Metals Market

May 17, 2013 ($ / troy oz.)

Gold
-25.61 decrease 1359.53
Silver
-0.39 decrease 22.26
Platinum
-28.70 decrease 1454.50
Palladium
-0.75 decrease 737.50

Readings

Gold & Silver Portfolio Structure
September 19, 2012, 11:23 AM
Premium Update
August 31, 2012, 11:00 AM
Gold Speculation Can Be Profitable When Positions Are Small
May 16, 2012, 6:24 PM

Best & Worst Ways to Buy Gold & Silver

Click “traders” or “investors” column header in order to sort methods by their value to you.

Method	Advantages & Disadvantages	Traders	Investors
Gold bars	Pros: Gold bars are tangible, we can be sure they exist Their value will never fall to zero They are neither a liability nor a security Lower margin than bullion coins Low risk Cons: Relatively low liquidity, especially for bigger bars Shipment, storage and insurance costs Burglary or theft risk	-3	-5
Bullion Coins	Pros: Bullion coins are tangible, we can be sure they exist Their value will never fall to zero They are neither a liability nor a security Low risk Higher liquidity and elasticity than gold bars because of their smaller size Cons: Relatively low liquidity (better than gold bars, though) Shipment, storage and insurance costs Burglary or theft risk Higher price than gold bars caused by higher production costs	-3	-5
Numismatic Coins	Pros: Can be considered collector’s items Potential return, especially for very old coins, may be much higher than the return on gold bars or bullion coins Cons: Numismatic coins' value depends on many other factors, not only the metal they are made of (their main value is collector value) Relatively low liquidity Requires a lot of knowledge about numismatics	-1	-2
Jewelry	Pros: Apart from an investment item they can also be considered a collector’s item The potential return that can be achieved on old, rare jewelry is very high Cons: Relatively low correlation with the price of gold, their value depends mainly on demand and supply of a given type of jewelry, it's brand and age Their main value is collector value In order to achieve high returns a lot of knowledge about jewelry and numismatics is required	-1	-1
Certificates	Pros: No shipment and storage costs or risks Relatively high liquidity Low tracking error Backed by physical gold (theoretically, see cons for details) Cons: Fees and commissions The risk that bars backing up certificates do not exist in reality Some certificates are only partially backed by gold The risk that the firm managing certificates defaults	-3	-3
Mutual Funds	Pros: Mutual funds are widely available Highly liquid Low price compared to the price of ounce of gold (low barriers of entry) Diversification Leverage, at least in theory Various investment strategies available Cons: Mutual funds usually invest in gold mining stocks Generally, they don’t have gold in physical form Low correlation with gold Lack of control over investment decisions of the fund’s management Fees, commissions Fund bankruptcy risk	-2	-3
Pool accounts	Pros: Theoretically pool accounts are backed by physical gold No storage costs or risks High liquidity Cons: Theoretically some accounts are only partially backed by gold The risk that the gold bars and coins in the pool / unallocated account really do not exist The risk of not recovering invested capital in the case of bankruptcy of the entity operating the pool accounts (counterparty risk)	-3	-2
E-gold	Pros: Theoretically backed by gold Transparent exchange rate No tracking error Wide availability, they can be accessed using a computer with Internet connection Low entry barriers, even small amounts of money can be exchanged for digital gold currency Cons: The risk of not recovering invested capital in the case of bankruptcy of the entity operating the pool accounts (counterparty risk) No sufficient laws or regulations, digital currencies issuers are not banks IT security issues, hacking risk The risk that gold bars that should be backing the account do not exist	-3	-3
ETFs	Pros: Exchange Traded Funds usually invest in physical gold (theoretically) Wide availability, ETFs are quoted on stock exchanges Low price of one share compared to the price of one ounce of gold Cons: The risk of having insufficient backing by gold ETF price may not always follow the price of gold Often have a very complicated structure Fees, commissions (generally lower than in case of mutual funds, though) Fund bankruptcy risk	-5	-3
ETNs	Pros: Wide availability, Exchange Traded Notes are quoted on stock exchanges Leverage No tracking error Cons: ETNs do not have physical gold nor silver, they are just debt instruments Monitoring firm's bankruptcy risk is essential in case of significant positions Relatively new financial instrument, lack of much historical data	-5	-2
Gold & Silver Mining Stocks	Pros: Wide availability High liquidity (senior mining stocks) Can be bought or sold on stock exchanges Miners offer, at least in theory, leverage, which can be seen usually in the short run Miners' price can grow even if the price of gold doesn’t rally Cons: Miners' price does not always follow the price of gold Company-specific risk (strikes, obtaining environmental permissions) The risk of not finding gold The need to analyze various aspects of company’s activity	-4	-4
Structured Products	Pros: Preservation of invested capital, at least its nominal value High potential return Low initial investment (compared to gold bars) Cons: Relatively low availability, they can be bought or sold only during so-called subscription periods Structured products are usually designed as a long-term investment, but they expose investors to long-term risks (issuer bankruptcy risk) The risk that the assumed scenario doesn’t take place and having to incur the cost of a decrease in real value of invested capital and opportunity cost Usually no backing in physical gold	-1	-3
Futures	Pros: Futures provide high liquidity Futures can be bought or sold on stock exchanges They can be used to hedge against future price changes Futures provide leverage Cons: The need to main a margin The risk of losing more than initially invested The risk that futures markets rules and regulations will become less favorable The risk that in case of a severe turmoil in the financial markets, obligations based on futures will not be honored Relatively complicated for beginning investors	-4	-1
Options	Pros: Options provide relatively high liquidity Options can be bought or sold on stock exchanges Options can be used to hedge against future price changes Leverage Unlimited profit potential and limited loss potential when buying them Cons: Unlimited loss potential and limited profit potential when writing options Options are difficult to value The risk that options markets rules and regulations change The risk that the other party doesn’t fulfill their obligations Relatively complicated for beginning investors	-4	-1
CFDs	Pros: Contracts For Difference offer high liquidity CFDs can be used to hedge against future price changes Leverage No expiration date Cons: The need to maintain a margin CFDs are not exchange traded CFDs are not standardized Betting against the market regulator (!)	-4	-1

Summary

For long-term investors, the best way to make gold & silver investments is by buying physical gold, especially gold and silver bars and coins (and diversifying geographically).

For traders, the best solutions are those that provide high liquidity and offer leverage:

ETFs and ETNs - for beginning investors
Futures and options - for advanced investors

Please note that in the above table gold and silver mining stocks are featured as a proxy for metal ownership. We believe that miners provide opportunity to diversify one's gold and silver portfolio, so it may be a good idea to purchase them in addition to owning physical metals. They can also be successfully traded in addition to taking positions in the metals, because it is often the case that the short-term price swings in the miners are more volatile than the one's seen in the underlying metals - in other words, at times, they can be traded even though metals don't move much.

Best & Worst Times
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Dear Sunshine Profits,

MARCH 15TH, 2011

Metals Market

Gold

Silver

Platinum

Palladium

Readings

Gold & Silver Portfolio Structure

Premium Update

Gold Speculation Can Be Profitable When Positions Are Small