Vertical Finance Blog

When paper-based investments and real estate are tender to results of switching times, gold soars. A wanted gold investment may save a portfolio while all additional runs out.

The old Chinese curse, “may you live in interesting times”, has particular relevance to the current epoch of U.S. history. There’s a lot going on right now, much of it scary. Major investors around the world are responding to the events of our perilous age by sinking their dollars, deutschmarks and yen into gold, silver and palladium; Bill Gates, Warren Buffet, and billionaire speculator George Soros to name but a few. Big financial institutions like the Central Banks of Russia and China are also leaping onto the metals bandwagon driving the price of these precious commodities ever higher.

This is spurring a gold rush not witnessed since the Misery Index years of the 1970s. Many financial experts now view gold in particular as an island of stability in a paper-based investment market growing stormier all the time, a development that bodes well for everyday folks who want to shore up their retirement accounts with a precious metals hedge.

“People the world over are losing faith in politicians, and currencies,” says Marc Lubaszka, President/CEO, World Financial, a highly successful investment firm specializing in precious metals based in Studio City, Calif. “This has resulted in a flight to gold and other precious metals, a storehouse of value for more than five thousand years. Investors are taking their money out of paper assets, and putting it where it is likely to earn a better return in uncertain times.”

Old Reliables Unreliable
Investments once considered as stable as granite are rapidly losing ground, Lubaszka explains. Real estate is but one example. Long praised as a slam-dunk by money gurus, home-buying is no longer viewed as a hurdle-free path to profit. Stratospheric pricing and higher interest rates are putting intolerable pressure on the current housing bubble, factors bound to bust the suds sooner or later and drive the overheated real estate market into deepfreeze.

“The housing bubble will burst rather than gradually deflate, following the rapid and violent pattern of decline of nearly every financial bubble throughout history,” Lubaszka says. “Higher interest rates negatively impact not only the health of the housing market but other economic segments as well. The stock market takes a hit because higher rates make it more costly for companies to pay for debt. Higher rates hurt corporate profit margins and reduce stock value, bad news given the deep debt situation so many companies are in today.”

Paper is Pass
According to Lubaszka, the U.S. dollar has lost more than 80% of its original value since the early 70’s when we went to a floating currency, a situation not helped very much by the debut of the Euro in the late 1990s. Unlike American dollars, a portion of the Euro is gold-backed, a stability feature that has helped it outperform the dollar over the long haul. It is for this reason that many foreign investors have been taking money out of U.S. dollars and putting it into gold and oil instead, one explanation for why the price of both has continued to rise in recent months.

“Gold prices are climbing right now because the Federal Reserve is printing dollars in flood proportions to keep the real estate market afloat,” adds Richard Russell, editor Dow Theory Letters, a stock market trends and securities report published since 1946. “This is creating inflation, which erodes purchasing power. All the world’s central banks are inflating right now, reducing confidence in paper globally and encouraging gold-buying. India and China are spurring gold prices as well. India is the world’s largest gold-consumer, and the Chinese government is actively encouraging its citizens to buy gold.”

All are extremely encouraging signs for gold investors. Over the course of the past 35 years, gold has climbed in value from a modest $35 an ounce to nearly $600. Contrast that with the battered U.S. dollar, a currency currently worth only 20% of its value in 1970.

“When gold peaked-out in the 1970s, interest rates were at an all-time high,” Lubaszka says. “Right now we’re waiting to feel the effects of the last 9 interest rate increases which generally take 6-9 months to begin impacting the economy. Now’s the time to buy gold because when rates go up, downward pressure is exerted on real estate, stocks and bonds and commodities like gold tend to increase. The opposite occurs when rates travel from a high to a low. That’s the time to reduce gold assets and increase the paper part of a portfolio.”

Buy Without Getting Burned
Michelle Henderson, a talent agency owner in Los Angeles, Calif. understands the stakes when it comes to investing. “As an agent I work in a commission-based world, and have to invest in both people and ideas all the time,” she says. “Though I’d had bad experiences with stock investments in the past, I knew I would eventually find something that would work for me. I invested in a diversified metals portfolio made up of palladium, silver and gold, and earned a profit of 38% with the palladium alone. Staying focused on making money, and following World Financial advice, I was able to earn an above-average return and greatly increase the overall value of my assets safely.”

Lubaszka explain, “It’s probably best for the first time investor to begin conservatively by purchasing physical metals instead of gold stocks, which can be very volatile”. According to Clearwater, Fla.-based talk show host and gold analyst, Tom O’Brien, when metals gain 20%, gold equities jump by fifty or sixty per cent. That’s great when it happens but the reverse can occur as well.

