Protect Wealth From Inflation
Content
How to Protect Your wealtH
By Christian Hill
How to Protect Your Wealth
By Christian Hill
The biggest single threat to your wealth is not the overvalued stock and bond markets but the very likely probability of a sudden and ruthless period of inflation. You don’t have to be an economist to understand why. Inflation means rising prices. When the stock market went up from below 700 in March 2009 to 1,200 in April 2010... that was stock inflation. When home prices rose by 80% from 1997 to 2006... that was real estate inflation. You can make a lot of money during inflationary periods if you buy early (while prices are low) and sell later (when prices are high). But you can get killed if you wait too long and buy late (when prices are high) and then are forced to sell (when prices are low). So the trick to profiting from inflation is to understand the trend. Getting in early and getting out early. Pretty simple so far, eh? The reason the smartest moneymakers in the world are expecting inflation now is because the government has been spending trillions of dollars to try to keep the banks and brokers and insurance companies from going out of business -- even though those same banks and brokers and insurance companies are responsible for inflating the economy to begin with. The government will never, ever allow these institutions to “fail.” Because if they do, we will be in a real Depression... and then all the politicians we voted into office will worry about losing their jobs. Since their cushy jobs (and amazing expense accounts) are their primary priority, they will always approve these huge bailouts -- even though they know that, eventually, they will destroy the value of the dollar. It doesn’t matter what party they belong to. The Republicans started the bailout programs and the Democrats extended them. They fight about spending on health care, but they don’t fight when it comes to the big financial institutions. The government didn’t actually have the trillions of dollars they spent on bailouts. They had to borrow it from the U.S. Treasury. And how do they pay back the U.S. Treasury? There are only two ways. One is by raising taxes; the other is by printing more dollars. Countless economic studies have shown that there is only so much money the government can get by raising taxes. If they tax people too much, the economy slows down.
1
How to Protect Your Wealth | By Christian Hill
And when the economy slows down, there is less wealth to tax... so the government’s income actually drops rather than rises. Obama knows that he probably wouldn’t be able to raise taxes enough to pay off the debt incurred by the bailouts. Still, he is going to try to tax Americans as much as he possibly can. Where will the rest of the money come from? Obama also knows -- as does every other smart politician -- that there is a sneakier and less risky way to pay back the Treasury. And that is to let the dollar collapse. Here’s why: When the dollar depreciates (gets less expensive), it becomes easier to pay off big debts. Who wouldn’t want to be using today’s dollars to pay for gas that went for $1.50 10 years ago? Or to pay for houses that went for $75,000, on average, 20 years ago? Well, that’s what the government will be doing 10 years from now: paying off a debt that won’t seem nearly as big as it does now because they’ll be paying with inflated dollars.
A Two-Pronged Approach to Protecting Your Wealth
Traditionally, there are two types of assets that appreciate during periods of inflation. One is real estate. The other is precious metals and commodities.
Step 1: Real Estate Plays to Make Now
It’s no secret that half of the world’s richest entrepreneurs built their fortunes through real estate. What is less commonly known is that most of their great fortunes were made during inflationary periods... like the one we’re facing right now.
Real Estate Opportunity #1: Taking advantage of real estate prices that are as low as they’ve been in 20 or 30 years
It is impossible (and foolish) to try to predict the bottom (or top) of this (or any) market. But, by any measure, we have just gone through one of the biggest real estate recessions in the history of the United States. In South Florida, for example, you can find properties for less than half of what they were selling for at the peak of the market. More important, you can buy these properties with 20% down and start enjoying positive cash flow from month one. (Four and five years ago, you couldn’t get positive cash flow out of rental units with 50% down.) So today’s prices make sense from a businessman’s perspective. My mentor - self-made multimillionaire Michael Masterson - and his real estate partner Peter have been buying homes in the $120,000 to $130,000 range (after closing costs and renovations). Michael tells me they are getting monthly rents of $1,300 to $1,600 on these. He is financing our deals at 4% (which is good for him). At that rate, they are making about 6% to 8% on their money, not counting appreciation.
