How safe is gold as an investment?

How safe is gold?  How safe is gold as an investment?

If you just look at the historical gold price chart and observe the way gold price had increased over the past two weeks, you might think that gold as an investment is really safe.

It seems that gold price will reach $2000 per Troy ounce soon.

However, you must not ignore the power of CME Group.

If this is the first time you have heard of CME Group, that means you are in the precious metal investment for a very short while.

CME Group owns and operates the COMEX, which is the New York Mercantile Exchange and Commodity Exchange.

CME Group has the power to affect gold and silver pricing without direct buying or selling.

A few months ago, it hiked the margin requirements a few times for silver trading, and sent the silver price from nearly $50 to $30 in a matter of days.

Many investors and speculators were caught unaware, and they lost their capital and owed debt due to borrowing on margin.

If you think that gold as an investment is safe from the power of CME Group, think again.

Just a few days ago, when CME Group hiked the margin requirement for gold by 22%, gold price suffered a sharp one day fall.

How safe is gold as an investment?

While physical gold has a certain appeal, and you can keep the gold bars and gold coins for decades, gold as an investment is not really safe.

Many factors affect gold price.

When you are happy that the gold price soars everyday, the decision of CME group to increase margin requirement can send the price falling immediately.

CME group had shown itself to be decisive.  It could change the margin requirement a few times a week to scare off investors and speculators, and brought the price of precious metals back to a reasonable rate.

Judging from the effect of CME group on the silver prices a few months ago, it is not too far fetch to expect gold price to drop by 40% if it really takes drastic action.

That means gold price could fall from the current $1871 per Troy ounce to just $1200 per Troy ounce.

Everything is possible in the world of investment.

If you want to buy gold as an investment, make sure that you have the power to hold, and to sustain the volatility of the market.

Make sure that you are mentally prepared for all eventuality.  Make sure that you follow the announcement of CME closely.

Just bear in mind that in a volatile market, nothing is really safe.

Gold is the same as other investment, where you can potentially gain huge profits or suffer losses.

If you are buying gold on margin, the potential loss is unlimited.

How safe is gold?  How safe is gold as an investment?  Not safe at all. Or rather, as safe as the knowledge and alertness of the investor.

Gold speculation or gold investment?

Gold price increased from $1,650 to $1,800 in a matter of days.

Is this gold speculation or gold investment?

It certainly looks a lot more like gold speculation than gold investment.

Many people may not even know why stock market crash all over the world, and why people turn to gold.

They just know that everyone is buying gold, so they join in the fun.

At this rate, gold speculation will lead to a gold crash.

CME is definitely not happy with the gold speculation.  It hikes the margin for gold future by 22.2%.

The recent hike is to prevent gold price from spiraling, and to prevent a spectacular gold crash in the near future.

CME had sent the price of silver crashing from a high of nearly $50 to just over $30.

If history were to repeat, we may have a chance to see gold crash in the same spectacular manner.

While the long term trend for gold and silver is positive, since the Fed has announced a loose monetary policy for the next two years, the short term increase in gold price is not sustainable.

It seems that the gold speculation has reached a feverish pitch.

If you want to join in the fun of gold speculating, you must be prepared for the gold crash.

Most people think that they can get out of the market in time.  Some may.  Most do not.

If CME hikes the margin requirement four times in a week, as it did to send silver price crashing, you would expect gold speculation to stop immediately.

Gold speculators do not have enough money to meet the margin calls for maintenance measure.

Is now the best time for gold investment?

Looking at the long term trend, the answer is that gold and silver prices will go up.  However, if you want to maximize profits, wait a while for the gold price to stabilize.

Wisdom of buying gold as an investment

Is buying gold as an investment a wise choice?

Looking at the spot price of gold, and without looking at the trend, many people would tell you that gold is too expensive.

Indeed, even George Soros, the famous investment guru, had sold off his gold holding.  He even went to the extent of saying that gold was the ultimate bubble.

At the point when news leak out that George Soros had sold almost his entire gold holding, the highest gold price was just $1,450.

Since then, just a couple of months later, the spot gold price exceeds $1,700 today.

Do you consider buying gold as an investment as a wise choice?

With hindsight, the answer is definitely yes.

Looking forward, the answer is unclear.

The current price of gold per Troy ounce is due to fear.  When people are fearful, they are not rational.

A series of bad news rock and scared the world, even the non-investors.

It is not everyday that we see the US government max out their credit.

It is not everyday that we see a reputable rating agency, in this case, Standard and Poor cuts the rating of US Treasury Bond from the ultimate AAA to a rank lower.

The governments of the world, and the news media, are adding oil to the fire.

The most devastating and strongly worded editorial comments come from Xinhua, the official news agency of China.

The stock markets everywhere react negatively.

You can hardly see a stock market that remains intact.

While money flows out of stock market, gold and silver benefit.

