Predicting future price movements involves guessing at the role of weather conditions,government intervention, consumer and farmer attitudes, and all the other factors that influence the supply and demand for a product. Such a talent is rare. However, if you like action and have a few thousand dollars with which to play, then the commodities market may be for you.
Look for a boom in the market during times when inflationary pressure and shortages in particular commodities make prices volatile. Buying gold is nothing but speculation, with prices usually pushed by a crisis or inflation. After a period of gold fever in the late 1970s, gold prices peaked in the $800 an ounce range in January 1981, then started to fall. Currently, prices are fluctuating at the $1700 level.
GOLD
Certificates: These certificates represent an interest in gold bullion registered and stored in domestic or foreign banks. The potential return to you lies solely in the increase of gold’s market price. Since you personally do not hold the gold, you must buy carefully from companies that actually will have gold in storage. Consult your banker or financial advisor for referrals to reputable dealers.
Coins: The most popular are the Canadian Maple Leaf, the South African Krugerrand, the Chinese Panda, the Mexican gold peso, the Austrian Corona, and the American Eagle. These coins are valued primarily for their gold content, most commonly one ounce, not their numismatic value. You will pay dealer commissions to buy and sell these coins, as well as the cost of storage if you do not take possession. Shop around before buying or selling, because dealer commissions and markups vary.
Bars: This is for large investors. Bars must be assayed and stored with a reputable warehouse. Deal only with companies that certify the bars and offer a buyback guarantee.
Mining Companies: Although there are a few producing mines in theUnited States, most of the companies you can invest in are inCanadaorSouth Africa. You buy shares through a broker, just as you would other corporate stocks. The advantages to holding shares in mining companies are that they pay dividends and the shares are easy to buy and sell.
Mutual Funds: You can own shares in a fund that invests in a variety of gold stocks. The advantages, as with all mutual funds, are diversification, professional management, convenience and liquidity.
SILVER AND DIAMONDS
Silver is widely used as an industrial commodity, which means that it is not as speculative as gold. You can buy pure silver coins, silver mine shares, silver futures, and precious metal mutual funds. Many gold funds also invest in silver shares.
As with precious metals, if you are thinking of investing in gemstones, proceed with caution. Of these, the most common investment grade stone is diamond. For the untrained, diamonds are very difficult to evaluate. You are dependent on reliable dealers in a highly speculative area, where only perhaps one percent of quality grades appreciate dramatically.
If you invest in diamonds, buy very few diamonds from half-carat to two-carat sizes. These are the most liquid. Buy the highest-clarity grade, using the Gemological Institute of America’s grading criteria in the colorless spectrum of G-H color or better, and of very fine proportion and finish. Please understand that any diamond you buy should be sold under the specifications of GIAs international grading standards.
Deal only with companies established in the diamond industry. Check company references with the Jewelers Board of Trade and the Jewelers Vigilance Committee and with your local Better Business Bureau.
Buy only from companies that offer a buyback guarantee in the event the diamond does not meet the specifications under which it was sold. In advance of your purchase, get full disclosure of initial purchase fees and, in writing, the fees required to resell the diamond in the future.
New types of investments are constantly being developed. Five years from now, your portfolio may include many items that simply are not available today. Staying abreast of the market requires that you read and study the best in the business and financial publications. By keeping informed, you will find you are better able to make the decisions that will maximize your return while minimizing your risks.