2
How to Protect Your Wealth | By Christian Hill
Michael says he will continue to invest in real estate so long as prices are low. If they go down further, he’ll buy more aggressively. He has no risk of losing money, because all the properties he’s investing in are making money on a monthly basis. Even if rents drop, he won’t be losing money. The 4% to 8% yield he’s enjoying will cover him even if rents go down another 25%, which is highly unlikely. But the real opportunity is in the appreciation potential. He fully expects to make an extra $10 million in appreciation in the next five to 10 years as inflation pushes up real estate prices. He might make as much as $30 million, but he’s trying to be conservative. If you can do the same thing - even on a smaller scale - you’ll be making a smart bet. There are some who say that real estate prices won’t inflate with the rest of the economy, but I think they will. Here’s why. Buildings are built with core commodities... lumber, copper, aluminum, concrete, steel. Labor is another big expense. You can’t have inflation without a rise in those costs. Plus, properties in many areas are selling for less than replacement value. In some cases, even if you got the land for free, you couldn’t build these homes for what you can buy them for today. That’s even after taking depreciation into account. Last but not least, in many instances, it’s already far cheaper to buy than it is to rent. Eventually, this will turn the tide toward buying. It’s just a matter of time. So that’s my first inflation-beating recommendation: Start buying undervalued, quality rental properties now. Don’t wait for the market to bottom. Just find properties that will give you a net cash flow of at least 4% to 9% after all expenses (including property taxes, maintenance, fees, etc.).
Real Estate Opportunity #2: Taking a position in businesses that are buying up super-undervalued properties
One of the best-run companies buying up undervalued properties comes from north of the border. I had no interest in this company when real estate was booming. Their income from year to year was lagging behind that of their U.S. peers. I chalked up their bad numbers to poor management. But I recently noticed that their numbers are much better... and I had to find out why.
3
How to Protect Your Wealth | By Christian Hill
Turns out their reversal of fortune stems from how they treated their tenants when property prices were soaring. Unlike their competitors, they refrained from putting the squeeze on their tenants by raising rents to the max. As a result, when the Great Recession hit and most real estate companies had a spike in vacancies, this one kept the vast majority of its tenants. It now has a much stronger balance sheet and more cash on hand than most other real estate companies. And what is it doing with its cash? Buying up cheap properties to take advantage of what it calls “times of distress south of the border.” This company is laying the groundwork now for long-term growth. Over the next five years, I expect its stock to advance by 60%-100%. The company, RioCan, is Canada’s biggest real estate investment trust (REIT). It owns Canada’s biggest and best portfolio of shopping centers -- 261 retail properties amounting to 60 million square feet. You can find it on the Toronto stock exchange under the symbol REI.UN.TO. RioCan just bought an 80% stake in seven grocery-anchored shopping centers (that’s what it specializes in) in the U.S. It acquired that stake by taking on Cedar Shopping Centers Inc. as its American partner. Before they’re through, the two companies will be buying up a slew of below-market-cost properties. Just based on what RioCan’s CEO Edward Sonshine says, I can tell that they’re drooling at their prospects... “Many of the properties coming available in the U.S. are of exceptional quality, and are currently being held by stressed vendors, constrained by a lack of liquidity. These vendors are not disposed to sell due to issues with the property. Rather, many of these operators have difficulty meeting demands of lenders and satisfying more stringent conditions on accessing capital. As such, acquisitions can be made at considerably less than replacement costs. In fact, we believe that the next 12 to 18 months are a time of unique opportunities for [RioCan].” Besides shelling out $176 million for the seven afore- mentioned properties, RioCan and Cedar just bought their first shopping center together for $20 million, with RioCan paying $16 million of it. And this is just the beginning. Sonshine says that the company “has weathered the storm and is poised to seize the initiative.” It has the money. It has the local partner to help it. It certainly has the determination. And the U.S. market is ripe for the taking. In other words, everything’s in place. The company is for real... solid and ambitious at the same time. Plus, it gives shareholders 7.1% in cash every year just for owning its shares. In my experience, a company like this doesn’t stay below the radar for long.
Step 2: Going for the Gold
Another way to protect your wealth from rapidly approaching inflation is to look to precious metals and commodities.
4
How to Protect Your Wealth | By Christian Hill
And, the best – and easiest – place to look is gold. If you don’t own gold, you might want to start buying some now. I’m not your financial advisor. But if I were I’d tell you that you should have enough physical gold and silver to keep you afloat for two or three years. If you can’t buy that much, you should begin to buy what you can. Don’t stop until at least 10 percent of your savings are in precious metals. You should do this not in the hopes that your precious metals will appreciate (although they probably will) but because at the very least they will hold their value during the coming storm.
