The Online Investing AI Blog

It seems to me that we are in the beginning of a massive gold bubble. Many people are predicting high inflation and high gold and silver prices. No one can tell the future, but I think that this is a good opportunity to invest.

Gold Price 1968 - 2010

Many people think that gold is too expensive to buy now. Of course, in retrospect, everyone wishes that they were buying when it was $275 per ounce. But that doesn’t mean anything because we always wish we had bought any asset when it was cheaper.

Is gold really that expensive?

Consider that by many measures gold is not expensive. It hit a high of about $750 in 1979, during the last bull market in gold. That corresponds to an inflation adjusted value of about $2,100. So, at $1,100 gold is relatively cheap.

In terms of the stock market, gold is also cheap. It hit a high of about 1:1 ratio with the Dow in 1979. Currently the Dow is at about 11,000. So gold could increase by a factor of 10 to reach the same relative value.

Am I telling you that you should go out and buy gold? Absolutely not. Our purpose is to educate and empower our clients and readers. We don’t necessarily have the “right answer” to give you. But we do want you to start asking the right questions, and with diligent effort you will find the answers that are right for you.

Here are some ideas to get started investing in gold, if you are so inclined:

1. The first and most important action step is to get educated about investing, personal finance and market cycles. Read books, listen to CD’s and attend seminars to learn how to succeed financially. That is what rich, happy, and successful people do. And I think that anyone who wants to become rich, happy, and successful would follow along the same path.
2. Read books, newsletters and blogs about gold. Watch out for hype. Many gold “newsletters” are just sales pitches that are dishonest. I received one yesterday that recommended a particular gold mining stock. Interestingly, it seems that the author is required to disclose how much money he received as payment for sending out the “newsletter”. In this particular case, it was $400,000.
3. So far, I have read 6 or 7 books about gold. They are incredibly similar. They tell the same story about why gold is such a great investment. However, I did find one that is really good. It is easy to understand, fascinating to read, and very educational. It is Rich Dad’s Guide to Investing In Gold and Silver. For more information about it, you can this post.
4. Decide how much you are willing to lose. When most people invest, the focus on how much they want to make. Usually they say “As much as possible!” This is a recipe for financial disaster, which is exactly what happened for millions of would-be investors in 2008. Their retirement account’s plummeted to 50% of their previous value, and people got screwed. Don’t do this! Decide how much you are willing to lose, and then invest accordingly.
5. Formulate a specific, written plan (which Rich Dad’s book also recommends). It will tell you exactly what to buy (coins, ETF’s, gold mining stocks, etc.) and when to sell. This is absolutely critical and widely ignored. It is important because a few weeks after we make an investment we have completely forgotten the specific conditions that made us decide to buy. And we also quickly forget when we are supposed to sell.
6. Update your plan as you get more information and better strategies, and as the market changes. The plan is not written in stone, it is written in Microsoft Word. So adapt and improve it as the conditions change and as you become a better investor.
7. Avoid collectors coins. The collector coin market is very challenging and requires a great deal of study. Coin salesmen love to sell clueless investors coins because they make huge margins. But unless you are a dedicated coin collector who understands the huge spreads and difficulty of selling collector coins for a profit, don’t buy them. If you want to buy coins, buy the most common and easily traded ones. In the U.S., it is the 1 ounce Gold Eagle.
8. Choose a strategy that fits your personality and the amount of time that you are willing to dedicate to the process. If you love to feel gold in your hands, then maybe bullion coins like the Gold Eagle are good for you. If you enjoy doing research and comparing the metrics of different mining companies, and you have many hours every week to devote to it, then perhaps buying gold mining stocks is good for you. Take time to think about what you might enjoy and how much time and energy you are willing to invest.
9. Have a goal. As I said before, most people want to “make as much money as possible”. This is not a goal. It is a wish. Goals are made from specific, measurable components that will tell you when to sell. The price of gold may go up by 2, 5, 10, or 100 times, but it will also go back down. Knowing when to sell is just as important (if not more) than deciding to buy. So, as part of developing a specific investing plan, start with a clear, measurable goal.
10. Remember that investing is a process, not a destination. With practice, we improve at everything. This is doubly true for investing, because we are not taught anything about investing in school. So, keep in mind that it is a process, and it takes practice. Everything may not be clear and understandable at first, but with consistent study and determination it will become clearer. With time, we will become successful investors.

Well, I hope these ideas help you in investing in gold or anything else that you decide to peruse.

Did you find this post useful? If so, we would love to hear your comments and ideas!

Related posts:

1. How to Profit from the Falling Dollar
2. Four Ways to Invest in Gold
3. Investing in Gold and Silver
4. Gold Blog Roundup
5. Gold Investment Ideas

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