Robert Kiyosaki on Why Gold and Silver Aren't Good investment

Why Gold and Silver Aren't Good Investments

Conspiracy of the Rich

The 8 New Rules of Money

by Robert Kiyosaki

Online Exclusive Update - #87
  May 16, 2011

Why Gold and Silver Aren’t Good Investments

For years, I’ve advised people to buy gold and silver, especially up to the year 2010. As you may know, gold was approximately $275 an ounce in 2000, and by 2010, gold was over $1,300 an ounce. Silver has been the better of the two precious metals, starting at below $3.50 an ounce a few years ago and reaching a high of approximately $40 this year.

Yet, gold and silver aren’t the best investments for the following reasons.

Difficult to leverage

With real estate, my bankers will loan me 70 to 80 percent of the purchase price. Even though gold and silver has gone up, few bankers will lend you money to invest in gold and silver.

A banker may lend you money for gold and silver you have in your possession, pledging it as collateral against your loan, but most will balk at the idea of borrowing money to speculate in gold and silver.

No cash flow

Gold and silver don’t produce cash flow…for most people. If you’re sophisticated, there are ways to have your gold and silver produce cash flow, but if you know how to do that, you don’t need gold and silver.

Taxes are high

As you know, there are two types of income from investments: capital gains and cash flow. Most novices invest for capital gains. They hope and pray their investment goes up in price. For example, they hope their stocks go up in price or their home goes up in value.

Cash flow investors invest for income on the asset. For example, they invest for cash flow from their real estate or business, dividends from their stocks, or interest from their savings or bonds.

Taxes for real estate investments are the best. For example, an investor can pay zero in taxes for capital gains and for cash flow. Taxes on capital gains for stocks are 15 percent for long-term gains and 30 percent for short-term gains (investments held for less than a year). This is one reason I prefer real estate instead stocks. I’d rather not pay taxes to the government.

The worst taxes are on 401k plans and savings. The income from these investment entities are taxed at the highest tax rate, ordinary income, the same tax rate for employees.

Taxes for capital gains on silver and gold are 28 percent, which is higher than 15 percent on stocks and zero percent for real estate.

Once again, the reasons why silver and gold aren’t the best investments are:

1. Difficult to leverage
2. No cash flow
3. Taxes are high

On the flip side, gold and silver is an easy investment, especially when the Fed is printing trillions of dollars.

But, if the Fed stops printing trillions of dollars, gold and silver may become the next price bubble to crash…but I doubt that will happen.

If the Fed stops printing money, there will be a giant crash causing a tsunami of pain and destruction. Cash will become king…and so will a gun.

I still believe your best investment is taking courses and investing in your financial education. Regardless if we crash or go into hyperinflation, those with a sound financial education will be better off than those who are counting on the government to solve this financial crisis.

Thank you for supporting COR.

Robert Kiyosaki

Soros dumps gold while Paulson holds on

Soros dumps gold while Paulson holds on

NEW YORK: Billionaire financier George Soros, who called gold 'the ultimate bubble', dumped almost his entire US$800 million (S$1 billion) stake in bullion in the first quarter, well before a commodities slump blamed partly on reports that he was liquidating his holdings.

Famed gold bull John Paulson held his ground, but Mr Soros was joined in the retreat by other big names, including Mr Eric Mindich and Mr Paul Touradji, according to filings with the US Securities and Exchange Commission that provide the best insight into where hedge funds are placing their bets.

Gold prices barely reacted to the news, with spot gold up 0.3 per cent at US$1,494.29 an ounce by 0327 GMT yesterday. Rising inflation worries and a debt crisis in the euro zone should help prevent any sell-off in the precious metal, analysts said.

Mr Soros had cut his holdings in the SPDR Gold Trust to just US$6.9 million by the end of the first quarter, from US$655 million last December, becoming the most high-profile investor to turn his back on one of the market's best-performing assets.

He also liquidated a 5 million share stake in the iShares Gold Trust, the filings show.

Gold rose for a 10th consecutive quarter in the three months to March, hitting record highs above US$1,400 an ounce, buoyed by political turmoil in the Middle East and North Africa and lingering worries about indebted European countries.