Gold Opportunity #1: Buying Physical Gold
Few things are better than the feeling of holding real 100% pure gold in your hands. There’s a reason gold is the world’s most coveted metal. It’s the shining standard of the precious metals market, the one metal everyone wants to know… which means it holds it’s value much better than putting your hard earned cash into a run of the mill savings account. Plus, the story is even better when the dollar depreciates. Here are the top five most commonly traded gold bullion coins in the world. This is where any new gold investor should start: 1. South African Krugerrand These were the most commonly traded coins in the last gold bull market and are still traded today. 2. Canadian Maple Leaf The coin was first minted in 1979 and was an instant success. Like the Krugerrand, it contains a full 1 troy ounce of gold. It actually has a face value of $50 (Canadian Dollars), which is far less of course than the value of the gold bullion. 3. Australian Kangaroo The “ROO,” as it’s called, replaced Australia’s “Nugget” coin. It also weighs 1 troy ounce. 4. Chinese Panda The China Panda was first introduced in 1982 and remains a popular choice for gold buyers. 5. American Eagle This is the gold bullion coin that everybody wants. First minted in 1986, the American Eagles comes in the standard 22-carat fineness.
5
How to Protect Your Wealth | By Christian Hill
I know that Michael Masterson is a huge proponent of goal. He tells me that he started buying gold about ten years ago and kept buying until he had accumulated his goal -- which was enough that he could live on it for 10 years if he had to. This is obviously a lot more gold than most financial pundits recommend. Having that much in gold in hand makes him feel safe in the face of potential economic disaster. He bought bullion coins. Every month he bought another box of South African Krugerrands or Canadian Maple Leafs and had them delivered to his house. He only stopped buying coins when he reached his target. Gold was trading for about $800 an ounce at the time. He had an intuition that prices would continue to inflate, but he wasn’t trying to game the market. He was trying to be safe. If he hadn’t met his goal, Michael admits, he would have continued buying. Even today, with gold around $1,500 per ounce, he would still be buying. You should strongly consider buying gold coins, as well. It’s at least worth consulting your financial advisor about. When buying gold and silver coins, be sure to buy top quality – coins that aren’t damaged in any way. Nicked or scratched coins won’t get you the full value when you go to sell them. And make sure that you are not paying a big premium for them. Five or six percent is the absolute limit, in my opinion.
Gold Opportunity #2: Mining Stocks
Another way to hedge against inflation is to buy mining stocks. But this is an area you must be careful when entering. The mining business is problematic. It requires lots of expensive employees and capital equipment. Key employees jump from one company to another without notice – especially when the market is good. In addition, the mining industry now faces extensive environmental and other regulations. That generally means two things: inefficiency and extra costs. And if all that were not enough, know this: mining is a boom and bust industry thanks to price swings and unwillingness of banks to lend to small miners when commodity prices are low. All these problems discourage smart investors from putting their money in mining companies. And that is why, during the 20-year bear market in metals (19801999), it was possible to buy mining companies very cheaply, based on their fundamental values. But all that changes when precious metals prices climb.
6
How to Protect Your Wealth | By Christian Hill
Gold mining stock move up first and fastest. But silver quickly follows gold up. And platinum, copper and palladium can shoot up too. The cheapest mines to buy are those whose metals are still in the ground. With the assets still untapped, there are unknowns that can tank the mine’s value. This scares ordinary investors and keeps the prices down. But insiders can ferret out the good reserves from the bad ones. If you get into the right company you can make a fortune. If you are investing in mining stocks (or thinking of doing so), be aware of the trend in gold prices. It has been in an upward climb now for many years. Is this the end of the trend or are we just part of the way through it? Dr. Russell “Rusty” McDougal, who used to run our resource trading service and has been following this sector for decades, is very positive in his outlook on gold. “Give us five more years at the present pace, no disasters wanted or required,” he says, “and we’ll see gold at $2,400 or above.” If that happens it would mean a fortune for those who invest wisely in exploration and mining stocks. Recently the cost of such mining stocks has been lagging the price of gold. “That means there are extremely attractive right now,” Rusty says. “And this anomaly will not last with coming higher precious metal prices.” The gold market has been Rusty’s primary focus of study for the past 17 years. He follows gold not just to grow his wealth but because he thinks it is the best financial market to “understand how politics, economics and monetary issues play out in the world.” “Free markets, honest money and individual liberties are the offshoots of what gold represents,” he says. It’s not an accident, he says, that gold and silver have performed so well in the recent past. “It didn’t happen in a vacuum. Rest well assured that no gold bugs were surprised.”
