Ed Note: As a follow up to last week’s Resource Insight (published in Friday’s Markets and Money) on why gold prices are rising, we sat down with Louis James, Senior Investment Strategist at Casey Research, to ask some more questions about gold and gold stocks.
Bill Bonner’s Diary (BBD): Louis, you already explained [last week] why the five-year bear market in gold is over. Now, can you tell us where you see gold headed from here?
Louis James (LJ): As much as gold has risen, gold stocks have gone ‘gonzo,’ and that makes them vulnerable to a big short term correction. That’s if gold wobbles enough to put a scare into the market.
If that happened, it would be the best possible opportunity for those who are just coming into the game. As for the rest of us, if we’re smart, we’ll take profits along the way.
So we’ll use a correction to ‘back up the truck’ for great picks we missed at the bottom. All the fundamentals say this bull market has a long, upward road ahead of it.
‘Louis James in his element…analysing gold and silver veins, deep underground’
Source: Resource Insider
BBD: Bill always recommends owning physical gold. But what is the best way to buy and store physical gold? Coins versus bullion?
LJ: One size does not fit all, but here are some general points:
- We think it’s wise to always have a certain amount of physical gold in a place where you have direct, personal control and access. This place is NOT a safe deposit box in a bank, which you can lose access to if the local government declares a banking holiday.
- Personally, I favour having one hidden, but not too well-hidden, home safe with a few things in it as a decoy, and another much more well-hidden stash for my ‘direct personal control’ gold. Remember that houses can burn, and gold has a relatively low mantling temperature, so mattresses and old shoe boxes are not advised.
- Obviously, for larger amounts, a reputable vault service is the way to go. We’re working on an updated report on such services and will have more to say on the subject soon.
- Bars are more convenient for larger amounts. But coins, particularly the most widely recognised ones, like American Eagles and Canadian Maple Leafs, are more liquid. Gold dealers all around the world recognise these coins and accept them more readily. Bars may be subject to testing that can damage them.
BBD: And why is owning mining shares different from owning gold? Who should buy physical gold…and who should buy gold mining stocks?
LJ: The two are very different. Doug Casey and I have been telling people for years that gold is not an ‘investment’. It is money…the oldest and most enduring form in history. We own it for prudence — for wealth protection, as you say.
The gold stocks are speculations. We buy them for wealth creation. Each person has to determine his own mix based on his own priorities (wealth protection versus creation) and risk appetite.
As for when to buy…buy on the dips and corrections, of course. Buy low.
But here’s the most important thing for investors to understand:
No one should kid himself into thinking he’s being ‘safe’ or ‘conservative’ by investing in ‘blue chip’ stocks these days. Wall Street can and will fluctuate — violently — as all the world’s central bankers’ harebrained schemes work their way through the global economy.
Lots of people don’t want to be speculators. It scares them. I sympathise. But the sad truth is — in the post-Lehman, post-MF Global, post-Cyprus world — we are all speculators now.
The only choice we have is how to play the cards we’ve been dealt…
BBD: The mining sector sports some of the highest volatility of any investment class. How can folks safely invest in the sector without doing serious damage to their portfolios?
LJ: First, seek unrecognised value.
Don’t try to time the market, look for things that are objectively undervalued. They’ll have more upside in them than downside, whatever fluctuations happen along the way.
Second, take profits as soon as you get your first double.
This way, you have just as much exposure to the upside as you started with, but no risk. I can’t overstate how wonderful it feels to have a stake in a great speculation in a highly volatile market with ZERO RISK.
We call this a ‘Casey Free Ride’. We have a bunch in our portfolio right now, so we’re ready for whatever happens next.
BBD: Is it too late for new investors to get in and enjoy similar gains?
LJ: No. But they need to be smart. Markets fluctuate…ours more than almost any other. You have to let the market come to you. Let that volatility become your best friend.
My personal motto is: discipline pays.
BBD: So if it’s not too late, then what’s your best pick right now?
LJ: We dislike highlighting a single company too much, as it could encourage readers to put all their eggs in one basket. Also, what qualifies as ‘best’ differs depending on peoples’ investment goals.
BBD: Thanks for your time, Louis.
Bill Bonner’s Diary, Bonner and Partners,
For Markets and Money, Australia
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