What Will Happen to Gold When the Stock Market Crashes Again?

If you're like me, you're probably pretty damn nervous about the stock market right now - which looks like it's teetering on the precipice of disaster.  If you own gold, or gold stocks, what's going to happen to them when things melt down?  Louis James tackles that question in his guest piece here...

Gold Meltdown or Mania - Batten Down the Hatches

by Louis James, Senior Editor, Casey’s International Speculator

As Doug Casey said recently, we expect things to come unglued soon. With the ongoing madness in Europe, it seems to me that things are starting to look visibly less well glued already.

In contemplating the possibility of another stock market meltdown, it seems important to me that in spite of the exuberance with which investors rushed back into the market over the last year, the memory of 2008 remains vivid, tempering enthusiasm with caution. For example, the market still has relatively little appetite for early-stage, grassroots exploration projects; by our latest estimates, Mr. Market is willing to pay on the order of ten times more for Proven & Probable ounces in the ground than for less certain resource categories. With this evidence of caution in mind, and the great unwinding of the broader credit markets well underway, it seems likely that our sector is less leveraged than it was before the crash of 2008.

If a panic in the broader markets put liquidity-crunch-induced pressure on the gold price, the meltdown should be less severe than in 2008 and the eventual rebound could be dramatic, possibly triggering the mania we’ve been calling for. Remember: the market crash drove gold almost down to $700 in October ’08, but the same fear drove it almost back to $1,000 by February ’09. Silver topped that with a 60% rebound over the same period.

As the debt-glue holding everything together continues to lose its grip, the ride will only get rougher. As bad as 2008 was, if the Crisis Creature appears to be coming back when everyone on Main Street thought it was dead, the fear should be much worse – and that should drive gold way, way north. It’s possible the fear, coupled with the lack of any safer alternatives, could prevent gold from melting down at all, sending it instead straight through the roof into the clear blue Mania Phase sky.

With its industrial metal aspect, however, another big economic meltdown could hit silver harder than gold, and it might take longer to recover, especially if base metals don’t rebound the way they did in 2009. That said, silver has always tracked gold, so when gold heads for the moon, we expect silver will as well. It could reach even higher, if supply is cut by reduced base metal demand, as most silver production is as a by-product of base metal mines.

Either way, I don’t care if gold drops in the weeks and months ahead; the overall trend is for widespread economic fear and uncertainty to continue, holding gold prices up and eventually driving them higher. That makes the current retreat look like a great buying opportunity. In fact, putting my money where my mouth is, I picked up some more gold buffaloes just yesterday, when gold dropped to $1158. As I type, it has rebounded to $1181. I plan to buy more every time I see a sharp drop like this over the summer.

So, in addition to our multiple recent calls to take profits and go to cash, I want to reiterate that gold is cash. And it’s a whole lot more attractive than the dollar, the euro, or any paper money at present – not just as a speculation but for security as well.

What about the stocks?

Unfortunately, the stampede to safety that drives investors to gold is not likely to drive them immediately to junior exploration stocks. “The most volatile stocks on earth” is not what fearful people will be looking for – not until the panic sufficiently recedes and greed joins fear in equal measure in the marketplace…or in greater measure, come the Mania Phase.

If I’m right about fear being the driving force in the markets in 2010, whereas greed drove them in 2009, gold will have to deliver a serious wake-up call – perhaps holding over $1,500 – to really get the show on the road again for the gold stocks. If that happens while fear of a global economic slowdown continues to push oil prices lower, gold producers should be able to report extraordinary profit increases, even as other industries are tanking, and finally penetrate deeply into the awareness of broader pools of investors.

Cashed-up majors won’t have to wait for that to benefit; they may seize the opportunity created by market weakness to buy successful explorers, with significant discoveries in hand, while they are on sale. Well, some of the more nimble ones, like Kinross or Agnico-Eagle, might. The bigger companies, like Newmont and Barrick, didn’t lift a finger to pick up any bargains after the crash of 2008 and may be too cautious to act the next time around as well.

Be that as it may, acquisitions will increase the demand for quality exploration projects – the pipeline from exploration to development must be kept full – and good prospectors should at last get their day in the sun.

Punctuating this sequence will be the occasional big win on a new discovery. There haven’t been that many this cycle – not enough to replace all the gold the majors are depleting every year – but there have been some, and the market always loves a discovery.

After the first quarter of ‘09, greed outpaced fear and great development stories did phenomenally well; we saw better gains on large and growing gold stories than we did on the big producers. If fear retakes predominance in 2010, it’s profitable production that should do best, and I’d expect the biggest winners overall to be new, emerging, and highly profitable precious metals production stories. Spectacular discoveries should also do spectacularly well, but those are harder to predict. New and rapidly expanding production should be the sweet spots.

Generally, I think we’ll see our markets trading largely sideways over the next few months, with great volatility, until the debt-fueled “growth” in the global economy is exposed for the sugar high that it is. We’ve been forecasting that scenario for long enough here at Casey Research.

I expect this to play out by the end of this year, or 2011 at the latest, depending on how fast fear returns to the broader markets.