The Factors in the Rise of Precious Metals
1. The U.S. dollar has been debased. It was fatally weakened when the U.S. government abandoned the gold standard, and it has been further weakened by the reckless government spending, which has skyrocketed in the past several years. But other currencies are just as bad or worse. The only real safe haven for wealth these days is gold and other precious metals. 2. The whole world isn’t tuned into CNBC’s relentlessly cheery newscasts. There are millions of savers and investors out there buying up precious metals because they understand what the American media does not. 3. China has taken its gold reserves from 600 tons to 1,054 tons over the last six years. They hold over $2 trillion in foreign exchange reserves -- four times that of the U.S., Germany, Italy, and France combined.
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How to Protect Your Wealth | By Christian Hill
4. Central banks have been traditional sellers of gold. Now they’re buying. That fundamentally changes the dynamics of the market. 5. Monetary chaos always leads to a rediscovery of gold. The Chinese, Indians, Russians, Vietnamese, Venezuelans, multiple other countries as well as innumerable individuals have taken the cue. Gold is, once again, the answer. You had better ignore politics and local dogma and take a more global posture. And although gold has been up for an average of 17 percent over the last nine years, Rusty says, it has been “anything but a free market. It was overtly contained and still managed to perform exceptionally well!” And that’s why he sees gold hitting at least $2,400 gold within five years “without the inevitable gold escape from elitist control.” “Gold is set to perform with or without major calamities coming our way. You stand to do exceedingly well with precious metal investments in the coming months and years. You can hunker down for doomsday if you want.” So what does Rusty recommend, other than physical gold? One of his earliest picks, mining company Sangold, is still going strong. It’s up 461 percent. And Extorre Gold Mines, a recent pick, is up 416 percent. With your complimentary subscription to Early to Rise Investor’s Edition, I’ll keep you updated on which investments would be the most sound additions to your portfolio. Look for your first issue to arrive in your inbox – absolutely free – in the next few days.
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How to Protect Your Wealth | By Christian Hill
By Christian Hill
How to Protect Your Wealth
By Christian Hill
The biggest single threat to your wealth is not the overvalued stock and bond markets but the very likely probability of a sudden and ruthless period of inflation. You don’t have to be an economist to understand why. Inflation means rising prices. When the stock market went up from below 700 in March 2009 to 1,200 in April 2010... that was stock inflation. When home prices rose by 80% from 1997 to 2006... that was real estate inflation. You can make a lot of money during inflationary periods if you buy early (while prices are low) and sell later (when prices are high). But you can get killed if you wait too long and buy late (when prices are high) and then are forced to sell (when prices are low). So the trick to profiting from inflation is to understand the trend. Getting in early and getting out early. Pretty simple so far, eh? The reason the smartest moneymakers in the world are expecting inflation now is because the government has been spending trillions of dollars to try to keep the banks and brokers and insurance companies from going out of business -- even though those same banks and brokers and insurance companies are responsible for inflating the economy to begin with. The government will never, ever allow these institutions to “fail.” Because if they do, we will be in a real Depression... and then all the politicians we voted into office will worry about losing their jobs. Since their cushy jobs (and amazing expense accounts) are their primary priority, they will always approve these huge bailouts -- even though they know that, eventually, they will destroy the value of the dollar. It doesn’t matter what party they belong to. The Republicans started the bailout programs and the Democrats extended them. They fight about spending on health care, but they don’t fight when it comes to the big financial institutions. The government didn’t actually have the trillions of dollars they spent on bailouts. They had to borrow it from the U.S. Treasury. And how do they pay back the U.S. Treasury? There are only two ways. One is by raising taxes; the other is by printing more dollars. Countless economic studies have shown that there is only so much money the government can get by raising taxes. If they tax people too much, the economy slows down.
