Paul Mladjenovic - Investing in Gold & Silver For Dummies

Use put options. Put options are a great way to protect your investment during corrections or bear markets. They can be used as “insurance” to protect gains or the original principal. The put option is also used as a speculative vehicle to make money as well, but it’s included in this chapter as a risk management tool. It’s covered in detail in Chapter 13.

I realize that after reading an entire chapter on risk, you may think it’s a terrible concept; however, some things in this world thrive on risk. The world can be an uncertain place, and many potential events and entities out there have no problem with raining some bad news on the U.S. economy in general (and your portfolio in particular). When those types of risks become evident, precious metals revert to their historical role as a safe haven. Without risk, how can you grow your money faster? It’s a necessary part of your success, and in many cases, it’s the reason for your success.

To offset some of the risk potential that is inherent in any place you put your money, use a very simple criteria. The most you should have in any single vehicle is 10 percent of your money. Easy! Yes, you could make it more precise, more customized, and more complicated. Go ahead, but it’s good to have a starting point and a simple strategy before you start to tweak and “optimize.”

Table 4-1is a neat summary of the major ways you can get involved in precious metals based on risk. Use it to leapfrog into your investment of choice or, more appropriately, where to get more details.

TABLE 4-1Risk Levels of Precious Metals Investments

Part 2

IN THIS PART …

Find out why gold and silver are so important for almost any investor’s (or speculator’s) portfolio — physical metal in your hand!

Are mining stocks a good idea for your portfolio? If you’re not sure about direct investments in stocks, figure out whether mutual funds make sense instead.

Discover how good exchange-traded funds (ETFs) are for today’s portfolios.

Chapter 5

IN THIS CHAPTER

Checking out gold’s performance versus the financial world since 2000

Investigating investment and industrial factors for gold’s success

Reviewing gold bull and bear markets of the recent past

Discovering why gold looks profitable for the 2020s

“Going for the gold,” “good as gold,” and many other familiar phrases mentioning gold have been around for what seems like forever, but for good reason. Few things conjure up thoughts of wealth and affluence the way gold does. I don’t recall any pirate in a B movie shouting, “Aargh! There’s zinc buried on that island, mateys!” On the other hand, gold … now we’re talking.

Gold is an element found on the standard periodic table of the chemical elements. Gold is listed there with the symbol AU and the atomic number 79 (don’t worry, the quiz has been canceled). The most malleable and ductile of the metals, you could actually take a single ounce of gold and essentially stretch it out into 300 square feet (no, I don’t know why you would do it, but it sounds impressive). Gold is a good conductor of heat and electricity (and probably thieves as well). Because it’s generally resistant to rust and corrosion, gold quickly became an ideal material to fashion into jewelry, coins, and, therefore, money. The desirability of gold now became ensured.

However, as you read this book, every major society is inflating its currency at record rates, which is good news for gold and silver aficionados. In this chapter, I highlight the important reasons gold is (or should be) an essential part of the modern portfolio and how it has stacked up against other investments and common economic conditions.

Gold is a finite element (literally — it’s the symbol AU on the table of elements) and has all the necessary qualities needed as money. It’s durable, portable, and divisible. It’s malleable enough to turn into coinage. It doesn’t decay or tarnish and is indestructible. In ancient times, it became an ideal medium of exchange and a store of value ever since. In short, it’s nearly an ideal form of money especially when compared to other forms of money (such as paper and digital currencies). When you juxtapose gold against modern world currencies, such as the U.S. dollar, the euro, the British pound, and the Japanese yen, you come away with some compelling points.

Figure 5-1 provides a snapshot of gold’s price performance since the beginning of this century (as of the first trading day in January 2000).

© John Wiley & Sons, Inc.

FIGURE 5-1:Gold’s price performance since the beginning of this century.

Gold began in early 2000 at a price of $288, and when you measure its performance with the price in mid-2020 (June 30, 2020) — $1,817.50 — you get a 531 percent total gain (sweet!). But how well did gold do against other conventional investment assets? Take a look in the following sections.

So how did gold stack up versus the titans of the financial world? See Table 5-1.

TABLE 5-1Gold’s “Tale of the Tape”