The gains accelerated in April, but peaked at the start of this month, reaching a record US$1,575 an ounce on May 2.

Prices have since fallen over 5 per cent amid the biggest commodities slump since late 2008, a move partly triggered by a Wall Street Journal report that Mr Soros' US$28 billion fund was selling precious metals - and fuelling fears that other big funds were also seeing a peak.

But Mr Paulson kept his 31.5 million shares, or US$4.4 billion stake, in the SPDR fund, remaining the biggest shareholder of the world's largest gold- backed exchange traded fund for the quarter.

REUTERS

Gold and Silver may lose their shine

Source : The ST, Gabriel Chen

Gold hit a record of US$1,577.40 an ounce earlier this month.

The question for investors now is: Where do gold prices go from here?

There are two opposing views on this. One is that gold's 10-year rally is overdue for a major price correction. The other is that with inflation on the rise, there is a lot of potential for more gains.

Earlier this month, silver - gold's less expensive cousin - also surged to US$49.51 an ounce, near its all-time intraday record of US$50.35 set in January 1980.

Gold and silver are priced in US dollars, so a falling greenback makes them even more attractive to buyers using foreign currencies.

But prices of both metals, as well as other commodities, have been weaker of late due to renewed concerns about global growth.

Still, the bulls believe gold can go much higher, with Standard Chartered reckoning the superbull case is US$4,869 by 2020.

Gold bugs see gold as a store of value, as record-low interest rates erode returns on currencies like the US dollar.

Gold has also benefited from strong jewellery demand from China and India, reduced net central bank gold sales, and a growing appetite for gold exchange-traded funds.

But a growing number of commentators are now cautioning investors to be careful.

While it is hard to predict when the major correction will take place, it will happen, they say. And when it does, gold prices could turn sharply down.

'As the price of gold skyrockets, some are touting gold to be the next bubble,' says Mr Teyu Che Chern, Phillip Futures' chief executive.

DBS Private Bank chief investment officer Lim Say Boon says gold is expensive relative to other assets.

Barclays Wealth Asia strategist Manpreet Gill adds: 'Gold and silver are assets we do not like on a long-term basis.'

While gold has done well over the past decade, it has not always been the case in the 1980s and 1990s, says Dr Shane Oliver, AMP Capital Investors' head of investment strategy.

Gold's spike above US$800 lasted only a couple of days in January 1980, and by the end of the year, it had fallen precariously to less than US$600.

As gold shot up, plenty of new investors were buying, with people getting in on the boom at above US$600.

What took the air out of the previous gold bull market was action by then US Federal Reserve chairman Paul Volcker to raise interest rates to the high teens to tame double-digit inflation.

After 20 years of mostly falling prices, gold languished at US$250 by August 1999.

US interest rates are still an important consideration today. Rising rates may take the wind out of the gold rally and increase the opportunity costs of holding gold.

'With high opportunity costs, gold and silver demand would drop sharply and both metals would trade considerably lower,' says Mr Dominic Schnider, UBS Wealth Management's head of commodity research.

In fact, UBS expects a sizeable retreat in the price of silver towards US$34 an ounce over the next 12 months.

Given the risks that gold and silver may underperform, experts are telling investors not to be overly exposed.

JPMorgan Private Bank's head of South-east Asia investors Nathan Slack recommends a 1 to 3 per cent allocation to gold for clients with moderate risk tolerance and well-diversified portfolios.

Mr Norman Villamin, RBS Coutts' head of investment strategy for Asia, recommends a 3 to 5 per cent allocation to gold for 'more balanced' portfolios.

One way to get exposure is via United Overseas Bank, which offers gold and silver savings accounts. With a passbook, you can trade gold and silver at prevailing market prices.

The ups and downs of commodity prices

Source: The Straits Times, Goh Eng Yeow

NO WONDER investors were jumpy: Almost a year to the day after Wall Street crashed by nearly 1,000 points in a matter of minutes, crude oil prices plunged almost 10 per cent - the biggest one-day fall in history - last Thursday.

