Precious Metals Investing For Dummies

Introduction 1 About This Book 1 Conventions Used in This Book 2 What You’re Not to Read 2 Foolish Assumptions 2 How This Book is Organized 3 Part I: Breaking Down Precious Metals 3 Part II: Mining the Landscape of Metals 3 Part III: Investing Vehicles 4 Part IV: Investment Strategies 5 Part V: The Part of Tens 5 Icons Used in This Book 6 Where to Go from Here 6 Part I: Breaking Down Precious Metals 7 Chapter 1: A Compelling History 9 Mining the History of Precious Metals 10 Understanding why less is more 10 Giving the gold standard a gold medal 10 Going for the gold 11 Seeing the silver lining 12 Mentioning other metals 12 Taking a Look at Track Records 12 Gold 13 Silver 14 Other metals 15 Grappling with Bulls and Bears 16 The precious metals 1980–1999 bear market 16 The precious metals bull market of 2000– 17 Chapter 2: Diversifying with Metals 19 Working with Rising Inflation 19 Understanding the Versatility of Metals 20 Reaching Your Financial Goals 20 Seeking appreciation 21 Looking for the home run 21 Preserving your capital 22 Using precious metals to generate income 22 Discovering Your Investing Style 23 Distinguishing between styles 23 Understanding yourself first 24 The saver 25 The investor 25 The trader 26 The speculator 27 Knowing Whether to Get Physical or Own the Paper 28 For the conservative investor 28 For the growth investor 29 For the speculator 30 For the trader 30 Getting the Amount Just Right 31 For the conservative investor 31 For the growth investor 31 For the speculator 32 For the trader 32 Chapter 3: The Beauty and Benefits of Metals 35 Protecting Your Portfolio Against Inflation 35 Precious metals against the dollar 36 Diversification against all currencies 38 Benefits for Investors 39 Safe haven 39 Privacy 40 Inflation hedge 40 Dollar hedge 40 Confiscation protection 41 Liquidity 41 Portfolio diversification 42 Benefits for Traders and Speculators 43 Supply and demand 43 Huge gains potential 44 Trading versus speculating 44 The benefits of speculating 45 Chapter 4: Recognizing the Risks 47 What Risk Means to You 48 Physical risk 48 Market risk 48 Exchange risk 49 Political risks 50 The risk of fraud 51 Minimizing Your Risk 52 Gaining knowledge 52 Being disciplined 53 Being patient 53 Diversification 54 Making risk your friend 55 Risk-Management Tools 56 Weighing Risk Against Return 57 Part II: Mining the Landscape of Metals 59 Chapter 5: Gold: All That Glitters 61 The Ancient Metal of Kings 62 Gold for the Record 63 Explaining all the bull 63 Telling the tale of the tape: Gold versus other investments 64 Assuring gold’s success 66 Securing a Safe Haven from the Coming Storm 67 Reading and understanding inflation 67 Watching the dollar 70 Buying and owning gold 70 The Gold Market 71 Gold market data and information 72 Industrial supply and demand 73 Investment demand 74 Central banks 74 Gold Bugs 75 Gold Investing Resources 76 Chapter 6: Discovering the Secret of Silver 79 Understanding the Hybrid Potentials of Silver 79 Monetary uses for silver 80 Industrial uses for silver 80 Researching Silver 82 Sources of data 82 Sources of informed opinion 83 Owning Silver 83 Physical silver 83 Paper silver 84 Silver’s Compelling Future 85 Market fundamentals 85 The demand side 85 The supply side 85 The world needs more silver 86 The Legends of Silver 86 Jerome Smith 86 Ted Butler and the silver shortage 87 David Morgan 88 Chapter 7: Platinum and Palladium 91 The Platinum Group Metals 91 Platinum 92 Palladium 92 Rhodium 92 Osmium 93 Iridium 93 Ruthenium 93 The investor’s best choices in the group 94 Platinum Group Investment Vehicles 95 Bullion 96 Futures 96 Stock Investments 97 Mutual Funds and ETFs 98 Research Resources 99 Chapter 8: Uranium 101 Controversial Past, Bright Future 102 The uranium market 102 Uranium supply 103 Uranium demand 103 Uranium’s market performance 104 That ’70s metal 105 Peak oil and uranium 105 Uranium Investing Vehicles 106 Futures 106 Mining stocks 106 Uranium exchange-traded funds 107 Options 108 Resources 109 Chapter 9: Base Metals 111 Understanding How Base Metals Fit into Your Portfolio 111 The building blocks of society 