How to invest in gold & ASX gold stocks?

I’ve been a gold buff since 2002, but have never had any money to invest. Now some cash has come my way, & I'm faced with an unexpected opportunity. But I realise I have little knowledge of the 'mechanics' of investing in gold or gold stocks.

So I have some questions re (i) bullion and (ii) Australian gold stocks - if anyone would be so kind as to help me:

I could buy bullion from the Perth Mint & put it in a bank safe. But are the Mint's margins going to take a fair slice of my profit? And is there a better way - something that pays me interest or dividends along the way?

I could buy shares in Aussie gold miners. But how would I ensure my title to them was made sound? (Gold guru Jim Sinclair's recent warnings re stock certificates are ringing in my ears.) Also, whilst I have complete confidence that gold stocks will rise, I note that they have not yet done so in tandem with the metal, & as early as they did in the Great Depression.

(Needless to say, when I pose these questions to the family's financial advisors, they look at me as if I’m speaking Swahili.)


Thanks all,

John

Johnmac said:

I’ve been a gold buff since 2002, but have never had any money to invest. Now some cash has come my way, & I'm faced with an unexpected opportunity. But I realise I have little knowledge of the 'mechanics' of investing in gold or gold stocks.

So I have some questions re (i) bullion and (ii) Australian gold stocks - if anyone would be so kind as to help me:

I could buy bullion from the Perth Mint & put it in a bank safe. But are the Mint's margins going to take a fair slice of my profit? And is there a better way - something that pays me interest or dividends along the way?

I could buy shares in Aussie gold miners. But how would I ensure my title to them was made sound? (Gold guru Jim Sinclair's recent warnings re stock certificates are ringing in my ears.) Also, whilst I have complete confidence that gold stocks will rise, I note that they have not yet done so in tandem with the metal, & as early as they did in the Great Depression.

(Needless to say, when I pose these questions to the family's financial advisors, they look at me as if I’m speaking Swahili.)


Thanks all,

John

Click to expand...

Hi John,

By the sound of it, you haven't been familiar with how the stockmarket works. So let me make it simple - and I trust you don't take offence when I say that.

Share certificates may be dodgy if you want to take up an offer that comes unsolicited to you in an email. But if you're buying a share that's listed on the ASX, and use an accredited broker to buy them outright, your title will be secured, no worries.
Well - one worry remains: You will never be guaranteed that the company will prosper and your share increase in value. On average, Australian shares have lost about 15% in 2011 alone. But a quarter of ASX shares have managed to gain - it's up to you to pick the right one. Don't listen to forum posters, taxi drivers, or any broker. Research which company you want to buy a share of, then tell your broker to buy this many shares of such and such a company at a price not higher than x. If it succeeds, the credit is all yours. If it turns out a loss, take the responsibility - you can always sell, keeping the loss small and have another go at another investment.

If you want to study the ins and outs of share buying and selling, start at http://www.asx.com.au
If you're confident that gold will be the way to go, the Perth mint offers some tight spreads (difference between buy and sell prices) for cast bars. See this web page:
http://www.perthmintbullion.com/au/Buy-Gold-Bars.aspx
If I were investing in the physical, I'd buy the largest cast bar my money would buy.
If you want also to delight in artwork, by all means buy minted coins. The kangaroo coins look really nice, but minting and art design come at a hefty mark-up. It's up to you.

Johnmac said:

I’ve been a gold buff since 2002, but have never had any money to invest. Now some cash has come my way, & I'm faced with an unexpected opportunity. But I realise I have little knowledge of the 'mechanics' of investing in gold or gold stocks.

So I have some questions re (i) bullion and (ii) Australian gold stocks - if anyone would be so kind as to help me:

I could buy bullion from the Perth Mint & put it in a bank safe. But are the Mint's margins going to take a fair slice of my profit? And is there a better way - something that pays me interest or dividends along the way?

I could buy shares in Aussie gold miners. But how would I ensure my title to them was made sound? (Gold guru Jim Sinclair's recent warnings re stock certificates are ringing in my ears.) Also, whilst I have complete confidence that gold stocks will rise, I note that they have not yet done so in tandem with the metal, & as early as they did in the Great Depression.

(Needless to say, when I pose these questions to the family's financial advisors, they look at me as if I’m speaking Swahili.)


Thanks all,

John

Click to expand...

First up...forget about Jimbo, he's a gold bug/nut and not to be taken seriously.

Second... you've missed the boat in some respects as the big (leg up) has already happened as most of the gold sector bottomed in late 2008 with some stocks having risen by over 400% so i don't know where your statement of "whilst I have complete confidence that gold stocks will rise, I note that they have not yet done so in tandem with the metal" the rise may not have been in tandem but rise they did.

One of the best instruments for gold exposure is a Perth mint warrant...the code seems to have changed to...PMG http://www.perthmint.com.au/investment_gold_asx.aspx this is the new product that replaces the old ZAUWBA

Thanks for that both of you.

I lived by short-term trading the ASX for several years, but now don't want to trade any more & wish to simply buy gold &/or gold stocks & sit on them. That is, I understand what everyone understands about share title - you press BUY on your trading screen & in a while a document arrives in your letterbox (or a pdf in your InBox) saying you own XXX stock.

But one of the gold gurus I've been following for several years is (apparently) warning his US acolytes to secure title to their shares better than that:

http://www.jsmineset.com/2011/12/02/clearing-houses-are-the-mechanism-of-all-markets/

He advises to "take paper delivery of your shares" and "make your general securities positions 'direct registration' as a second best method of protection the asset against failure of your clearing facility".