What to do

If I’m right about this, the strategy called for is a more cash-focused version of our “Buy only the Best of the Best” program. Buy nothing new unless you’re offered a great bargain in a solid company that can deliver significant new or expanding production. Nothing less than 50,000 ounces gold-equivalent per year in production will get much notice, and anything less than 100,000 ounces per year AuEq will have to struggle for respect. A solid company, of course, has great people, lots of cash, and the goods in hand.

If you want to speculate on a discovery, make sure you have very good reason to believe the project has much better than average odds of delivering a discovery – and it has to have world-class potential. That’s not hundreds of thousands of ounces but millions of ounces of gold, or equivalent.

If things do come truly unglued this year, we may well see 2008-style bargains on great companies with the staying power to recover and go on to new highs. Watch for it. Prepare for it.

Buy Low, Sell High – it’s a formula that requires patience but is the only way to go.

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Louis James has been guiding his subscribers through the ups and downs of the market with a steady hand. It’s no coincidence that every single one of his 2009 picks was a winner. Learn more about Louis’ hands-on approach and the profit opportunities Casey’s International Speculator offers – details here.

Ed. note: I am a Casey Research subscriber and affiliate.

3 Reasons You Should Buy Gold Right Now

Should you take advantage of the current pullback to increase your gold holdings?  Our precious metals guru Jeff Clark believe so.  Read on as Jeff puts together some historical price action data...

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Is Now a Good Time to Buy Gold?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

While we’re convinced gold and gold stocks are destined for much higher levels, buying when prices are low can mean the difference between a double or triple and a ten-bagger... a week in Malibu vs. a week in Milan. 

There’s no secret formula to buying low, and we aren’t holding the right hand of Midas, but there are periods when prices tend to be lower than others. And if those tendencies play out, it can give us the opportunity to snag a high-quality asset at a bargain price.

So, how do you get a bargain price? You cheat.

I think the secret to getting a low-cost basis on all your gold and gold stocks is this: only buy on significant price pullbacks.

And this can be done without trading or using technical analysis.

I think there’s a good chance we can cheat this summer. For example, here are the average monthly increases in gold since our bull market began in 2001.

In our current 9-year bull market, June and August have seen the lowest average return for gold, representing one of the best times to buy. 

You’ll see that in the bull market of the 1970s, summer was also a good time to buy gold.

What about gold stocks? Since 2001, June and July have been among the weakest months and thus one of the best times to buy.

Obviously, these are price tendencies and not certainties. There were Junes when gold was up, and some Julys when gold stocks were up. Meaning, we’d avoid using these charts for trading purposes or in anticipation of an immediate gain. Instead, use these “trendencies” to look for possible price weakness. And if it arrives, use the opportunity to add to your holdings and position yourself for the next leg up in the bull market.

What are the odds of a correction in gold and gold stocks this summer? 

►Since 2001, almost every precious metal stock, in every summer, has moved lower from its May high. This includes gold and silver. There’s no guarantee this won’t be the summer of galloping unicorn herds, but the record is hard to argue with.

Here are the buy zones I identified for gold and silver, based on a tally of how far they’ve corrected from their May high to their summer low, in each year of the current bull market.

You’ll see that the average price of all pullbacks in gold, from the May highs to the summer lows, is 8.9%, and would take the price to $1,126.98. That’s not to say this price will be hit, but it tips you off that a fall to that level would not be out of the ordinary – and would also be an invitation to buy. You can also see the smallest summer decline, which we’ve already exceeded. We wouldn’t wait for the largest drop to materialize; there’s a good chance you’d be left empty-handed and chasing the stock higher.

Silver is naturally more volatile, allowing us perhaps a better opportunity to buy low. The average summer decline for silver is 16.6%, which would take the price to $16.39. However, the furthest its fallen so far this summer is $17.36, meaning strictly on a historical price basis, a 10% correction from current levels would be perfectly normal. And again, an invitation to buy.

Whatever price (or prices) you select, I’d only use the charts to add to current positions, not for trading. The currency crisis Casey Research believes is inevitable could strike suddenly again and will eventually hit the U.S. dollar, and the last thing you want is to be left standing on the sidelines if gold and gold stocks surge higher. In our opinion, being completely out of precious metals in the middle of a once-in-a-generation bull market would be a mistake. Instead, keep adding to your savings every month and buy when it feels like you’re cheating.

See you in Milan?

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Want to see the buy zones for all our recommended gold and silver stocks? Our Summer Buying Guide is an invaluable resource for buying low. And check out our just-released July issue, where a respected bullion seller tells you why in the near future you may not be able to buy gold, at ANY price. Try a risk-free subscription for only $39 per year. Details here.

Ed. Note: I am a Casey Research Affiliate, Subscriber, and Phyle coordinator.

Silver Investing Coverage From Peru

Notes From The Peru Prevails

Filed by Louis James, Senior Editor, Casey’s International Speculator

Last month I visited Peru again, penetrating perhaps a bit deeper but certainly higher up in the Andes than I’ve gone before. No nose-bleeds, but I’m not ashamed to admit that scrambling over rocks in search of boiling textures at 5,300 meters (17,400 feet) elevation left me wheezing like Darth Vader.

