How to buy gold

By Doug Casey

Gold is not necessarily a trading vehicle – it’s a core holding. Buy it as privately as possible, put it away and forget about it.

You can accumulate gold using the commodity exchanges, in 100-ounce contracts, but that makes no sense unless you are dealing in large quantities. For practical purposes, you want to have the metal in your own possession, except for what you might store abroad. And you want coins, not bullion, for the same reason coin has always been used in transactions: it’s more convenient, and you know exactly what you are getting without using a scale or calipers.

Which coins should you buy? I suggest strictly bullion-type coins that trade for close to their intrinsic value. That would include Austrian 100 Coronas (containing .98 oz. gold) and Krugerrands, which are both available for 2 to 3 percent over the bullion price and represent the best value. Maple Leafs and Eagles (each one ounce) trade in the 5 percent premium range. Sovereigns, which are the world’s most recognized gold coin, and are semi-numismatic to boot, are an excellent value at a 4 to 5 percent premium; an additional convenience is their small size (.2354 oz. gold). You should emphasize sovereigns in your purchases.

Few Americans today own meaningful amounts of gold coins. Take a straw poll among 10 or 15 neighbors – it’s unlikely any of them have even seen a gold coin, much less buy them monthly. For 99 percent of the population, the importance of owning gold is in the “you’ll find out” department.

Determining when to sell an investment is at least as hard as figuring when to buy. With gold, more than almost anything else, you will be tempted to hold it, or buy more, when you should sell. That’s because the next major run in gold – the last one, I believe, before we return to a gold standard – will take place in a chaotic environment. The metal will grace the covers of Time and Business Week, and everyone will try to buy it in a panic. I hope to look around then and find some other value that’s very cheap, something worth trading my gold for. Maybe it will be corporate convertible bonds with 20 percent yields. Maybe it will be Japanese stocks for a fraction of book value. Maybe it will be real estate, when it once again shows large cash-on-cash returns.

No one can know what it will be, but something will be very cheap when gold is very dear. Say gold is triple its present level and the investment of the future is one-third its current price – that is, arguably, a nine-for-one return on capital. It may not be possible to get out of gold and into something else at the best possible moment. But if you keep looking with an open mind, it will be worth the effort.

This decade should see the final bull market in gold, with a total restructuring of the world’s financial system. It’s hard to envision just another cyclical extension of what’s been going on for the last 20 years, although it also seemed unlikely back in the early ’80s when the economy not only muddled through but gave birth to a huge bull market.

The grand finale of the upcoming last leg of the gold bull market should be reminiscent of the better scenes from the movie Rollover, if not Road Warrior. I expect to see gold well over $1,000 during the next few years, and I suspect I’m being conservative in that forecast, which is typical at the close of a long bear market.