As an ex-trader who never worried much about title - but as someone who now expects a general system collapse, & thus serious rises in gold/stocks for maybe another decade - I don't really know what any of this means, nor the extent to which it might/not apply in the ASX environment.

Some clarity there would be much appreciated.

I don't think a Perth Mint warrant would suit my present frame of mind, as mints, ETFs, etc tend to be deceptive about what they actually hold.

As for buying cast bars, I'd probably do that ahead of coins (I don't need the aesthetic component) - however the 'tight spreads' you talk of appear to be buy/sell spreads. The differential I am concerned about (also often called a 'spread') is that between the price of gold per oz at that moment & what the Perth Mint offers for a 1oz bar. According to some posters on these forums this can be up to a 30% premium. This I obviously wouldn't pay.

Hope I have been a bit clearer this time.

Thanks.

While we're on the topic, can I ask:

Let's say I log into comsec, look up GOLD, and buy $10,000 worth. What exactly do I own then? I am assuming it's some 'form' of gold? I mean, can I one day ask for the gold that I own to be sent to my house?

Tyler Durden said:

While we're on the topic, can I ask:

Let's say I log into comsec, look up GOLD, and buy $10,000 worth. [...] can I one day ask for the gold that I own to be sent to my house?

Click to expand...

I'm pretty sure the answer is No. You can only sell the certificate - hoping somebody will buy it.
The only way to ensure you own wahat you think you own: Buy the physical and hide it under the bed or bury it in the garden.

wrt John's

The differential I am concerned about (also often called a 'spread') is that between the price of gold per oz at that moment & what the Perth Mint offers for a 1oz bar. According to some posters on these forums this can be up to a 30% premium.

Click to expand...

Don't believe "some posters". What the Perth Mint pays for the cast bar is what they show on the website. That will obviously change with the current Spot price in AUD, but the differences are but a small fraction: Check out buy and sell prices quoted and compare it to the spot price given on the right.

Thanks - you are right.

I calculated the difference in price for 1oz spot & a 1oz bar from the Mint - 2.83%, which is quite wearable.

pixel said:

wrt John's Don't believe "some posters". What the Perth Mint pays for the cast bar is what they show on the website. That will obviously change with the current Spot price in AUD, but the differences are but a small fraction: Check out buy and sell prices quoted and compare it to the spot price given on the right.

Click to expand...

Johnmac,

Gold in general:
I believe the gold bull run is just commencing the third phase of a bull market. This is where it will enter into the bubble category and will rise spectacularly over the coming year or two, depending on global developments.

A couple of good site to follow are:
http://www.bullionbaron.com/ - Aussie.
and
http://www.smartmoneytracker.blogspot.com/ - American

They are both very level headed bloggers and do very little spruiking in my opinion.


Bullion:
Correct. The perth mint sells bullion at very close to spot price. The large mark up are on numismatic items, like coins, ie. lunar series coins.
While the larger bullion items are closer to spot price, you should consider re-sale options once you want to get rid of your items. Most people will not be able to afford to throw down thousands at a time to buy a single piece of bullion.
There are also many dealers in every major AUS city. They will sell to you direct and at very close to spot prices.
See: http://bullionbourse.com/index.htm#ecwid:category=163416&mode=category&offset=0&sort=normal
and
http://www.auroraetluna.com/index.php?act=viewCat&catId=8

You can also try a metals forum like http://forums.silverstackers.com/, where people trade metals regularly.

Equities:
Are currently very beaten down along with the rest of the market. There a lot of gold companies out there which are making ALOT of $$$$$ based on these gold prices. But like any ASX purchase DYO.
If you believe in the precious metals story then this is where the real money will be made.......and potentially lost.

Good luck.

Thanks jlov2 for that interesting info. Your knowledge of trading the metal is much better than mine.

Seems like we agree on the gold bull, tho I expect it to go longer (given the apparently intractable character of the world's economic problems).

The one thing no-one seems to know about (perhaps because it's rather arcane) is the matter of securing true & direct title to one's ASX shares. When the MF brokerage recently collapsed, its lender (ANZ) seized ownership of clients' equities to make good its own loans to MF - at least so one news article claimed.

There is also the chance that clearing houses will collapse in future. So this one seems important to understand.

Johnmac said:

There is also the chance that clearing houses will collapse in future. So this one seems important to understand.

Click to expand...

Some bits from the Wikipedia page of the now-in-liquidation MF Global:

"On Sunday, October 30, 2011, a unit of the New York-based brokerage first reported...a “material shortfall” of hundreds of millions of dollars in segregated customer funds. The CME reports that early on Monday, October 31, 2011, officials of MF Global admitted transfer of $700 million from customer accounts to the broker-dealer and a loan of $175 million in customer funds to MF Global’s U.K. subsidiary to cover or mask liquidity shortfalls at the company."

"MF Global reported the shortfall in customer accounts at $891,465,650 as of close of business Friday, October 28, 2011. According to the trustee overseeing liquidation the shortfall may be as large as $1.2 billion or 22% of relevant funds. MF Global mixed customer funds and used them for its own account for at least several days before the bankruptcy and transferred funds outside the country."

"The company is being investigated by regulators for money missing from client accounts. The shortfall in client accounts at MF Global Holdings Ltd may be around $1.2 billion, according to the trustee liquidating the company."

Looking at the above and with respect to a SMSF holding gold, I guess you're locked into certificates, EFT's and Miners then?