But I found them, laying atop the gold zone at the silver project of one of the companies I came to Peru to look at. I’ve never seen boiling textures on such a large scale, but everything else at the project is big, so why not?
 

 

Cavities left by exceptionally large calcite crystals in a silicified vein outcropping – just the sort of thing you want to see when looking for veins containing precious metals. That’s my lens cap in the photo. The crystals were inches long, instead of the usual millimeters or centimeters.

What it boils down to is that I like Peru better than ever.

I’m particularly pleased to see weakened support behind leftist firebrand Ollanta Humala in his second bid for the presidency. This was hard to quantify, especially while bouncing along in a jeep over “roads” that are little more than a pair of tire ruts carved into a cliff, while attempting to keep tally of the political signage. But I’m certain there were more campaign signs for candidates other than Humala, even in the rural provinces where he was strongest in the last election.
 

These lines are a typical Peruvian mountain road – I was not joking about the cliffs. The lighter lines are footpaths. Note the discoloration between the lower road and the upper switch-back. That’s actually an old high-grade working.

The impression I gathered from numerous Peruvians I spoke with was that Humala is widely perceived as a negative for the country’s economy, and that the leading candidates are genuinely pro-business (within a Latin American context, of course). Perhaps most important, the majority of the people of native descent I spoke with had only one thing on their minds: jobs.
 

These three gentlemen I came across on another company’s project expressed no concerns about drilling, open pit mines, new roads, chemicals, etc. All they wanted was work. Note the green rocks scattered all around them. Those are copper oxides.

And no wonder, with so many people still living in mud-brick houses with no electricity.
 

These young girls live on the farm you see behind them, with no electricity and a nearby creek for water. When I see such things, I feel proud to be a part of the market’s invisible hand, reaching out to help them with real jobs and training for their parents, not a government handout that keeps them dependent.

It’s also a good sign when village elders smile and wave at passing company vehicles, rather than scowling. There are many more anecdotal positive signs, but they don’t prove anything. My sense, however, is that the typical Peruvian knows the country has always benefitted from mining and wants to see it flourish, so long as it’s done responsibly – and frankly, so long as those who are impacted see what’s in it for them.

That’s good, because the rocks in Peru are often spectacular and have been subjected to less exploration in recent decades than in many other places, leaving lots of potential for new discoveries.
 

Quartz, semi-massive and massive sulfide material, in a zone about 20 meters wide and several hundred meters long, with good grades of gold, silver, copper, lead, and zinc.

That’s it in a nutshell. The economic numbers we reported in our more quantitative analysis last month jive with my personal evaluation on the ground. Along with Colombia and Chile, Peru is one of my favorite mining jurisdictions in South America, and I expect we’ll see more opportunities to speculate on Peru plays in the near future.

Of the three companies Louis visited in Peru, he deemed only one fit for becoming the new silver pick for Casey’s International Speculator at the time… a silver monster that subscribers immediately benefitted from owning, up 23.7% in the first month. Learn more about how Louis’ boots-on-the-ground approach has been yielding amazing stock winners – click here.

Investing in Gold Stocks: So When Are We Gonna Get Rich Already?

As gold again approaches it's all-time high, gold stocks continue to be the source of frustration for many gold investors.  Exactly how bad does the financial situation need to get before gold goes to the moon?  


Casey Research's Jeff Clark takes a look at the historical performance of gold during previous bull markets, as he pieces together a guess about when he believes gold will take off...

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Gold Stocks: Math Today, Magic Tomorrow


By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report


Here at Casey Research, we eagerly awaited the release of quarterly reports from the companies in our favorite sector. Why? The gold price was substantially higher last quarter than during the comparable meltdown quarter of 2008, so we were anxious to find out if it would lead to a spike in profits.


Gold and silver producers posted substantially higher net profits, and yes, much of it due to higher metals prices. But amazing to many, higher profits did not lead to higher – or at least not significantly higher – stock prices.


While most saw their stocks rise the day of their respective announcements, some actually fell if gold or the broader markets were down on the day. And they certainly didn’t jump like you might expect when “soaring profits” splashed the headlines of their press releases.


What gives?


We have some answers straight ahead, including a big fat clue as to when gold stocks will take off and give us those “magical” price levels we think are coming.


Gold Stocks Are Still Going to Take Off, Right?


We think that at some point the public is destined to participate in precious metals stocks, and when they do, we’ll see volumes jump and share prices take off.


But for now, gold stocks are playing follow the leader…

… rising and declining in tandem with the S&P since last April. So, until gold stocks separate from the overall market, we should anticipate they’ll tag along if the markets slide. And we think the path of least resistance for the stock market is down, not up, so caution is warranted about going overweight our stocks.



But just as we showed with gold last month, gold stocks will similarly propel higher when the general public crowds in, regardless of what the markets are doing. Here’s what gold stocks did in the last great bull market, compared to the S&P. 