112 The up and down for base metals 112 Base metals and inflation 112 Base metals versus precious metals 113 Past performance 114 Covering All the Bases 114 Copper 114 Aluminum 115 Nickel 116 Zinc 117 Lead 117 Tin 118 Other metals 119 Base Metal Investing Vehicles 119 Futures 120 Options 120 Mining stocks 121 Mutual funds 123 Exchange-traded funds (ETFs) 123 Base Metal Resources 125 Part III: Investing Vehicles 127 Chapter 10: Buying Metals Direct 129 Weighty Matters 129 The Case for Physical Ownership 130 What could go wrong with paper assets 131 Bullion versus numismatics 132 Other metals 133 The risks of owning physical 133 Forms of Gold Physical Bullion 134 American eagle gold bullion coins 134 The American Buffalo Gold Bullion Coin 135 The Krugerrand 135 The Canadian Maple Leaf 135 Other gold bullion 136 Silver Physical Bullion 136 American Eagle Silver Bullion Coins 136 One-ounce rounds 136 Junk silver bags 137 The $1,000 bag of silver dollars 137 The 40% silver bag 138 Silver bars and ingots 138 Platinum bullion 139 Palladium bullion 139 Bullion’s costs and fees 140 So, what kind of silver is best? 140 Gold and silver commemorative coins 140 Bullion Dealers and Resources 141 Putting Precious Metals in Your IRA 142 Chapter 11: Purchasing Numismatic Coins 145 The Basics of Numismatics Coins 146 Profitable coin investing 146 Making the grade 147 Information sources 148 Collectible Coins 149 Gold coins 149 Silver coins 149 Other coins 150 Still other coins: Commemoratives 151 Coin Services and Organizations 152 Information sharing 152 Grading services 152 Selling Your Coins 153 Back to dealers 153 To other investors 154 eBay and other auctions 154 Pricing information 155 One final note 156 Chapter 12: Mining Stocks 157 Essential Stock Investing 101 157 Stock investing for all 158 Mining stocks 101 162 Mining Stocks — Digging Deep 164 Mix and match 164 The majors 165 Development companies 165 Eureka! Exploratory companies 166 Ancillary companies 166 Getting Down to the Nitty-Gritty 166 The upside to mining stocks 167 The risks of mining stocks 167 Mining properties 168 Hedging practices 168 Resources 169 Boosting Your Returns 170 Generating income 170 Leveraging with warrants 171 Indexes 173 Chapter 13: Investing in Mutual Funds and ETFs 175 Mutual Funds 175 Advantages of mutual funds 176 The downside of mutual funds 178 Keys to success with mutual funds 181 The Prospectus: Netting it out 182 Mutual Fund Resources 183 Exchange-Traded Funds 183 The pros and cons of ETFs 184 The world of precious metals ETFs 184 Other ETFs for the metals-minded 185 ETF Resources 186 The exchanges 186 The issuers 187 Newsletters 188 Web sites 188 Chapter 14: Exploring Futures 189 Back to the Futures 189 How the futures market works 191 What can be traded as a futures contract 192 The Players in the World of Futures 193 The exchanges 193 Speculators 194 Hedgers 194 The regulators 195 The Fundamentals of Futures Contracts 196 Features of the futures contract 196 Metals Futures Contracts 198 Precious metals contracts 198 Base metals contracts 200 Mini-futures contracts 200 Pass the margin 201 Leverage: The double-edged sword 202 Basic Futures Trading Strategies 203 Basic strategy #1: Going long 203 Basic strategy #2: Going short 203 Basic strategy #3: Spreads 204 Futures versus Options on Futures 208 Futures Resources 209 Chapter 15: Options 211 How Options Work 211 The call option 212 The put option 216 Resources for beginners 216 Working Out Your Options 216 Understanding the orders 217 Something for Everyone 217 For those seeking gains 217 Income strategy #1: Writing covered calls 218 Income strategy #2: Writing puts 219 Minimizing Risks with Options 219 Some Profitable Combinations 220 The zero-cost collar 220 The straddle 221 Options in the World of Precious Metals 222 Options on mining stocks 222 An option with no expiration? 