March 29, 2024

Four Approaches To Gold Investment

In its quest to determine the best way to make money from investing in gold, the Wall Street Journal recently took an in depth look at four different gold investment strategies. Each was represented by a preeminent investor, one whose method has seen some success recently.

Here’s what they had to say:

1. The first investor was John Paulson, who made his money by anticipating the economic crisis and acting accordingly. His current method of gold investment is to buy shares of large mining and exploration companies. The idea at work here, according to Paulson, is that “if gold prices do well, the miners will do even better . . . the higher gold prices go, the more miners can profit from potential and existing projects.” The downside here is that mining for gold is an expensive proposition, so the miners must make enough money to cover that expense before turning a profit.

2. The next investor discussed was billionaire Thomas Kaplan. He is focusing his investment funds on junior miners rather than the big mining companies that Paulson is currently interested in. His argument? These smaller companies are “sitting on valuable assets . . . providing the greatest leverage to a bull market.” He believes that these junior miners have a greater potential to go along with their greater risk.

3. The third investor, John Burbank prefers a different route. He focuses his attention on gold bar investment. Since the bars are an actual physical investment, he believes that they are more likely to return his investment than shares and contracts. According to Burbank, “If investors become concerned that shares and futures contracts aren’t fully backed by physical gold, or if inflation surges, they may begin to demand delivery of the metal, sending the price of physical gold soaring.”

4. The final investor, David Einhorn is also interested in bars, but in addition, he chooses to invest in exchange trade funds that own gold miners. He has also purchased call options or gold futures, which require a relatively small investment to control a large gold position.

Comments

  1. “If investors become concerned that shares and futures contracts aren’t fully backed by physical gold, or if inflation surges, they may begin to demand delivery of the metal, sending the price of physical gold soaring.”

    That’s what I tell people on our site. The ETFs are great if you’re prepared to look at them like a day trader looks at stocks, always waiting for the moment to get out.

    Once the masses want to trade in their certificates for gold (or silver), it will probably be too late for Average Joe to recover his investment, let alone make any money.

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