Your Questions About How To Invest In Gold

Sandy asks…

How does banks use or invest the gold exactly? And why?

Hi. Wants to know why Gold investment is better & the how does a gold plays a good investment role in banking. How does banks use it.
Thanks.

John answers:

Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world. Consistent with the new income model for the Fund agreed in April 2008, on September 18, 2009, the IMF Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one eighth of the Fund’s total holdings of gold at that time. Resources linked to these gold sales will also help boost the Fund’s concessional lending capacity.

How the IMF acquired its gold holdings
The IMF held 93.8 million ounces (2,917.1 metric tons) of gold at designated depositories at end July 2010. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.9 billion (about $5.9 billion) on the basis of historical cost. As of July 31, 2010, the IMF’s holdings amounted to $109.6 billion at current market prices.

A portion of these holdings was acquired after the Second Amendment of the IMF’s Articles of Agreement in April 1978. This portion, which amounted to 12.97 million ounces(403.3 metric tons) prior to the sales agreed in September 2009, is not subject to restitution to IMF member countries (see below), unlike gold the IMF acquired before 1978. In September 2009 the Executive Board authorized the sale of this post-Second Amendment gold, and at end July 2010, a total of 103 metric tons of this portion of gold remained on the Fund’s books.

The IMF acquired the majority of its gold holdings prior to the Second Amendment through four main types of transactions.

•First, when the IMF was founded in 1944 it was decided that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represents the largest source of the IMF’s gold.
•Second, all payments of charges (interest on member countries’ use of IMF credit) were normally made in gold.
•Third, a member wishing to acquire the currency of another member could do so by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970–71.
•And finally, member countries could use gold to repay the IMF for credit previously extended.

James asks…

How can i invest in gold bonds. Is it possible to invest on monthly basis like recurring deposit in gold bond?

About Gold Bond monthly investment

John answers:

I think Canada & U S is there

Jenny asks…

How do i invest in gold eft?

Bear in mind im stupid, but what websites would i use (im in the UK)? What sort of tax and charges would there be? What, realistically is the minimum i would have to invest? Thanks.

John answers:

Use the commodity exchange market of your country and invest something like the stock exchange without taking delivery

Chris asks…

How to invest in Gold ?

I am planning to invest some percentage of my savings into Gold.
1. How do I learn more about investing in Gold? What are the sites and procedures to make Gold investments?
2. Should I buy Gold (bars/coins etc) or invest in Gold funds?
3. Typically what percentage of your portfolio would you invest in Gold if you were to?
4. Are there any tax liabilities/exemptions from investing in Gold?

John answers:

1.As someone who follows commodities along with all other markets, I have learned a lot from the commodities section of bloomberg.com. Remember, while gold has unique properties among commodities, all else equal, commodities tend to outperform during periods of high inflation, i.e. Demand for goods that outpaces supply of identical or substitute goods-more currency chasing fewer and fewer goods. If you are interested in trading the commodity, then lind-waldock is one common commodities broker that many people use, but if you are simply interested in synthetically trading gold as you would a stock then you could do that as an ETF, IAU or GLD, with any discount or full service brokerage house. Personally I trade gold on a forex account under the name XAU/USD (NOT to be confused with the XAU-Philadelphia gold/silver index).

2. If you foresaw a major economic crises in which brokers/banks were to fail, then you might consider the hard asset-but then you must take into account the risks and costs of storage. Coins, as with any retail instrument, tend to go at a premium, but the IRS also allows you to purchase US Treasury coins in an Individual Retirement Account, if that is a concern (qualified IRA investments tend to be restricted as you may know). Gold funds can define a wide variety of things-and the ETF’s I mentioned offer a great way to synthetically buy/sell the asset. Many mutual funds that may be known as precious metal or gold funds simply invest in a portfolio of gold/precious metal companies-which will not always track the asset to the tee-in finacial terms, your benchmark error is going to be higher than it would be with an index or ETF.

3. In order to answer this, one would have to know much more. A blogger above answered that commodities are extremely volatile, which is true. If you are simply planning to passively invest in this because you feel that the global economy is still expanding and will be expanding for a long period of time with inflation then enjoy, but make sure you have a valid reason for your views. Maybe you agree if you think that the government of the US will not do anything to support the dollar? Or that China will continue to grow inencumbered even after the Olympics? Remember, markets tend to be efficient over a longer time frame and for every buyer there is a seller who feels opposite of what you do. If you are interested in capital preservation then keep your allocation small-if you are interested in risk or have a trader-like mentality, i.e. Not an investor, then you may want to risk more. Be careful.

4.Gold, as with almost any other asset, is taxed as a capital gain/loss on a Schedule D when the asset is sold, so naturally holding for a year or less would subject you to a higher tax rate-short-term, than if you held it for longer than a year-long term.

All of the above topics could have much longer explanations, so if you would like me to clarify anything don’t hesitate to ask. Happy investing.

Lisa asks…

What is the best way to invest in gold and silver?

The dollar is losing value and inflation is hitting us hard. I want to protect myself from inflation but i don’t really understand how gold and silver works. Gold today is at $877 and silver at $16 so if i bought an ounce of it physical where would i sell it and would i sell it for %100 of its worth. Also if i bought it in stocks how do i do it i have search on zecco.com and etrade.com but cant find it. How would be the best place to purchase it?
and please details
Thank You

John answers:

I can only tell you how I buy “gold”. I buy stocks in companies that mine gold. The last one was AUY. I sold it yesterday after having bought it on April 28th and one more time to average down my cost. It was a good move. I could have made more if I had waited to sell it today, but I’m happy with what I made……..enough to buy gas for the rest of the year.

No wait, oil just went up some more!!! Make that enough to buy gas for the next 4 months! No, wait, it went up again! Next 3 months.

Just kidding around. FCX is another fine company that is in the gold business. And PCU might mine gold too. They do mine copper, but most companies that mine one, mine the other too.

That’s just the easiest way to get in the gold business, in my opinion.

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