1
How to Protect Your Wealth | By Christian Hill
And when the economy slows down, there is less wealth to tax... so the government’s income actually drops rather than rises. Obama knows that he probably wouldn’t be able to raise taxes enough to pay off the debt incurred by the bailouts. Still, he is going to try to tax Americans as much as he possibly can. Where will the rest of the money come from? Obama also knows -- as does every other smart politician -- that there is a sneakier and less risky way to pay back the Treasury. And that is to let the dollar collapse. Here’s why: When the dollar depreciates (gets less expensive), it becomes easier to pay off big debts. Who wouldn’t want to be using today’s dollars to pay for gas that went for $1.50 10 years ago? Or to pay for houses that went for $75,000, on average, 20 years ago? Well, that’s what the government will be doing 10 years from now: paying off a debt that won’t seem nearly as big as it does now because they’ll be paying with inflated dollars.
A Two-Pronged Approach to Protecting Your Wealth
Traditionally, there are two types of assets that appreciate during periods of inflation. One is real estate. The other is precious metals and commodities.
Step 1: Real Estate Plays to Make Now
It’s no secret that half of the world’s richest entrepreneurs built their fortunes through real estate. What is less commonly known is that most of their great fortunes were made during inflationary periods... like the one we’re facing right now.
Real Estate Opportunity #1: Taking advantage of real estate prices that are as low as they’ve been in 20 or 30 years
It is impossible (and foolish) to try to predict the bottom (or top) of this (or any) market. But, by any measure, we have just gone through one of the biggest real estate recessions in the history of the United States. In South Florida, for example, you can find properties for less than half of what they were selling for at the peak of the market. More important, you can buy these properties with 20% down and start enjoying positive cash flow from month one. (Four and five years ago, you couldn’t get positive cash flow out of rental units with 50% down.) So today’s prices make sense from a businessman’s perspective. My mentor - self-made multimillionaire Michael Masterson - and his real estate partner Peter have been buying homes in the $120,000 to $130,000 range (after closing costs and renovations). Michael tells me they are getting monthly rents of $1,300 to $1,600 on these. He is financing our deals at 4% (which is good for him). At that rate, they are making about 6% to 8% on their money, not counting appreciation.
2
How to Protect Your Wealth | By Christian Hill
Michael says he will continue to invest in real estate so long as prices are low. If they go down further, he’ll buy more aggressively. He has no risk of losing money, because all the properties he’s investing in are making money on a monthly basis. Even if rents drop, he won’t be losing money. The 4% to 8% yield he’s enjoying will cover him even if rents go down another 25%, which is highly unlikely. But the real opportunity is in the appreciation potential. He fully expects to make an extra $10 million in appreciation in the next five to 10 years as inflation pushes up real estate prices. He might make as much as $30 million, but he’s trying to be conservative. If you can do the same thing - even on a smaller scale - you’ll be making a smart bet. There are some who say that real estate prices won’t inflate with the rest of the economy, but I think they will. Here’s why. Buildings are built with core commodities... lumber, copper, aluminum, concrete, steel. Labor is another big expense. You can’t have inflation without a rise in those costs. Plus, properties in many areas are selling for less than replacement value. In some cases, even if you got the land for free, you couldn’t build these homes for what you can buy them for today. That’s even after taking depreciation into account. Last but not least, in many instances, it’s already far cheaper to buy than it is to rent. Eventually, this will turn the tide toward buying. It’s just a matter of time. So that’s my first inflation-beating recommendation: Start buying undervalued, quality rental properties now. Don’t wait for the market to bottom. Just find properties that will give you a net cash flow of at least 4% to 9% after all expenses (including property taxes, maintenance, fees, etc.).
Real Estate Opportunity #2: Taking a position in businesses that are buying up super-undervalued properties
One of the best-run companies buying up undervalued properties comes from north of the border. I had no interest in this company when real estate was booming. Their income from year to year was lagging behind that of their U.S. peers. I chalked up their bad numbers to poor management. But I recently noticed that their numbers are much better... and I had to find out why.