As measured by the Barron’s Gold Mining Index (a good substitute for the HUI that didn’t exist), gold stocks rose 652% during the 1970s (through January 1980), while the S&P returned a wimpy 22%. The action in the ‘70s was definitely in gold and gold stocks, despite two recessions that decade, and we think a repeat is in the cards.


When the masses finally wake up, it’s highly probable our returns will match the chart above or the late ‘90s surge in Internet stocks.


Is Now a Good Time to Buy?


As investors, our goal is to get positioned in the best stocks at the best price. And buying low assures us of more profit when we eventually sell. So, are gold stocks “low” right now?


We have a couple clues to help answer that, with gold itself offering the most important hint. Let’s compare how gold stocks are performing in relation to gold to see if they’re overvalued or undervalued or somewhere in between.

The chart shows that gold stocks, as measured by the HUI Gold Bugs Index, outperformed gold until 2008. Since then, gold stocks have underperformed gold by a fairly wide margin.


This gold-stock-to-gold ratio tells us that in our bull market, gold stocks are currently undervalued relative to the gold price. This doesn’t mean they can’t get cheaper, of course, but it does signal they represent good value and that compared to their underlying asset, there’s lots of room to the upside.


So, if you have a long-term perspective and the patience to wait until gold stocks begin outperforming gold again, today’s prices are good prices.


So, do we buy? The answer depends on your current exposure to gold stocks, how much gold and cash you have, and your outlook. If you own equities exceeding one-third of your total investable assets, we wouldn’t rush to buy. If you have limited (or no) exposure and a patient mindset to see you through until the big payday, even enduring temporarily lower prices along the way, then buying some now is probably a good move. If you have very little in the way of savings and gold, we’d put money there first before committing a big chunk to gold stocks.


Basically, the larger your stable of gold stocks, the more stubborn you should be about price. And we wouldn’t go “all in” just yet. Your risk in loading up now is if markets were to take another nosedive. But if you’re light on stocks, adding some of the best of the best at this time should work out well, as long as you don’t panic into selling on general market weakness.


Just Tell Me When!


The #1 indicator that will tell us when gold stocks will take off has nothing to do with charts and is something you can monitor yourself: it will be when your neighbors and co-workers begin to express curiosity. You obviously want to be invested before them, but that’s when things will start to get exciting.


So when might “gold fever” strike your neighbor? History holds the best clue:


►In the 1970’s bull market, gold stocks began their big ascent when the gold price hit about $450/ounce. Adjusted for inflation, that would equal roughly $1,340 today. So, when we see gold rise decisively above $1,300 and stay there, that just might be the trigger that spurs the interest of the masses in gold stocks. That’s not a prediction, but it does give us an idea of what to look for.


Casey Research chief economist Bud Conrad was right when he called for gold breaking through the $1,150 barrier in 2009 – and now he’s calling for gold to break over $1,450 by year’s end. Weighing in as well, Doug Casey himself sees precious metals as the only asset class worth buying now, and gold stocks as being the best way to add speculative leverage to those investments.


Exciting? You bet. We’re convinced that, sooner or later, higher prices are ahead for the best gold- and silver-producing companies, along with the “magical” levels that can happen in a mania. So, while we encourage caution, we also encourage selective participation so you don’t get left behind. Waiting for the “perfect” time to buy is an exercise in self-deception; nobody can time the market.


Let’s be honest: no one can guarantee when or if a gold mania will happen. But all of our research points to higher prices for gold (and silver), so we remain confident we’re in the right sector. And we can make money before the mania gets here. 


To learn where to buy physical gold and where to store it… and which major gold stocks, mutual funds, and ETFs are the safest while giving you handsome upside… read Casey’s Gold & Resource Report. At $39 per year, it’s a steal for the value you get out of it. Click here for more.

Where to Invest During Deflation - Maybe in Gold After All?

Gold is one of the lone green spots on the screen today, as the markets get clobbered across the board. You could cite the latest sovereign debt downgrade, but in reality, this is not exactly breaking news by any means. Any trader with a few working brain cells saw this writing on the wall...

Read the rest of this post about whether or not to invest in gold during deflation here.

What's in Stephen Colbert's Investment Portfolio Right Now? The Answer May Suprise You

This clip from The Colbert Report is absolutely hysterical, as Stephen Colbert introduces somewhat contrarian investment portfolio recommendations from "Prescott Financial". Enjoy!

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
Prescott Financial Sells Gold, Women & Sheep
www.colbertnation.com
Colbert Report Full Episodes Political Humor Economy

Jim Rogers Prefers Oil Over Gold Right Now

Jim Rogers told Bloomberg News earlier this week that he prefers oil over gold right now, because of the potential supply overhang of the IMF threat to sell it's gold.

“The IMF is trying to sell its gold,” Rogers, chairman of Singapore-based Rogers Holdings, said in an interview with Bloomberg Television. “The IMF is one of the largest holders of gold so you’ve got this huge supply overhang.”

Further reading - more recent Jim Rogers coverage:

• Rogers believes the world is heading for a Depression
• Rogers still waiting to short US Treasuries

Central Banks Projected to Sell Less Gold This Year

The world's major central banks are expected to reduce sales and lending of their gold bullion reserves this year, MarketWatch reports.

