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Author: TMFMurph Big gold star, 5000 posts Old School Fool Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76392  
Subject: Re: Precious Metals Investing Date: 11/11/2010 10:49 AM
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...I am looking at purchasing some precious metals within my retirement account. Would it be better to buy physical gold or silver or make the investment through ETF?

Hi r1976smith!

As always, investing in anything is a personal decision, based upon many factors....and please NOTE: I am NOT a professional/certified investment anything...just an ordinary investor...and I am NOT part of any TMF analyst team; just a Home Fool.

Now that I have covered my patootie.... ;-)

Like any other potential investment ( or even speculation ), timing and/or the price one pays can be key. While some have correctly pointed out that over certain long-term periods, gold and silver have very low/zero real returns, I see things a bit differently. Simply put: gold and silver have a unique "cycle", one driven sometimes by economic fundamentals...and more often by the media-driven political/economic environment....real or perceived. Said still another way, I tend to buy G/S when they have been out of favor for a long period of time ( this usually occurs after tulip mania type of over-speculation and price run ups ) and nobody wants them....and then sell the bulk of my holdings when I feel that the speculation is reaching the unreasonable hype level...sort of like value investing. ;-)

Now, I'm NOT a gold or silver bug, but in 2004 I placed about 5% of my total investable assets in gold/silver related picks ( I don't count the coin collection I accumulated from age 6 to about 25 ). The investment objective of the 5% investment was twofold: to act as a quasi-hedge against a general stock market decline....and to take advantage of what I viewed as an overly long depression in G/S prices and the beginning of a sustained up cycle in G/S. Importantly, hindsight shows that a 2003 entry would have been better, but I needed more market confirmation of a G/S upturn.

Specifically, I bought some rated American Eagles from the lowest margin dealer I could find at that time and put them in a safety deposit box I already owned ( so no new net storage costs ).

The next leg of my gold/silver investments was to buy CEF..a fairly conservative play on both metals through a Canadian company. Importantly ( and unlike some other gold/silver investment alternatives ), they have strict ( and published ) requirements about the percentage of total assets that must remain in physical G/S bullion...plus, these assets can not be encumbered in ANY way ( VERY important, given the myriad of derivatives/hedges floating around out there ) Here is a link to more info about CEF: http://www.centralfund.com/

I also invested in a silver miner, since I thought silver was more under-priced than gold.....PAAS. From a hindsight standpoint, I should have spread that bet among a variety of silver miners ( or a silver miner fund ), given the potential for political unrest in Venezuela spreading to other countries where PAAS has major mines.

Lastly, I chose the Tocqueville Gold Fund ( TGLDX ) to round out my G/S investments ( speculations? ).

Were these the best investments in the G/S arena? Probably not ( in fact, a number of new G/S alternatives have been introduced since I invested in 2004 ), but the weighted average return to date has been a fantastic hedge during these unusual times

Now, all of the above is nice...and it does show it is possible to make money in G/S....but, your specific question was:

How do I feel about gold?

My answer: I consider 10% in ALL G/S investments a maximum ( and 3% a minimum, at least until the macro-economic smoke clears a bit )...and I would not hold it all in physical form. However, any third party holder should be one that can NOT pledge or encumber the held assets in any way.

And, of course.... most importantly, is now the right time to buy G/S bullion or stocks/funds.....or the time to sell? That's a question I'm asking myself as I write....and I sometimes force a little selling discipline upon myself via covered calls on PAAS ;-)

For a LOT more info on G/S investing, try the "Mining and Metals" board: http://boards.fool.com/mining-and-metals-100055.aspx?mid=287......

Cheers!
Murph
II/SPOPS/BigS/ALPHA home Fool
( who also notes that the above approach is right for him...age 64 with a certain asset set and risk tolerance level....but may be totally wrong for others )
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