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Three Reasons to Buy Gold: Price, Diversification, Value

Release Date: 
Friday, February 28, 2014

Gold and Silver Prices

Gold prices ended the month in positive territory despite choppy trading this week. “Gold steadied around $1,330 an ounce on Friday and was on track for its biggest monthly gain in seven as persistent concerns about a slowdown in the U.S. economy hurt the dollar. Gold has gained nearly 7 percent in February, its biggest monthly rise since July, mostly due to weak data in China and the United States and political and economic turmoil in Ukraine, which lifted demand for the metal as an insurance against risk. ‘In general whether it's Ukraine, the U.S. economic data or worries about China, there seem to be a lot more reasons than there were six weeks ago for looking at gold,’ Nomura analyst Tyler Broda said.” (“Gold on track for biggest monthly gain since July,” Reuters, 2/28/14)

Gold closed the week up $2.50, at $1,329.60. Silver prices closed at $21.33, down $0.62.

Three Reasons to Buy Gold: Price, Diversification, Value

Financial author Clem Chambers penned a commentary for Forbes listing three reasons why investors should buy gold.

“Most people buy gold as a reaction to the uncertainty around them. Gold is a synonym for wealth and money…Here are three reasons to buy gold now:

“Price: Gold is priced near its average cost of product and below its margin cost of production for a significant proportions of its supply. Fundamentals for gold are in themselves a good reason to acquire. Never fail to buy an asset below its replacement value. Its rule 1 of investing. Gold is now around the cost of incremental production.”

“Diversification: To be diversified, an investor should have at least a couple of percent of their portfolio in gold. I dread to say 5%, because that it far more gold than many people would dream of having. In general, people are poorly diversified and often when they look back at the moments when they have lost more money than they care to remember it is because they held undiversified positions in instruments that went sour. Diversification is the only way to secure wealth and gold is a good ingredient for that.”

“Value: …The place to start is with gold because all it takes for gold to rally is an international incident, or an unexpected flare up of inflation or some new financial crisis to start rolling into view. Unlike other commodities that need economic activity to drive them, gold can be driven by politics and one thing that seems to be a growing wave, is instability in global politics…However, when a financial instrument becomes well priced it is time to start acquiring it for the long term. Gold is in that zone, so it is time to start paying it increasing attention.” (“Three Reasons To Buy Gold Now,” Forbes, 2/24/14)

Gold Prices May Signal Trouble for World Economy

MarketWatch commentator Matthew Lynn believes that gold’s strong start in 2014 may be a warning of impending economic calamity. “Gold had defied its doubters, and made a surprisingly strong start to the year. The price has risen 10% since Christmas, and it is now back above $1,300 an ounce. The metal has had its best start to the year since 1983. And yet, traditionally, a rising gold price has been a warning sign of trouble ahead.”

“Investors buy gold in times of economic turmoil. So what kind of warning is the precious metal sending us right now? There are three possibilities — a crash in China, the arrival of deflation, and a fresh recession in the developed world. Whichever it is, gold had been more often right than wrong in the past — and it would be foolish to ignore it now.” (“Three warning signs from higher gold prices,” MarketWatch, 2/26/14)

China Moves to Lower Yuan, ECB Says It May Rival Dollar

China’s Central Bank is moving to lower the value of the yuan.

“China's central bank engineered the recent decline in the country's currency as part of its efforts to prepare the tightly tethered yuan for wider trading, according to people familiar with the central bank's thinking. By guiding the yuan weaker, Beijing intends to thwart short-term speculators betting on a continued rise and to introduce greater two-way volatility into its trading, these people say. The move is the clearest sign yet that Chinese leaders are pressing ahead on financial reforms, which include a more-freely-traded currency, amid hopes the yuan could one day rival the U.S. dollar as the de facto global currency.” (“China Intervenes to Lower Yuan,” Wall Street Journal, 2/26/14)

In comments at a currency conference, a member of the European Central Bank Executive Board said the yuan could one day rival the U.S. dollar.

“China's yuan currency is gaining importance in international trade and investment and might ultimately challenge the U.S. dollar, European Central Bank Executive Board member Yves Mersch said on Wednesday. Speaking at a conference on the renminbi, or yuan, in Luxembourg, Mersch urged the Chinese government to continue reforming its economy and its financial sector because the yuan was taking the first steps towards establishing itself as an international investment currency.

“‘If it can do so successfully, it might one day become a leading reserve currency,’ Mersch said in a text of a speech. ‘Due to the size of China's economy and its importance in global trade and, potentially, finance, the renminbi might ultimately come to challenge the U.S. dollar,’ Mersch added.” (“China's yuan might ultimately challenge dollar -ECB's Mersch,” Reuters, 2/26/14)

Goldline’s Express IRA Program

Many Goldline clients choose to include precious metals as part of their retirement planning especially during times of economic crisis and uncertainty.* Goldline’s Express IRA allows clients to acquire precious metals on their schedule; they no longer have to wait for your self-directed IRA to be funded before getting started.

Goldline's Express IRA not only provides clients with the ability to diversify their IRA on an expedited basis, clients can also qualify for Goldline's ground-breaking Two-Way Price Guarantee Program when they acquire $10,000 or more of our exclusive bullion coins. When an Express IRA purchase qualifies for Goldline's Two-Way Price Guarantee Program, clients are protected on short-term upside and downside market movement: they can either call to reprice their coins if the selling price falls (up to a maximum of 28 days depending on the size of the purchase) or, if the selling price of the coins increase during the qualifying period, clients can call Goldline to acquire additional coins at the original selling price.

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program. Listen to the show below:

*Federal IRA tax laws are complex and may change from year to year. Goldline believes it is appropriate to have 5%-20% of retirement portfolio allocated to precious metals. Other individuals and institutions may recommend different percentages. As with any investment, you should consult your tax advisor before making a decision regarding precious metals IRA investments.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

You should review Goldine's Account Agreement along with our risk disclosure booklet, Coin Facts for Investors and Collectors to Consider ®, prior to making your purchase. Goldline has a spread or price difference between our selling price, called the "ask", and our buy-back price, called the "bid". That spread varies depending on coin or bar you acquire. Spreads on 1 oz bullion coins, 90% silver dimes and quarters, and one ounce and larger bullion bars are 13%. All other coins have a spread of 28%. There is also a 1% liquidation fee when you sell your coins back to Goldline. The market must go up enough to overcome this spread before an actual profit is achieved. Precious metals and rare coins can increase or decrease in value. Past performance does not guarantee future results. Coins are a long-term, three- to five-year, preferably five- to ten-year investment. We believe precious metals are suitable for 5% to 20% of the average investment portfolio though others may recommend a different percentage.

To receive free information package on gold and precious metals investing, call Goldline at 1-800-963-9798.