Because central banks hold a significant portion of above-ground gold in the world - over 15% of it, the article reports - reduced selling by the banks could weigh on gold supplies.

If you are a true contrarian, and a gold bull, this report may be somewhat alarming, as central bank buying and selling is often a classic contrarian indicator of the gold market.  The Bank of England famously sold a signifcant amount of gold in 1999, essentially calling the exact bottom for gold prices.

With central banks respectively printing money at an alarming rate, however, I expect gold prices will be fairly well supported once this new fiat currency makes its way into circulation - though a short term downward correction in gold and silver still cannot be ruled out.

How to Own Physical Gold Through Your IRA

As we watch the governments of the world engage in a competitive devaluation of their respective currencies, you may be starting to think about putting some of your investment dollars into gold.

Buying gold stocks are one way to do it.  However if the world's monetary system starts to come unraveled, you can't beat owning physical gold bullion as the ultimate insurance.  In this guest article, the editors of Big Gold share the logistics of how this can be done.

Should You Put Gold into Your IRA?
By the editors of BIG GOLD, Casey Research

Within the last year, 401(k)s and IRAs have ceased to be a safe haven for Americans’ nest eggs. In 2008, employees lost on average 14%, or about $10,000, of their retirement money. Those with more than $200,000 are even worse off – they lost more than a quarter of their savings. No wonder that more and more people are asking whether they can, or should, use an Individual Retirement Account (IRA) to hold physical gold. Our answer to the first part of the question is yes, indeed you can. The tax rules governing IRAs leave room for gold. But our answer to the second part is equivocal.

Background

In 1986, as the U.S. Mint began issuing gold coins for the first time since 1933, a tax rule against holding “collectibles” in an IRA was relaxed to allow gold and silver Eagles. Later, in 1997, the Tax Payer Relief Act opened the IRA door for a broad spectrum of precious metals (gold, silver, platinum, and palladium), whether in the form of bullion or coin. The easier rules now apply to all types of IRAs, including traditional, Roth, Simplified Employee Pension (SEP) and Simplified Incentive Match Plans for Employees (SIMPLE).

The only stipulation is that all bars and all coins other than Eagles must be .995 fine. Thus Canadian Maple Leafs and Austrian Philharmonics qualify, but the South African Krugerrand, minted with an alloy, does not. Numismatic coins are also impermissible for an IRA.

Mechanics

The procedure for putting gold into an IRA is somewhat more complicated than with paper assets, but the requirements aren’t onerous.

To begin with, you have to find an IRA custodian that handles investments in metals, and they are few. Don’t look to your discount broker or a fund family like Vanguard; they won’t touch the stuff. Instead, you’ll need a specialist like the two original gold IRA custodial companies, American Church Trust (acquired by GoldStar Trust in 2007) and Sterling Trust. These are the most respected names in the business. An Internet search will turn up others, and if you do your due diligence on them, you might find one that works for you.

But remember that it’s especially important to choose a custodian with a solid reputation, because your gold will be stored at a location twice removed from you. A firm such as GoldStar or Sterling would be merely your IRA’s legal custodian; for vaulting your IRA gold, it will employ a certified depository, likely either HSBC Bank USA (which is also a COMEX gold depository) or Delaware Depository Services.

So chances are you’ll have to open a separate IRA for physical gold, which will be a matter of doing a little paperwork and paying some fees. Then you put money into your account and tell the custodian what to buy. (Dropping in coins you already own is against the rules – a “prohibited transaction.”) And if you want to mix in some paper – for example, to consolidate your gold, ETF, and mining stock holdings into one account – that’s fine, too.

The custodian will charge either a fixed annual fee or a percentage of the IRA’s value, with a ceiling. And the depository will charge its own fee for safekeeping. There also may be a transaction fee each time you add to your IRA. In all, you can expect the basic cost to run between $160 and $340 per year, depending on the fee structure of the custodian you choose.

You can make the same tax-deductible contribution each year to a gold IRA as with any other IRA. The current limit is $5,000, or a “catch-up” limit of $6,000 for those 50 and over. Custodians generally set their minimum initial investment at that $5,000 mark but will accept smaller subsequent contributions.

When the time comes to withdraw from your gold IRA, you can choose to so in cash or bullion. If you take cash, the custodian sells the gold and distributes the proceeds, with the money then taxed at your ordinary income rate, just as with any other asset held in an IRA. If you take physical gold from your IRA account, it’s called an “in-kind distribution.” For tax purposes, your withdrawal will be assessed at the “fair market value” for gold on that day. This will not be the spot price but a judgment made by an independent assessment company that your custodian contracts with for that purpose. 

Who Should Consider It

That takes care of the how-to. The trickier part is whether it’s a good idea. For most readers, the answer is likely no. Here’s why.

The idea behind a traditional IRA is twofold. First, reduce present taxes by taking a deduction upfront for your yearly contribution of $5K or $6K. Second, defer taxes on the investment income and gains that build up inside the IRA until after retirement.

Physical gold, of course, doesn’t generate income. So you might be wasting part of your IRA’s tax-saving power by filling it with gold instead of investments that earn interest, dividends, or trading profits.

