- A reader’s concern
- My must-read thesis on gold investing
- The gold investment with 1,000% upside
I wrote about the prospect of the U.S. Federal Government seizing or outlawing
the private ownership of gold bullion.
In short, my conclusion was
that it would be too difficult and unconstructive for the government to seize
or outlaw gold.
And perhaps I simply don’t
have the remarkably creative mind of a revenue-strapped politician – but some
readers wrote in with some other scenarios that I hadn’t considered.
“Governments don’t have to seize gold to make it an unpalatable
investment. They can increase taxes on gains from precious metals transactions.
Alternatively, they can impose various fees and commissions on any such
transactions. I wouldn’t disparage the creativity of Obama et al. when it comes
to capital controls.”
That’s definitely a
realistic scenario. Already, capital
gains from gold and silver are taxed at an individual’s personal income tax
rate, rather than at the lower capital gains tax rate. With income taxes due to
rise next year, it wouldn’t surprise me if President Obama and his Democrat led
Congress saw fit to raise taxes on gains made in gold and silver, and otherwise
introduce a variety of Orwellian measures to stymie the lure of investing in
strictly utilitarian perspective, a revenue grab from gold’s “increase” in
price makes total sense. But I want to
remind Assaf and other readers of my own humble thesis about gold. I don’t buy gold (and silver) to “make”
money. Economists on both sides of the
gold argument are quick to point out that gold does not bear interest, nor does
it produce income or cash flow or truly appreciate in value. Warren Buffett reminds us that “Price is what
you pay; value is what you get.”
The price of gold changes with regard to currency fluctuations, but the
value stays about the same.
Of course, there are
situations that cause the price of gold to increase more than inflation in the
currencies it’s priced in. But I’m not
trying to speculate on the price of gold.
I buy gold and silver
because it’s a store of value that stays relatively the same no matter what
happens to dollars, euros, yen or any other currency. From a fundamental perspective, owning gold
and silver is a way to preserve wealth, not grow it.
So investing in physical
gold and silver for the gains doesn’t make much sense. And if the government wants to impose fees
and commissions on such transactions, I see that as bullish for precious
metals. Right now, there are so many
ways to get exposure to physical gold and silver, that it would be difficult if
not impossible to close all of the loopholes.
I buy gold and silver stocks
for the exact opposite reason that I buy the physical metals. Whereas I buy bullion and keep it safe at
hand for safety and reliability, I buy gold stocks as a speculation that they
Junior precious metals
companies are notoriously risky investments. But if you catch a rising star in this sector, you can multiply your
initial investment by ten or even a hundred-fold. It’s not the type of investment you want to
back up the truck on – but at the same time, even a small stake gives you a
chance to significantly impact your net-worth.
Whereas gold bullion is
fungible and widely accepted across the borders of countries, and throughout
the history of mankind, junior gold stocks, again – are the complete
junior gold stocks are complete garbage. It’s vital to buy the best companies, with the best management, with the
most cash and the best resources. Only these companies have the ability
and likelihood to multiply your investment many times over.
Let me give you one quick
example of a company that I think could return 1,000%-10,000% gains.
It’s a small North American
company located in a remote mountain region. It has a market capitalization of about $200 million – but it has the
mining rights to over $20 billion worth of proven gold reserves. If they mine just 5% of that gold, it will
yield them $1 billion at current gold prices. Those sales would be quadruple their current market cap.
So if you’re wondering how a
junior gold mining company can return between ten and 100 times your
investment, imagine if they mine 50% of that gold at the same time gold prices
rise another 50%. Their fair market value alone
would go up 50-fold.
The best part about this
company is that they’ve already proven their profitability. Their mines are currently in production, and
last year they produced 70,000 ounces of gold – that’s $84 million worth of the
yellow metal. This year they expect to
produce even more.
This company is my favorite
in the sector, by far. At less than $4 a
share, you can buy a significant number of shares for just a few thousand
dollars – and if they get even a fraction of their proven reserves out of the
ground, you could make some serious gains.
If you’d like to hear more
about this company, I strongly encourage you to read the full write-up by clicking
Have a good weekend,