3
How to Protect Your Wealth | By Christian Hill
Turns out their reversal of fortune stems from how they treated their tenants when property prices were soaring. Unlike their competitors, they refrained from putting the squeeze on their tenants by raising rents to the max. As a result, when the Great Recession hit and most real estate companies had a spike in vacancies, this one kept the vast majority of its tenants. It now has a much stronger balance sheet and more cash on hand than most other real estate companies. And what is it doing with its cash? Buying up cheap properties to take advantage of what it calls “times of distress south of the border.” This company is laying the groundwork now for long-term growth. Over the next five years, I expect its stock to advance by 60%-100%. The company, RioCan, is Canada’s biggest real estate investment trust (REIT). It owns Canada’s biggest and best portfolio of shopping centers -- 261 retail properties amounting to 60 million square feet. You can find it on the Toronto stock exchange under the symbol REI.UN.TO. RioCan just bought an 80% stake in seven grocery-anchored shopping centers (that’s what it specializes in) in the U.S. It acquired that stake by taking on Cedar Shopping Centers Inc. as its American partner. Before they’re through, the two companies will be buying up a slew of below-market-cost properties. Just based on what RioCan’s CEO Edward Sonshine says, I can tell that they’re drooling at their prospects... “Many of the properties coming available in the U.S. are of exceptional quality, and are currently being held by stressed vendors, constrained by a lack of liquidity. These vendors are not disposed to sell due to issues with the property. Rather, many of these operators have difficulty meeting demands of lenders and satisfying more stringent conditions on accessing capital. As such, acquisitions can be made at considerably less than replacement costs. In fact, we believe that the next 12 to 18 months are a time of unique opportunities for [RioCan].” Besides shelling out $176 million for the seven afore- mentioned properties, RioCan and Cedar just bought their first shopping center together for $20 million, with RioCan paying $16 million of it. And this is just the beginning. Sonshine says that the company “has weathered the storm and is poised to seize the initiative.” It has the money. It has the local partner to help it. It certainly has the determination. And the U.S. market is ripe for the taking. In other words, everything’s in place. The company is for real... solid and ambitious at the same time. Plus, it gives shareholders 7.1% in cash every year just for owning its shares. In my experience, a company like this doesn’t stay below the radar for long.
Step 2: Going for the Gold
Another way to protect your wealth from rapidly approaching inflation is to look to precious metals and commodities.
4
How to Protect Your Wealth | By Christian Hill
And, the best – and easiest – place to look is gold. If you don’t own gold, you might want to start buying some now. I’m not your financial advisor. But if I were I’d tell you that you should have enough physical gold and silver to keep you afloat for two or three years. If you can’t buy that much, you should begin to buy what you can. Don’t stop until at least 10 percent of your savings are in precious metals. You should do this not in the hopes that your precious metals will appreciate (although they probably will) but because at the very least they will hold their value during the coming storm.
Gold Opportunity #1: Buying Physical Gold
Few things are better than the feeling of holding real 100% pure gold in your hands. There’s a reason gold is the world’s most coveted metal. It’s the shining standard of the precious metals market, the one metal everyone wants to know… which means it holds it’s value much better than putting your hard earned cash into a run of the mill savings account. Plus, the story is even better when the dollar depreciates. Here are the top five most commonly traded gold bullion coins in the world. This is where any new gold investor should start: 1. South African Krugerrand These were the most commonly traded coins in the last gold bull market and are still traded today. 2. Canadian Maple Leaf The coin was first minted in 1979 and was an instant success. Like the Krugerrand, it contains a full 1 troy ounce of gold. It actually has a face value of $50 (Canadian Dollars), which is far less of course than the value of the gold bullion. 3. Australian Kangaroo The “ROO,” as it’s called, replaced Australia’s “Nugget” coin. It also weighs 1 troy ounce. 4. Chinese Panda The China Panda was first introduced in 1982 and remains a popular choice for gold buyers. 5. American Eagle This is the gold bullion coin that everybody wants. First minted in 1986, the American Eagles comes in the standard 22-carat fineness.
5
How to Protect Your Wealth | By Christian Hill
I know that Michael Masterson is a huge proponent of goal. He tells me that he started buying gold about ten years ago and kept buying until he had accumulated his goal -- which was enough that he could live on it for 10 years if he had to. This is obviously a lot more gold than most financial pundits recommend. Having that much in gold in hand makes him feel safe in the face of potential economic disaster. He bought bullion coins. Every month he bought another box of South African Krugerrands or Canadian Maple Leafs and had them delivered to his house. He only stopped buying coins when he reached his target. Gold was trading for about $800 an ounce at the time. He had an intuition that prices would continue to inflate, but he wasn’t trying to game the market. He was trying to be safe. If he hadn’t met his goal, Michael admits, he would have continued buying. Even today, with gold around $1,500 per ounce, he would still be buying. You should strongly consider buying gold coins, as well. It’s at least worth consulting your financial advisor about. When buying gold and silver coins, be sure to buy top quality – coins that aren’t damaged in any way. Nicked or scratched coins won’t get you the full value when you go to sell them. And make sure that you are not paying a big premium for them. Five or six percent is the absolute limit, in my opinion.