Like the flash crash last year, the rout was initially greeted with trepidation but as crude stabilised the following day, there was renewed confidence that the two-year market rally was still intact. Business as usual, in other words.

But it is worth examining the reasons behind the worst sell-off in crude since the collapse of US investment bank Lehman Brothers in September 2008 sent prices plunging 75 per cent in three months.

After all, as the Financial Times observed, the rout not only saw billions of dollars go down the drain, it probably also buried some funds and individual investors in a blizzard of margin calls last week.

Recent history is replete with the woes inflicted by wild swings in oil prices. Take China Aviation Oil, which almost collapsed in 2004 after losing US$550 million (S$682 million) dabbling in oil futures.

One interesting factor this time is that the oil crash came in the wake of a similar rout in silver, which fell almost 20 per cent last week after almost tripling in price over the past seven months to a record US$49 an ounce.

For investors chasing higher yield in the low-interest rate, high-inflation environment, the commodities market has become a favoured playground as they try to cash in on demand for food, metals and energy sources such as coal and crude oil.

So while there is no correlation between any of the commodities where usage is concerned, all have been moving in lock-step where prices are concerned.

A favourite strategy for traders is to 'long' crude oil which has risen by up to 24 per cent since January and 'short' the US dollar, down 7.7 per cent against other major currencies over the same period.

What they failed to reckon with is a perfect storm: The US dollar strengthened in the past week while demand for oil looks to be softening in big emerging economies like China as they take further measures to fight inflation.

There are also jitters in the commodities market as the quantitative easing programme - a US$600 billion scheme by the US central bank to expand the money supply by buying US government bonds - draws to a close next month.

This will force hedge funds and other sophisticated investors to decide on whether to cash in on the gains they have made in commodities or risk losing it all like in 2008 when oil prices plunged 80 per cent in six months after hitting a record US$145 a barrel in July that year.

The four hikes in margin requirements on silver made by the Chicago Mercantile Exchange - the world's largest commodities exchange - in the past two weeks also helped prick the commodities bubble.

In some ways, its actions were similar to those taken by brokerages in Singapore a few years ago when they demanded upfront cash payment from clients on keenly sought penny stocks which had become too hot for them to handle.

Still, it is unclear if the hike in margins will dampen the speculative fervour that has built up in the commodities market. It may simply clear out weak players who are unable to hold their positions, leaving the field open to those with deep enough pockets to step in and drive prices still higher.

The sharp drop in crude prices may also reflect the unease among big oil traders over efforts by the US government to root out what it believes to be an illegal manipulation of the energy market in the wake of surging pump prices.

But US hedge fund manager Jeremy Grantham, whose asset management firm GMO manages US$107 billion in assets, noted in a recent newsletter that high commodities prices may be here to stay.

'The rise in population, the tenfold increase in wealth in developed countries and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertiliser, available land and water,' he said.

As huge economies like China and India are consuming more of every raw material from crude oil to iron ore, hopes of a peak in prices may be futile.

'The 102 years to 2002 saw almost each individual commodity - both metals and agricultural - hit all-time lows. But since 2002, we have the most remarkable price rise, in real terms, ever recorded,' he said.

As such, Mr Grantham believes that speculation plays only a small role in driving up the prices of commodities such as crude oil.

Even if China's economy stumbles and the weather turns out to be better than expected, generating a bumper harvest for wheat and other crops, any drop in commodities prices would only be temporary.

In the long run, the more important issue is the increasing scarcity of commodities and the upsurge in demand.

For investors, the road ahead may be a short boom-and-bust cycle occurring with distressing regularity.

