When is gold a sell

I attended an investment conference in London on Friday, one of the key themes was precious metals, in particular gold.

As we all know, gold is in a secular bull market at the moment and the outlook is positive for it whether we get deflation or inflation. Deflation will likely be driven by a lack of available credit in the economy because banks may not want to lend to each other as they wouldn’t be able to afford a loan default. If this climate of fear were to materialise again, gold would be an invaluable store of wealth when the banks couldn’t be trusted to look after your money. Likewise, gold is a hold during inflationary times caused by excessive money printing by Western Economies. The thinking is that gold is not in a bubble yet because it is not heavily owned- the average institutional fund has less than 1% of its holdings in the metal.

The big question remains though, when should we be selling our gold, well…I’ll discuss a few key indicators we can look at:

1. Ratio of the Dow Jones Industrial Index (DJIA) to $ gold price

At the moment this ratio sits around 8. Historically the DJIA:Gold ratio when the gold price has topped is between 1 and 2.  Therefore a reasonable target is 2.

2. Gold and UK Houses

Back in 2005 the average UK house could be purchased using 720 troy ounzes of gold. At the present price of $1,500 this number is 177 ounzes. In the 1980′s when gold last topped out the average house could be purchased for around 50 ounzes. Therefore a reasonable target is 100 ounzes of gold for the average UK house.

3. Bank base rates

At present there is very little opportunity cost of holding gold, since keeping your money in the bank will provide a return less than inflation. Gold will become less attractive once banks start providing a real return on your savings. Another sensible indicator is therefore when interest rates are around the 2/3% mark in real terms.

So this provides some indicators for when is a good time for selling gold, which as you can see are all a long way off!

As an aside I was told about a useful ETF called NYSE:GDXJ, this provides exposure to the top 20 junior gold miners and serves as a simple way of getting access to the junior miners without having to do hours of research on each one. It seems the most efficient way to invest gold is either through the metal itself, bullion and etf’s (LON:PHAU as an example) or through the junior miners. Hope this is useful information.



How to Invest in Silver

Invest in SilverMy belief is that everyone should invest in silver. There is a long run bull market in commodities, in particular, precious metals are in a long run bull market driven by the loose monetary policy of governments. Silver has had a correction of late, as I right this it is about 20% off its recent peak, and this could serve as a buying opportunity.

This article looks at the different methods available for the average investor to invest in silver. All the investment vehicles mentioned are openly available and so if you want to invest in silver any of the avenues discussed should be easily accessible to you.

Considerations for anyone wanting to Invest in Silver

Invest in Silver in the UK- Tax Issues

Investing in physical silver in the UK attracts VAT. This means any purchases of bullion bars or coins will attract a 20% tax payment. This is not ideal, and buying in places where it is not taxed such as the Channel Islands will not save you as you will have to pay tax upon import to the UK. There are ways around this though, so if you want to invest in silver without having to pay the tax look at ETF investments. These are discussed further below and serve as probably the easiest way to invest in silver.

Invest in Silver Bullion Bars

If you want to invest in silver by physically buying bullion bars, 1kg is a sensible denomination, reputable refiners include Umicore, Metalor, Heraus and Engelhard. Remember you will have to pay a premium over the spot/current market price (the price is quoted per troy ounze) and because the silver market is small there may be occasions when this premium is quite large ie. greater than 25% due a supply squeeze. However, actually taking physical ownership of the metal is probably the safest way to invest in silver provided you buy from a reputable dealer.

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Invest in Silver Coins

If you wish to invest in silver coins do not be fooled by the market for antique or special issue coins. You should only be interested in the physical worth of the metal in the coin. As a result you can’t go wrong with Silver Eagles or Austrian Philharmonics which will be 99.99% pure, which is what you are after. If the banking system were to collapse, and you invest in silver as an insurance policy against such an event, one troy ounze coins would be a practical size. I note that with the current situation in Greece on a precipice and the impact on European banks being understated, a banking problem like in 2007/2008 is looking increasingly possible.

Invest in Silver ETFs

An alternative to holding the actual metal is ETF’s. An ETF is bought and sold through your standard online borker just like a share. An ETF investment would not attract the VAT and hence could be more cost effective for traders and shorter term investors. A good ETF is LON:PHAG which is denominated in dollars and is backed up by a physical holding of silver in a bank vault. Be aware though, that if you are holding silver as an insurance policy against the collapse of the banking system, an ETF would not be a wise place to put your money and a physical holding would be much more sensible. There are rumours abound that that the amount of claims for silver from ETF’s exceeds the quantity of physical silver available.

Invest in Silver “Perth Mint Certificates”

Furthermore, there is an alternative method of holding silver known as “Perth Mint Certificates”. Basically, you buy silver bullion which sits in the bank  in Australia and you are issued with a certificate showing your holding which you can sell when you desire. This method of investment still has the issue of you not actually taking physical ownership of the silver though, hence there is still the risk of the bank perhaps not quite having the holdings of silver to back up the certificates issued.

Invest in Silver- Summary

Overall, how you hold your silver should depend on your investment objectives. As an example, I hold a significant amount of silver bullion in the form of 1kg bars. I also hold the ETF LON:PHAG which acts as a much more short term vehicle to trade with, should I feel the need to “dance with the devil”, referring the fact that the market is notoriously volatile and difficult to call.

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I hope this article has served as a useful piece of education on how to invest in silver.


Learning how to Invest in Silver is only the beginning, if you want to learn more about taking your life to the next level and reaching financial independence please come to my homepage.

Gold and Silver

Everyone is talking about gold and silver at the moment, and whether or not they are in a bubble.

Ultimately people invest in precious metals as protection against inflation, protection against fiat currencies and protection from the government. At the moment it appears there is still a long way for the bull market to run as the markets have not gone parabolic.

Silver has had a brilliant run, reaching $49.50 per troy ounce at the end of April. I think there will be some consolidation around this price as silver has had a brilliant run, it however remains a hold for the long term.

If you want to invest in precious metals take a look at buying shares in LON:PHAU and LON:PHAG. These ETFs are backed by physical metals so they will closely match the value of the underlying metal. Remember they are denominated in USD though, so you may be exposing yourself to currency risk depending on what currency your liabilities sit in.

I will talk about owning precious metals in the form of bullion/ coins in a later post.