223 Options on ETFs and indexes 223 Options on futures 224 Golden Rules for Options Success 225 Options Resources 227 Part IV: Investment Strategies 229 Chapter 16: Choosing a Trading Approach 231 Being a Boy Scout — Being Prepared 231 Be a voracious reader 232 Have your plan 232 Decide your market 233 Practice with simulated trading 234 Picking Out Your Vehicle 234 Stocks 234 Futures 234 Options 235 Selecting Your Trading Strategy 235 Choosing your market outlook 235 Stock trading coupled with options 235 Futures trading coupled with options 237 Resources for Trading 238 Chapter 17: Finding and Using a Broker 239 Getting Down Some General Points 239 Futures Brokers and Accounts 240 Full-service futures broker 240 Discount futures broker 241 The futures commission merchant (FCM) 241 Introducing broker (IB) 241 Selecting a Broker 242 Commodities Futures Trading Commission (CFTC) 242 National Futures Association (NFA) 242 Futures Industry Association (FIA) 242 The exchanges 242 Keeping your eyes peeled for ICE 243 Dealing with Futures 243 Interviewing a futures broker 243 Margin in a futures account 244 Avoiding problems in your account 245 Opening a futures account 245 Futures account commissions and fees 246 Futures orders 247 Managed futures accounts 250 Some considerations about CTAs 251 Stock Brokerage Accounts 252 Stock brokers 252 Account types 252 Opening a stock brokerage account 253 Types of Orders 254 Stock brokerage services 254 Margin in a stock brokerage account 256 Chapter 18: Using Technical Analysis 259 Technical versus Fundamental Analysis 260 The guts of technical analysis 260 How about both? 261 The tools of the trade 262 Tracking the Trend 263 Trend lengths 264 Channels 265 Resistance and support 266 Charts 266 Line charts 266 Bar charts 267 Candlestick charts 267 Point and figure charts 267 Chart Patterns 268 Head and shoulders 268 Reverse head and shoulders 268 Cup and handle 269 Double tops and bottoms 269 Triangles 269 Flags and pennants 270 Wedges 270 Gaps 270 Moving Averages 270 Simple moving averages (SMA) 271 Other averages 272 Indicators and Oscillators 272 Oscillators 272 Relative Strength Index (RSI) 273 Moving Average Convergence/Divergence (MACD) 273 Crossovers and divergence 273 Bollinger bands 274 Short Term versus Long Term 274 Resources for Technical Analysis 275 Chapter 19: Following Politics and Markets 277 Precious Metals and Skullduggery 277 The controversy over market manipulation 277 The gold market manipulation controversy 279 The Plunge Protection Team (PPT) 280 The profit in market meddling 281 Precious Metals and Geo-Politics 283 Resources on Politics and Markets 284 Chapter 20: Dealing with Taxes 285 Taxable Activity 285 The regular account 286 Capital Gains and Losses 288 Tax-Deductible Activity 289 Special Tax Considerations 289 Gold and silver as collectibles 290 Tax rules for traders 290 Tax Resources to Keep You Up-to-Date 291 The IRS of course! 291 Helpful tax Web sites 291 An ounce of prevention 292 Part V: The Part of Tens 293 Chapter 21: Ten (Nearly) Reminders about Mining Stocks 295 The Company’s Management 295 Financing 296 Earnings and Cash Flow 297 Balance Sheet Strengths 297 Regulatory Environment 298 Hedging and Forward Sales 298 Valuable Projects or Properties 299 Extraction on Cost Per Ounce 299 Political Considerations 300 Chapter 22: Ten Rules for Metals Investors 301 Diversifying Your Vehicles 301 Having Some Bullion Coins 302 Limiting Your Exposure 303 Watching the Markets That Affect Precious Metals 303 Using Options to Boost Performance 304 Adding Alternatives 304 Adjusting along the Way 304 Understanding the Difference between a Correction and a Bear Market 305 Watching Political Trends 306 Monitoring Inflation 306 Chapter 23: Ten Rules for Metals Traders 307 Faking Out the Markets First 307 Having a Plan 308 Avoiding Committing All Your Cash at Once 308 Taking Profits Doesn’t Hurt 309 Using Hedging Techniques 309 Knowing Which Events Move Markets 310 Checking the Trading History 310 Using Stop-Loss Strategies 310 Embracing the Experience of Others 311 Minimizing Transaction Costs 311 Chapter 24: Ten Ways to Limit Risk 313 Staggering Your Entry 313 Using Trailing Stops 314 Diversifying Positions 315 Diversifying in Markets 315 Diversify among Different Vehicles 316 Read the Best Sources 317 Using Protective Puts 318 Avoiding Unstable Political Markets 318 Looking at Past Trading Patterns 319 Taking Some Chips off the Table 319 Index 321