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Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.
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January 9, 2003
"Gold Becomes Hot Again"
After languishing for almost 20 years, gold has become an exciting area to
invest in once again. The gold price has soared 30%, from about $270 at the
beginning of 2001 to over $350 an ounce now, and gold mining shares have
also jumped 60% in the same time frame. So, many investors are asking me: Is
this a good time to go into gold, and if so, how should I do it?
First a bit on why gold is going up so fast:
- The rise of gold is the market’s reaction to the effort on the part of
major governments worldwide trying to reflate their depressed economies.
America has lowered interest rates and proposed more tax cuts to offset the
weak economy, and the same is happening in Japan and Europe. "Goldbugs" think
that all of this stimulation will eventually lead to higher inflation and
weakened paper currencies.
- The dollar has been falling against the yen and euro, and gold is seen as
a safer haven while the dollar falls.
- Geopolitical concerns: meaning, a potential war with Iraq, heightened
tensions with North Korea, riots in Venezuela, and the threat of global
terrorism have people flocking to the safety of gold.
- Since it seems likely that all three of these trends will continue in
2003, the outlook for higher gold prices is pretty strong.
So, if you want to play the gold surge, what is the best way to do it? Here
are your choices:
- Gold bullion: You can buy bullion coins like the American Eagle or
Canadian Maple Leaf. The advantage is that it is a pure play on the price of
gold; the downside is that you get no income and your coins can be lost or
stolen.
- Gold mining shares: You can buy shares in American, Canadian or South
African mining shares. The advantage is that they pay hefty dividends of
about 3% to 5%, and they move up more if gold prices rise. If gold falls, the
shares will fall more.
- Gold mutual funds: These buy a portfolio of gold mining shares and offer a
more diversified portfolio and professional management, along with the fees
that entails.
- Gold futures and options: the easiest way to gain or lose large amounts
of money quickly on gold’s movements. Make sure you know what you are doing
before you step into the trading pits.
It is important not to get too carried away with gold’s latest surge. After
all, peace could break out around the world, economies can recover, and
everything that made gold such a loser for such a long time...could return.
For More Financial Tips From Jordan Goodman
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