Does that mean it never makes sense to have physical gold in an IRA? No. There are some situations when an IRA may be the right place to hold part or all of your investment in physical gold.

No-income portfolio. If you’ve decided that the outlook for bonds and dividend-paying stocks is so bleak that you don’t want any at all, then putting gold into your IRA won’t crowd out any income-earning investments.

Strategic switching. Perhaps you plan at some point, when you judge that the gold bull market probably has run its course, to liquidate part of your gold. Whatever gold you have in an IRA then could be sold and reinvested, with no loss to current tax, in something else.

IRA Only. If your IRA is the only investment vehicle you have, and you want gold, then using funds within the IRA to buy gold may be the only way for you to hold it.

Transfers and Rollovers

In researching this, we chatted with Glen Kirsch of Asset Strategies International, who has been dealing with gold and gold-related investments for more than thirty years. We asked Glen what would be the benefit of a gold IRA. His experience accords with our analysis of when putting gold in an IRA makes sense.

He said he rarely if ever sees people open a gold IRA just to deposit that five grand a year. What he does see is individuals making the flight to quality with their accumulated retirement assets. Say, someone with most of his wealth in a pension fund limited by a menu of poor investments is searching for a way out. If the individual is generally suspicious of paper investments, a gold IRA will look attractive.

Making the move is simple if the pension fund is already an IRA. You’re free to transfer funds from an IRA that’s invested in stocks or anything else directly into a gold IRA.

Or if the pension fund is run by your employer, when you leave (quit, retire, or get fired), you can roll your interest in the pension fund over into an IRA, without tax consequences, and use the money to buy gold.

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It is no accident that gold is currently trading at around $980 again. Physical gold is a hedge for troubled times – in an economic crisis, the gold price is bound to go up dramatically and so are, by extension, stocks of major gold producers and near-producers. If you want to preserve, and multiply your assets, BIG GOLD is the go-to advisory for all things gold-related. Click here to learn more.

Richard Russell: Gold & Silver moving into their third (speculative) phase

Richard Russell's latest comments on the action in the gold and silver markets:

As I said, the gold action is changing -- what's happened to the profit taking? Gold buyers have stopped taking profits, the are buying and sitting with their gold. Physical gold has now been swept off the market. Coins are only sold by dealers with big premiums over spot -- that is, if you can find a dealer who has any gold coins at all.

A few sites ago, I wrote that I believe gold and silver are finally moving into their third (speculative) phase. Seasoned investors are thinking in terms of the demise of the dollar and of all fiat money.

I am also of the opinion that we're going to see one whopper of a bubble in gold and silver before this commodity bull market is all said and done. Maybe $2,000 - $3,000 - even $5,000 gold - anyone care to jump in with a wild guess?

How to Buy Physical Gold

Interested in buying physical gold to protect yourself from the coming inflationary holocaust? Here's a quick primer on the ins and outs of buying, and taking possession of, physical gold.

Going Long
Finding Elusive Gold in This Market

By the editors of BIG GOLD, Casey Research

At this writing, gold is still 15% off its peak, at least in U.S. dollars. Yet at the same time, the metal is cruising at or near all-time highs against a host of other currencies, including the Swiss franc, British pound, Canadian dollar, Australian dollar, and Indian rupee.

That currency disparity means buyers around the world are prepared to pay much more for gold, relative to their own currencies, than is reflected in the New York spot market, which prices gold in dollars.

Demand for gold coins in particular is running so high that there were severe shortages in 2008. Dealers’ shelves emptied, mints either rationed their output or stopped producing entirely, and premiums over the spot price rose dramatically. All of which implies that the metal’s bull market is far from over. Yet taking advantage of the trend becomes problematic if you can’t get what you want.

Sure, you can buy as much paper gold as you like, through the SPDR Gold Trust ETF (NYSE.GLD), which is bullion-backed and will be sensitive to an advancing price. But what if you simply want physical metal and want it in quantity – say, a hundred ounces?

Well, you could buy 100 coins. If you could find them. Or you could buy a single 100-ounce bar.

Take heed: if you are buying in 100-ounce, 400-ounce or 1-kilo sizes, you want a good delivery bar, one that carries a hallmark from a recognized refiner. And buy only from a source you have a good reason to trust. The gold trade has been replete with con artists since ancient metalworkers began hammering on the shiny stuff and found they could increase their profit margins by adding in a little silver, copper, or even lead. With 100 ounces going for upwards of US$85,000, caution is in order.

Once you’re ready to commit to a 100-ounce buy, the next logical question is: Is there any way to avoid the big premiums and acquire what you want at spot? The answer, fortunately, is yes. You can elect to play with the big boys and get your 100-ounce bar on the COMEX, where the bullion banks and giant funds do their trading.

Playin’ the COMEX

The COMEX is primarily a paper market, with speculators going long or short on contracts for future delivery. 99.9% of those contracts get settled in cash and are closed out before the delivery date arrives, with participants pocketing profits or taking their lumps. Very little physical gold changes hands through COMEX trading.