Gold Opportunity #2: Mining Stocks
Another way to hedge against inflation is to buy mining stocks. But this is an area you must be careful when entering. The mining business is problematic. It requires lots of expensive employees and capital equipment. Key employees jump from one company to another without notice – especially when the market is good. In addition, the mining industry now faces extensive environmental and other regulations. That generally means two things: inefficiency and extra costs. And if all that were not enough, know this: mining is a boom and bust industry thanks to price swings and unwillingness of banks to lend to small miners when commodity prices are low. All these problems discourage smart investors from putting their money in mining companies. And that is why, during the 20-year bear market in metals (19801999), it was possible to buy mining companies very cheaply, based on their fundamental values. But all that changes when precious metals prices climb.
6
How to Protect Your Wealth | By Christian Hill
Gold mining stock move up first and fastest. But silver quickly follows gold up. And platinum, copper and palladium can shoot up too. The cheapest mines to buy are those whose metals are still in the ground. With the assets still untapped, there are unknowns that can tank the mine’s value. This scares ordinary investors and keeps the prices down. But insiders can ferret out the good reserves from the bad ones. If you get into the right company you can make a fortune. If you are investing in mining stocks (or thinking of doing so), be aware of the trend in gold prices. It has been in an upward climb now for many years. Is this the end of the trend or are we just part of the way through it? Dr. Russell “Rusty” McDougal, who used to run our resource trading service and has been following this sector for decades, is very positive in his outlook on gold. “Give us five more years at the present pace, no disasters wanted or required,” he says, “and we’ll see gold at $2,400 or above.” If that happens it would mean a fortune for those who invest wisely in exploration and mining stocks. Recently the cost of such mining stocks has been lagging the price of gold. “That means there are extremely attractive right now,” Rusty says. “And this anomaly will not last with coming higher precious metal prices.” The gold market has been Rusty’s primary focus of study for the past 17 years. He follows gold not just to grow his wealth but because he thinks it is the best financial market to “understand how politics, economics and monetary issues play out in the world.” “Free markets, honest money and individual liberties are the offshoots of what gold represents,” he says. It’s not an accident, he says, that gold and silver have performed so well in the recent past. “It didn’t happen in a vacuum. Rest well assured that no gold bugs were surprised.”
The Factors in the Rise of Precious Metals
1. The U.S. dollar has been debased. It was fatally weakened when the U.S. government abandoned the gold standard, and it has been further weakened by the reckless government spending, which has skyrocketed in the past several years. But other currencies are just as bad or worse. The only real safe haven for wealth these days is gold and other precious metals. 2. The whole world isn’t tuned into CNBC’s relentlessly cheery newscasts. There are millions of savers and investors out there buying up precious metals because they understand what the American media does not. 3. China has taken its gold reserves from 600 tons to 1,054 tons over the last six years. They hold over $2 trillion in foreign exchange reserves -- four times that of the U.S., Germany, Italy, and France combined.
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How to Protect Your Wealth | By Christian Hill
4. Central banks have been traditional sellers of gold. Now they’re buying. That fundamentally changes the dynamics of the market. 5. Monetary chaos always leads to a rediscovery of gold. The Chinese, Indians, Russians, Vietnamese, Venezuelans, multiple other countries as well as innumerable individuals have taken the cue. Gold is, once again, the answer. You had better ignore politics and local dogma and take a more global posture. And although gold has been up for an average of 17 percent over the last nine years, Rusty says, it has been “anything but a free market. It was overtly contained and still managed to perform exceptionally well!” And that’s why he sees gold hitting at least $2,400 gold within five years “without the inevitable gold escape from elitist control.” “Gold is set to perform with or without major calamities coming our way. You stand to do exceedingly well with precious metal investments in the coming months and years. You can hunker down for doomsday if you want.” So what does Rusty recommend, other than physical gold? One of his earliest picks, mining company Sangold, is still going strong. It’s up 461 percent. And Extorre Gold Mines, a recent pick, is up 416 percent. With your complimentary subscription to Early to Rise Investor’s Edition, I’ll keep you updated on which investments would be the most sound additions to your portfolio. Look for your first issue to arrive in your inbox – absolutely free – in the next few days.
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How to Protect Your Wealth | By Christian Hill