Gold price has increased from $1,600 per Troy ounce to $1,700 per Troy ounce in a matter of weeks.

What about now?  Are you planning on buying gold as an investment?

Logically, you should not buy gold at this time, since gold price has reached $1,700.  It is an unseen peak.

However, in the investment world, the people do not always act logically.

Fear is an emotion that prevents people from thinking.  That is why gold price climbs to new high whenever fear grips the world.

If you want to sink money for buying gold as an investment, you have to watch the asset very closely.

You have to read the newspaper and check the movement in the stock markets to gauge the sentiment of the people.

Once you see money flowing into stock markets, you should sell off part or all of your gold holding.

Gold price will definitely drop when people start to think.

It may not fall below $1,600, since this commodity is rather stable.  It just cannot stay on top all the time.

US Treasury Bonds lose AAA rating

US Treasury Bonds had lost Standard & Poor’s AAA rating.

US Treasury Bonds were known in financial textbooks as a risk free asset because of its AAA rating.

Nearly all formulas and assumptions are based on the rate of US Treasury bonds for computation purpose.

Now that Standard & Poor has cut the AAA rating, it means that the rating agency is very concerned with the way the US government is handling the debt problem.

After the Wall Street brought down the stock markets around the world on Thursday and Friday, and the slight fall in gold and silver price, the loss of AAA rating is the latest to shock the investors.

Since investors are fleeing out of stock markets, commodity market, and S&P is telling them that US Treasure bond is no longer risk free, what can the investors invest in?

It seems that cash is king.  However, keeping cash is not a good choice if you are working and living in United States.

The problem is that the USD keeps on falling.

Euro is not doing very well at the moment either.

The real estate market is still down.

Now is the time for everyone to pray for a guru to tell the investors on what to invest.  If such a guru appears, he better tells the US government how to get the economy to full employment.

The only certainty is that the economy in US is not recovering anytime.

It will take a very long time to reach full employment.

The near certainty is that USD will keep falling against major currencies of the world.

That means gold and silver prices will increase in the longer term.  However, the short term volatility is scary.

It seems that a major correction for gold and silver is not far off.

The question is: when?

The question is: what should you invest now?

If we take a step back, and look at big corporations listed in NYSE, we can see that many companies are making record profits.

The current share price is not a good indicator of the performance of these companies.

The current drop in stock markets worldwide is an indication of fear, and the mistrust in the ability of US government to manage its debt.

If you have cash on hand, it is time you make sure of this opportunity to buy companies that are making huge profits.

You can look forward to healthy dividends payout.

If you have interest in gold and silver, you may like to monitor the situation for the time being.

The average price for gold per Troy ounce for year 2011 till date is $1,469.80.

The average price for silver per Troy ounce for year 2011 till date is $35.45.

If a major correction happens to bring gold and silver prices to the average price for the year 2011, you should not miss the buying opportunity.

If your risk appetite is extremely low, buying US Treasury bonds is still a choice, even though it is not a good choice.

Losing AAA rating does not mean the US government is going to default on the payment of dividends on Treasury bonds.

It just means that US Treasury bonds should not be considered as a completely risk free asset.

US Stock Market Crash

4 August 2011 will be remembered as the day of US Stock Market Crash 2011.

All major indices show a fall of 4% to 5%.

The Dow and the Standard & Poor’s fell more than 4 percent, with Dow Jones Industrial Average down by 512 points, and S&P fell 60 points.  Nasdaq lost more than 5 percent, falling a total of 136 points.

Everyone knows that fear of the unknown is usually worst than the actuality.

In this case, the fear of a possible double dip recession causes the US Stock Market Crash.

Since the US Stock Market Crash happens on a Thursday, the effect on the world would be a black Friday.

There is no way the stock markets of the world going up since Wall Street falls by the largest margin in one day since 2009.

A day before the great fall, I was just checking out the share price of Google, which was $601.  Now, the share price of Google is just $577.

The usual trend is that when stock market crashes, the price of gold and silver increases.

In this case, we see a fall in precious metals as well.

Both gold and silver prices fall.

Gold has fallen to $1,645 while silver is below $40.

What happens?  Since stock market and commodity market usually does not travel in the same direction, what causes the fall in gold and silver price.

The reason is the speculation.

Speculators bet heavily on margin, and they sell off to lock in profits.  It is possible that they face margin calls in stock market, and they use the cash on speculating in gold and silver to meet margin calls in stock market.

Since US Stock Market Crash 2011 has happened, and there is no much good news about the US economy, the dip in gold and silver price is deemed as temporary.

The upward trend in gold and silver price per ounce will continue.

It will continue until the US economy recovers, and the country experiences nearly full employment.

That is still a long way in the future.

The question now is how bad the US stock market crash will affect the stock markets around the world.

The question is also how high gold price per Troy ounce and silver price per Troy ounce will go in the coming week.

The more bad news, the higher the price of precious metals.