I want to show you the best way to invest in gold and other
commodities. But there is something you need to know...
Commodities are risky. One of the riskiest things an
individual investor can attempt.
It's estimated that 95% of individualcommodity futures traders
That means 19 out of 20 walk away with less than they
You see, commodities trading is notinvesting . It's
speculating that priceswill move one way or the other. That's
akin to gambling in my book.
Really, the only people that make serious money in commodities
trading are thebrokers . They pocket hefty commissions from
clients that speculate on gold, wheat, oil, cattle, lumber and
But that gravy train is ending.
Wall Street 's commodity tradingrevenues stand at just half of
what they were in 2008. And the buying and selling of grains,
metals, energy and other goods now accounts for a thin 6.5% slice
of the overall tradingrevenue pie -- down from 30% five years
Banks used to rake in billions, not just from commissions but
from their own trading book. Now, position limits and other
regulationsput in place by the Dodd-Frank Wall Street Reform Act
have reined in those profits. Some companies have exited the
The smooth, quiet trading in many hard assets last year also
proved to be an obstacle. That's because speculators like extreme
volatility. The wider and more erratic the price swings, the
greater the trading potential. It's much harder to extract
profits from a flatmarket .
What do I think about all this? I say that futures contracts
are best left to experienced pros and those who use them
forhedging purposes, not sheerspeculation . Betting on whether a
price moves up or down (especially over the short term) isn't
investing anyway -- it's buying a lottery ticket.
If you really want to invest in scarce natural resources such
as oil and platinum, then
buyshares in quality producers that own vast reserves of
these critical goods.
Instead of a piece of paper, you'll haveequity ownership in a
real business withtangible assets -- one that generatescash flow
year after year.
Thatcash can be used for exploration and development, for
theacquisition of new properties, or simply to return to
stockholders via dividends.
One of my favorite precious metals producers,
, has distributed
111 consecutive monthly payments
, even in flat and declining gold markets -- you won't get that
from afutures contract .
And if underlying commodity prices do rise, then production
growth andoperating leverage usually push profits (andstock
prices) up even faster. Take a look at another producer,
New Gold (
, and you'll see what Imean .
Back in 2008, the company sold its gold for $863 per ounce,
from which a cost of $566 was deducted, leaving aprofit of $297.
By early 2012 the price of gold had since risen to $1,575 per
ounce. But New Gold's mining costs remained basically unchanged
(in fact, they dropped to $543), so profit tripled to $1,032 per
Look at it this way... an investor who bought gold or gold
futures would have netted again of 83% over this period. Not bad.
But New Gold converted that into a more powerful 247% increase
inprofit margins ($1,032/$297).Earnings per share zoomed to $0.44
per share in 2011 from $0.12 per share in 2009, an increase of
Since 2008, shares of New Gold have jumped 1,010%.
So if you want to get the most out of every dollar increase in
the price of gold, a stock like New Gold is a superioroption
Risks to Consider:
This is not to say investing in producers is without risk.
Many of these companies operate in parts of the world plagued by
labor unrest, unfriendly governments and other hurdles. But, with
just a little research, you can find solid producers to invest
Action to take -->
My advice is to steer clear of the dangerousfutures market and
invest in commodities through reliable, fast-growing, low-cost
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