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Kiplinger: 3 Must-Knows About Gold Investing

Kiplinger: 3 Must-Knows About Gold Investing

By    |   Friday, 27 May 2016 11:31 AM

It seems like investing in gold is the current rage. Print media, TV ads ... you've even overheard casual conversations about it.

Kiplinger points out that an ounce of gold is about $1,231, up 16% since December. "VanEck Vectors Gold Miners ETF (GDX, $23.03), an exchange-traded fund that tracks an index of mining stocks, has soared 68%."

Investors poured $8.9 billion into SPDR Gold Shares this year, the most of all the exchange-traded funds tracked by Bloomberg.

In the first quarter, about 1,100 fund managers including billionaire George Soros bought more than 78 million shares of Barrick Gold Corp., the world’s biggest producer, company filings show. Gold prices are off to their best start to a year in a decade, while the value of about a dozen major mining companies doubled.

Driving the rally is a search for safer assets as global growth flags, along with bullion’s appeal as an alternative currency should inflation accelerate. Billionaire investor Stan Druckenmiller said he wagered on gold after unprecedented stimulus by central bankers led to “the absurd notion of negative interest rates.” Hedge-fund manager David Einhorn says “counterproductive monetary policies” mean prices are headed higher.

“When you have to pay to have your money stored, all of a sudden it makes sense to own gold, because even though the metal doesn’t pay you anything, at least you don’t have to pay,” said Alan Gayle, a senior strategist for Atlanta-based RidgeWorth Investments, which manages $38 billion. The move by Soros and others to own Barrick, which has the added benefit of a dividend, “could be a signal that there’s some strong hands in the sector now,” he said.

With the precious metal outperforming stocks and bonds so far this year, Kiplinger warns you should carefully do your homework before diving into gold investing. Kiplinger's Daren Fonda and Chana Schoenberger offered a host of factors to consider.

Here are highlights of 3 of their tips:
  • Will the rally last? "The metal could keep climbing if the dollar slides further or investors start to worry that inflation will spike. But neither scenario looks highly likely right now," they said. "Some analysts also think the rally will peter out because gold is in the grips of a 20-year 'bear super cycle.'"
  • Crash insurance? "Worrywarts love gold because they believe it’s one of the few investments that can act as a 'safe haven' when things look bleak," the duo said. Some advisers recommend holding 2% to 5% of a diversified stock-and-bond portfolio in gold as a hedge against a stock market downturn or some unforeseen economic crisis.
    "Yet the idea that gold will protect your portfolio from a downturn in stocks isn’t a slam dunk. But don’t mistake the metal for a true safe-haven asset like cash."
  • Best way to invest in gold? "Gold advocates typically opt for bullion or coins, arguing that it’s the only way to really safeguard the investment. Buy bars or coins, though, and you’ll need to store it in a vault or pay a firm to hold it for you," they said. "Gold ETFs make it easier to invest. Mining stocks offer more bang for the bar, both on the up side and on the down side. The VanEck Vectors Gold Miners ETF (GDX) holds a basket of the big miners, with its top three holdings—Barrick Gold (ABX), Newmont Mining (NEM) and Goldcorp (G)—accounting for about one-fourth of the fund’s assets."
And one of the market's most well-known bears has (forgive the pun) taken a shine to gold and precious-metal investing.

Marc Faber, author of the Gloom, Boom & Doom Report, told CNBC he is bullish on gold mining stocks as well as oil and gas shares despite his well-known gloomy outlook.

He is optimistic on mining, oil and gas because if the values of currencies become depressed, gold and other commodities could see additional demand from those hoping to use them as stores of value. "The most attractive asset in my view is gold shares and oil and gas shares," Faber told CNBC. "I think they still have significant upside potential this year."

(Newsmax wire services contributed to this report).

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After a long downward spiral, gold is showing some luster again. An ounce of the metal now fetches $1,231, up 16% since December.
kiplinger, gold, invest
Friday, 27 May 2016 11:31 AM
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