Investment Strategies For Bullion

In 2004 a man went onto the internet and offered to trade a paperclip for a house. Of course, no one took him up on it, but they did trade him for something a little larger. This man kept trading up, the trade rarely had much monetary value. Sometimes its only value lay in the fact that it was part of the scheme.

The man now lives in his house in western Canada. The house he traded up from a paperclip.

There are many investment strategies for managing a bullion or precious metals portfolio. It is one of the most secure ways of investing small and building up. And, it is easy to trade.

You can trade bullion for almost anything – at a profit. The desire to own gold is so strong that many people will undervalue their own services or products in an effort to obtain gold bullion.

If only they knew how easy it was to buy on the internet.

The trick is to stick to the large trading houses. While there is a coin, or bullion trading company in every small city, there are different qualities and grades of gold. Even the slightest variation in weight can change a ‘good deal’ to a con.

The important thing to remember is that investing in coins, and investing in bullion are two different things. A coin has a fixed value attached to it. This value increases, or decreases, depending on how many people want to buy that particular coin.

The value has everything to do with the country that ‘minted’ the coin. It has nothing to do with the quality, or quantity, of precious metal in the coin.

Bullion on the other hand has no markings. Its value is 100% dependent on the quantity, and purity of the metal. It is not held by the constraints of the dollar.

However, as the dollar drops, the value of gold increases, because the lower the value of a dollar, the more of it is needed to buy an ounce of gold. This is good news for bullion investors.

Dan diBartolomeo said in 2007: “While the gold price is the single most influential force in determining the behavior of gold mining shares, gold stocks are not nearly as sensitive to gold prices as current financial models suggest they should be.”

“Putting realistic numbers into the formula, the remarkable aspect begins to take shape. Assuming that the price of gold is $400 per ounce and direct mining costs are $300 per ounce. The gross profit is $100 per ounce. Note that the value is linearly related to this gross profit. If the price of gold changed to $500 per ounce (a 25% increase), the gross profit would be $200 per ounce, and the forecast price of the stock would rise 100%.

The percentage change in valuation of the equity position is four times as great as the percentage change in value in the commodity asset.”

The strategy is to purchase gold, at real value, and trade it for commodities which are normally purchased with paper money and currency. This type of trading gives the bullion investor more leverage when making a purchase.

Another way to invest is by buying futures and speculating on the market. At the moment, speculators have gold about $700 (summer 2007), but you can purchase gold coins for $500. Speculating is a gamble, but when dealing with bullion, the ‘losses’ are predictable.

As the world becomes more wealthy. As third world countries enter the manufacturing sectors, and as the standard quality of living increases around the world, bullion will become more valuable.

Article Source: http://www.contentspool.com

Mark Walters is a third generation investor who guides others to financial independence through the Creating Wealth Club www.CreatingWealthClub.com

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