But some does, because every participant who goes long has the right to pay in full and insist on actual delivery. And every participant who goes short has the right to deliver the goods and get paid. Those trades represent the other 0.1% of the contracts.

The Casey COMEX User's Manual

First, get a little more acquainted with the topic. Log on to the COMEX gold section at (http://www.nymex.com/gol_pre_agree.aspx) and have a look around.

Pay close attention to the Current Session Overview. It gives you a real-time picture of trading, with the various delivery months displayed, along with the price per ounce being bid. (With gold, the months further out nearly always have higher prices, a situation known in the commodities trade as contango. The opposite, when near-term prices exceed those down the road, is called backwardation, and for gold it’s extremely rare.)

If you decide to proceed with the idea of buying on the COMEX, you have to open an account with a futures broker. To do that, you’ll need to answer some questions about your financial status and then make a deposit. We spoke with an agent at Lind-Waldock in Chicago, one of the oldest and most active futures brokers, to learn about their requirements.

First, at Lind-Waldock, you must have a yearly income and net worth of at least $25,000 and $50,000, respectively; anyone who can afford a hundred ounces of gold will surely qualify. Then you must deposit a minimum of $5,000 with the broker. Finally, you choose from among several levels of service, which affects the amount of commission you’ll pay.

Once the futures account is in place, you’re set to go.

Let’s say the bid price three months out is $850/oz., and you like gold at that price. You call your broker and place an order at $850, for one gold contract (which represents a single 100-oz. bar of good delivery metal). As with bidding on a stock, you may not get what you want if the market is heading up and runs away from your price. The alternative is to place a market order, trusting that it gets filled at close to your target price, but that can be risky in a fast-moving market.

Let's assume you get your contract and lock up what you’ll pay for the gold, most of which will be due at expiration. What next? There are two possibilities. You can just deposit the full cost of the gold, sit back, and enjoy the wait for your prize. Or you can deposit the minimum amount required (the minimum “margin”), which varies and is set at the exchange’s discretion. For a single gold contract at the moment, it’s $5,800, or about 7% of the contract’s value.

That’s how the speculators play the market, putting up as little front money as possible. For you, that won’t be a problem if the price of gold rises, since the broker will be crediting a matching amount of cash to your account on a daily basis. But you have to be careful if the price of gold falls, because the broker will then charge your account for a matching amount of money day by day – and to keep the balance from going below the minimum margin requirement, he’ll send you a margin call, insisting that you deposit more cash. If you fail to do so, the broker will enter a sale order for you, and you’ll be out of the market.

Changes in the value of a futures contract, with their attendant shifting cash requirements, are of critical importance to traders who are simply playing with paper. Since you’re only interested in acquiring a physical gold bar, the fluctuations shouldn’t affect you. Just make sure you have enough money in your account that you’re not inadvertently sold out.

Then, on the settlement date, your account will be charged for an amount equal to the settlement price multiplied by the exact weight of the particular bar that’s been assigned to you (a “100-oz.” COMEX good delivery bar can actually vary in weight between 95 and 105 ounces). This is when everything gets squared up.

Taking Delivery

If you keep your position open until delivery, the COMEX will hand your broker a warehouse receipt with the details of your specific bar (hallmark, serial number, and weight to one-thousandth of an ounce). The broker can either hold the receipt in your account or mail it to you. (If you take possession of a warehouse receipt, be aware that it’s an irreplaceable bearer instrument. Don’t lose it!)

Your bar will be sitting in the vault of one of the four designated COMEX depositories, all of which are in or near New York City. If you want to bring the bar home, you’ll have to pick it up at the depository or arrange for third-party delivery. If you intend to hold it until gold reaches a certain price and then sell, your best bet is probably to leave the bar in the COMEX depository and leave the receipt with your broker.

We called Scotia Mocatta, which operates one of the COMEX-designated vaults, and were quoted a storage fee of $15/month per bar. If, however, you want the bar in your hands, you’ll have to pay a $150 delivery fee to get the bar released by the depository. Then you’re responsible for retrieving it, which could be a problem.

Unless you want to put the bar in your suitcase and fly home with it, you’ll have to have it delivered. You can’t ship a gold bar via the U.S. mail, FedEx or UPS; you have to hire an armored car service, such as Brinks.

Shipping costs depend, of course, on how far your gold will travel from the City. VIA MAT International (USA) gave us a ballpark figure of $150 to transport one gold bar from New York to California – a heckuva lot cheaper than airfare, and you get to keep your shoes on.

One final note: armored carriers won’t deliver to a house address. You would have to arrange to receive the shipment at a business, which could be an additional worry if neither you nor a trusted friend owns one. Or you could have it delivered to your bank and slide it into a safe deposit box, provided you don’t mind the bank’s employees knowing what you’re doing.

Will You Need an Assay?

If you leave your gold bar in the COMEX depository, it will be easier to sell. You just go through the above procedure in reverse, going short a contract instead of buying one.

However, if you take physical delivery and later wish to sell through the COMEX (or through a private dealer), you will need to have the bar reassayed. A prospective buyer of such a costly item must be certain that it was genuine to begin with and hasn’t been tampered with while in your possession.