Silver and Gold ETF Bounce after Epic Meltdown

 

By Trang Ho

Mon., May 09, 2011 5:33 PM ET

Precious metals ETFs recovered some losses Monday after an avalanche of selling last week triggered by extremely oversold conditions and increased margin requirements in the futures markets. IShares Silver Trust(SLV) jumped 7.25% to 36.98 in heavy volume but didn’t manage to recover its key 10-week moving average. Each share roughly represents an ounce of silver. It cascaded 26.5% last week, booking its largest one-week drop since it started trading five years ago.   SPDR Gold Shares(GLD) climbed 1.4% to 147.38. Each share is worth 1/10th of an ounce of the yellow metal. Despite a sharp 4.6% selloff last week — its largest in two years — it held above its 10-week moving average, which shows the longer term uptrend remains in tact. “In the medium term, we anticipate prices settling lower, in the $28 to $30 an ounce range as companies producing silver as a by-product of gold or base-metal mining add to downward pressure by selling silver forward to lock in current high-price levels,” said Tom Winmill, manager of Midas Fund (MIDSX), which specializes in natural resources. Longer term, silver will probably trade at a 10% to 20% premium to its average marginal total cost of production, which is about $15 an ounce, he added. Silver futures rose back above $37 an ounce on Monday. The selloff in SLV was a normal correction after nearly doubling off its February low and gold still looks bullish, says Victor Sperandeo, a.k.a. Trader Vic, a renowned gold trader. Corrections typically shave off a third to two-thirds of the prior uptrend. “So nothing has changed and the uptrend continues,” Sperandeo said. “Be a buyer into weakness is my strong view.” Weak economic data such as 1.8% Q1 GDP growth and unemployment rising to 9% in April suggest the Fed will have to add more stimulus via a third round of quantitative easing, which will fuel inflation, he added. Most economists don’t expect a QE3, but don’t see the Fed tightening any time soon, unlike most other major central banks.

Commodities: The Party's Not Over

U.S. Global Investors

05/09/11 - 04:59 PM EDT

By Frank Holmes

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
 
NEW YORK (TheStreet) -- The prices for many commodities suffered the worst week in recent memory last week. Oil prices dipped below $100 per barrel, gold fell below $1,500 an ounce and silver gave back much of the past month's gains by falling to the $35 an ounce level. The prices for other commodities such as sugar, tin, nickel, aluminum, lead and copper also pulled back.
 
Is this the end? Has the great bull run for commodities come to an end?
In our opinion, not likely. First of all, we wrote on April 24 that commodity prices were due for a pullback. Specifically, we pointed out that silver had wandered into "extreme" territory, which exacerbated the reversal we saw that week.
On May 3 (before we saw the largest declines), BCA Research wrote "one look at the hyperbolic rise in silver prices should be sufficient to convince even a hardcore commodity bull that things are getting frothy."
 
In fact, the silver trade had gotten so far ahead of itself, the iShares Silver Trust ETF (SLV)was "the most highly traded security on the planet," according to our friend Tom Lydon over at ETF Trends. Last week's selloff was less of an end to the bull market and more a function of "stampeding speculators" (to borrow a line from Sarah Turner at Marketwatch) rushing for the exits.
 
But short-term speculators aren't the only factor; last week's strength in the U.S. dollar was just as much a facilitator of the price declines. The U.S. dollar found additional strength on Thursday after Jean-Claude Trichet, president of the European Central Bank (ECB), said the ECB would not raise rates until after June. By week's end, the U.S. dollar was up 2.5% for the week, a pretty big move.
 
In addition, we entered the month of May, which has historically proven to be a weak and volatile period for commodities. With the Federal Reserve set to wind down its quantitative easing (QE2) program by the end of next month, it's possible we could continue to see volatility for a little while.
 
Despite the selloff, commodities were still the year's top performing asset class as of Thursday. You can see from the chart that the year-to-date return for commodities has far outpaced the return for foreign exchange, bonds and emerging markets.
 

 
Looking out on the horizon, very little has changed for the long-term bull case for commodities. The U.S. is still struggling to come up with a feasible solution to its multi-trillion dollar debt problem. Emerging markets are still seeing incremental increases in demand for nearly all commodities. And, the reserves for many commodities are still struggling to keep pace with this demand.
 
Essentially, what happened last week was more of a "technical correction" than a fundamental shift in the long-term dynamics for commodities and we've already begun this week with big gains for silver and crude oil prices.
 
The party's not over for commodities, so don't turn out the lights just yet. While it's impossible to predict the future, we think in a month or two, investors may look back and see this downdraft as a good buying opportunity.

Is Silver and Gold's Correction Finished?