding asset.

 

[theskaven]

GLD is one of the best things to happen to the gold market. I bought in when it was in the 50's and now it's just under 90. Just remember, though, that you don't own gold, you are effectively gambling on the price of gold. Still, I'd highly recommend it, along with SLV (silver ETF) and FXF (Swiss Franc ETF). Don't forget SRS too (UltraShort on the Real Estate market). These are all bets on hyper-inflation.

 

[AceNZ]

It's very odd that you would include this number 10 especially after your outlook in numbers 1 and 3.

#1 --> stocks and bonds are likely to decline during the recession
#3 --> gold is likely to either go up or at least retain value during the recession
#10 --> the world isn't ending, but certain items might eventually be hard to get due to shortages

What inconsistency do you see in that message?