The COMEX provides a list of approved assayers on its website. The one we contacted, Ledoux and Co., quoted us $300 per bar for the service.

And that’s all you need to know to get gold wholesale.

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Commodity Futures Weekly Review - January 11, 2009

Now for the weekly review of our commodity futures positions - current as of January 11, 2009.

First, our top blog posts from the past week:

• Is It (Finally) Time to Short US Treasuries - And Make a Fortune?
• China Starting to Regurgitate US Debt
• Marc Faber on Bloomberg: World War III Has Already Begun
  

Also our coverage of Jim Rogers' and Marc Faber's Commodity Picks for 2009 was the 2nd most popular article on Seeking Alpha for much of the week.

A review of our trades and positions from the previous week:

• Sold our mini-gold futures contract - to make way for another grains contract. This was a position sizing move - gold had not yet hit our sell stop.

• Also sold our one cocoa futures contract - also for position sizing purposes. Cocoa was not performing as well as wheat, so we decided to add to our wheat position.
  

• Bought one more wheat futures contract - wheat put in a strong performance this week, up $0.20.

• Continued to hold one corn futures contract. This was an attempt to "pyramid" our grains position and diversify. Corn was up $0.02 on the week.

• Continued to hold one cotton futures contract - we LOVE cotton at these prices - as we've discussed with before in this space. Cotton was up slightly on the week.

• And finally, the dunce cap so far goes on our decision to eat our own dog food and short the 10-Year Treasury Note. We haven't lost hope yet, but will have to exit this position if new highs are hit. It won't be the first time we've gotten burned on this trade.
  

Commodities that appear quite beaten down - but we don't own them...yet...

• Sugar
• Coffee
• Natural Gas
• Silver
• Crude Oil

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
12/29/08	Long	1	MAR 09	Corn	422 1/4	412	($512.50)
12/31/08	Long	1	MAR 09	Cotton	48.52	49.33	$405.00
01/06/09	Short	1	MAR 09	T-Note (10yr)	123-285	125-220	($1,796.88)
12/24/08	Long	1	MAR 09	Wheat	579 1/4	630	$2,537.50
01/06/09	Long	1	MAR 09	Wheat	627 3/4	630	$112.50
Net Profit/Loss On Open Positions							$745.63

Account Balances

Current Cash Balance	$47,783.90
Open Trade Equity	$745.63
Total Equity	$48,529.53
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$48,529.53

---------------------------------------------
Cashed out: $20,000.00
Total value: $68,529.53
Weekly return: -2.1%
2009 YTD return: -4.5%

2008 return: -8%

***"Cash out" mostly means taxes - lately we've also been using it for living expenses, and also to finance our time management software company that was recently covered by the Sacramento Business Journal and Inc magazine.

Commodity Futures Review - January 4, 2009

Now for the weekly review of our commodity futures positions - current as of January 4, 2009.

First, our top blog posts from the past week:

• Expert Commodity Picks for 2009: Jim Rogers and Marc Faber
• GoldMoney Review: Gold Climbs for 8th Straight Year
• Jim Rogers on Kudlow: We're going to have an inflationary nightmare

Our coverage of Marc Faber's recent interview on CNBC from December 1st continues to see a lot of traffic.

A review of our trades and positions from the previous week:

• Continued to hold one cocoa futures contract - down on the week, mostly due to a sharp Friday drop.

• Continued to hold one mini-gold futures contract. Gold was stuck in the mud for the week - though it did wrap up an 8th consecutive up year vs. the US dollar.

• Continued to hold one wheat futures contract - up a bit for the week. Looking to add on further strength.

• Bought one corn futures contract. This was an attempt to "pyramid" our grains position and diversify - in hindsight, looking at the charts of each, wheat looks stronger, and we should have added to that position before initiating this one.

• Bought one cotton futures contract - we LOVE cotton at these prices - as we've discussed with before in this space.

Commodities that appear quite beaten down - but we don't own them...yet...

• Sugar
• Coffee
• Natural Gas
• Silver
• Crude Oil

Open positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
12/29/08	Long	1	MAR 09	Corn	422 1/4	410	($612.50)
12/15/08	Long	1	MAR 09	Cocoa	2586	2506	($800.00)
12/31/08	Long	1	MAR 09	Cotton	48.52	48.90	$190.00
12/24/08	Long	1	MAR 09	Wheat	579 1/4	610	$1,537.50
12/15/08	Long	1	FEB 09	Mini Gold	836.6	877.3	$1,351.24
Net Profit/Loss On Open Positions							$1,666.24

Account Balances

Current Cash Balance	$47,887.81
Open Trade Equity	$1,666.24
Total Equity	$49,554.05
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$49,554.05

---------------------------------------------
Cashed out: $20,000.00
Total value: $69,554.05
Weekly return: -2.5% *** since 1/1/09
YTD return: -2.5%

2008 return: -8%

***"Cash out" mostly means taxes, but lately we've also been using it for living expenses, and also to finance a cool new time management software startup that is starting to lift off - and was recently covered by the Sacramento Business Journal.