Buy gold bars or coins, and put them in a safety deposit box. If you chose to purchase coins from a coin shop, make certain you pay the lowest price possible and that they have a buy back policy. If you elect to go with a broker, fees will be inevitable because you are purchasing a tangible commodity.

There are brokers, and then there are brokers. The best of the breed will answer all questions, and make the process of first-time gold buying less nerve-wracking. Great brokers are also accessible when needed, and quick to call with any new information that affects the value of the investment.

Work with established companies, five years in business is good, ten even better. Don’t bother with firms that badger you with telemarketing offers or apply high-pressure sales tactics. Avoid paying high commissions too. Some brokers have layers of fees, through which they earn more money then they do investing on behalf of customers. There are also companies out there that will not buy metal back. Stay away from them as well.

“Check references and Better Business Bureau ratings”, Lubaszka adds. “Deal with a company that takes an active interest in doing business with you. World Financial, for example, offers a five-star customer satisfaction guarantee. If questions are not answered or we fail to respond to a prospect’s call or email within 24 hours, that person receives a one ounce silver American Eagle coin free of charge. A financial adviser job is to ease the investment process, and to insure that customers get the most for their money. Good advisers are merely good, but the best are worth their weight in gold.”

For additional read also: Gold Will Be Worth Solid Investment

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Of course, if you find that you have a low tolerance for risk, your investment style is probably conservative or moderate at best. If you have a high tolerance for risk, you probably have a moderate or aggressive investor. At the same time, your financial goals will determine which type of investments you.

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Conservative investors want to maintain their initial investment. In other words, if they invest $ 5,000, they want to be sure they will get their first $ 5,000 back. This type of investor usually invests in shares and short-term bonds and money market instruments.

An interest earning savings account is very common for conservative investors. An investor usually invests much more moderate as a prudent investor, but to use part of their investment funds for high-risk investments. Many moderate investors invest 50% of their investment funds in safe or conservative investments, and invest the rest in riskier investments.

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Investors know that have the oil prices and terrorism, two things that can not be controlled, a large impact on stock market. Many investors avoid airline shares for this reason. However, you can not one of their biggest costs (fuel) and an act of terrorism can seriously harm the industry.

Why Cruise stocks better? rising fuel costs and Hurricane Katrina led to lower share prices for companies like Carnival Corp. and Royal Caribbean Cruises Ltd., both shipping lines around 75 percent of the cruise industry represents the world. George Allen Smith IV, from Connecticut, during a Royal Caribbean cruise industry is gone much negative publicity received.

While there are many negatives for stocks cruise, but some investors are optimistic. First, there are no signs that the honeymoon direct flight from Connecticut has hurt the ticket prices. The valuation of such stocks are good too.

Carnival Corp. trades at 16 times estimated 2006 earnings forecast, its historical P / E 10-30. Royal Caribbean trades at 14 times estimated 2006 earnings forecast, its historical range of 24.05 times earnings. The growth potential is strong, as only 4 percent of Americans have taken cruises.

If forget the cruise stocks account, not the risks. A sharp rise in fuel prices or another terrorist attack would likely have a negative impact on the resources of the cruise. In my opinion the risk outweighs the potential reward that I do not expect to cruise at much higher returns than the broad market.

Make no mistake, the currency crisis is coming. Rather than sit and let it happen to surprise you protect yourself and enjoy the economic power in principle to your dollar about as useless as the paper they are printed, gold will be worth solid investment.

We saw a glimpse of the type of debacle recently. In the spring of 2006 a currency plunge triggered an avalanche of sell orders in emerging markets from Brazil to Indonesia. The Icelandic krona plunged nearly 10 percent in just two days, draw down Icelandic stocks and bonds with her and then spread to Brazil, Mexico, Poland and Turkey.

A forerunner was the Asian currency crash of 1997, sent the stocks south like ducks in winter. Banking, insurance, real estate and bonds have fled the scene. The only viable option left was gold.

In the case of a further decline in values such as currency, gold will be worth at least 10 times its current value.

How is that possible?

It’s simple: because gold made or printed on the thank-greedy politicians, they can not be devalued so fast that paper money printed, when it is needed.

If a currency backed by gold, $ 1 in paper currency to be covered by a value of about one dollar in gold. If a currency is no longer backed by gold, governments can print as needed. Of course, most governments of the world the gold standard was and why paper money has no intrinsic value.

Therefore, most large institutions speculating in the short term between the currency and the associated local values such as stocks or bonds, and then convert their profits into gold.

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