Stock Investments in Gold and Precious Metals - dummies

Stock Investments in Gold and Precious Metals

By Paul Mladjenovic

Over the ages, gold (and silver) has come to be synonymous with wealth. In modern stock investment, gold has become known as an inflation hedge and investment insurance, especially during times of inflation and geopolitical uncertainty.

After being in a 20-year bear market (from its high of $850 in 1980 to its low of $252 in 2000), gold has been in a long-term bull market since 2001. As the conditions for precious metals look compelling for the next few years, aggressive investors should be investigating gold stocks and ETFs. Why now?

Most of the countries of the world are currently in the process of expanding the supply of their currencies to (hopefully) mitigate the effects of a hobbled economy and of massive debt and pension burdens. More money supply growth means more inflation. More inflation means that precious metals become a bullish play.

Because gold does well in an inflationary environment, understanding inflation itself is important. Inflation isn’t the price of things going up; it’s the value of the currency going down. The reason it goes down in value is primarily because the government can print money at will, thereby increasing the money supply. When you significantly increase the money supply, you create a bullish environment for hard assets such as gold.

Gold analysts such as Bill Murphy, Doug Casey, Jay Taylor, James Sinclair, and many others accurately forecasted that the price of gold would hit four figures (it did in March 2008) and that the current environment (circa 2012–2013) may see gold zigzagging to new highs in the coming years. If that’s the case, gold-mining stocks and ETFs will perform very well (not unlike their heyday in the late 1970s).

For conservative investors, consider large cap mining firms and ETFs. For the more daring, consider junior mining stocks. Do your research using the websites mentioned in Appendix A.

As an additional note, the general precious metals market is strong and is a good consideration for solid gains because of the current inflationary environment. Silver and even uranium (for energy) offer investors good opportunities.