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Recent sell-off sets up next gold rally

The following is a guest post by Lawrence Carrel, author of “ETFs for the Long Run” and “Dividend Stocks for Dummies.” The opinions expressed are his own.  Full disclosure: The author has had 7 percent of his personal retirement account in a gold ETF for the past four years.

When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.

“I can tell investors don’t sell off your gold,” says Martin Murenbeeld, the chief economist at DundeeWealth. “We’re at a crossroads here.”

During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.

Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving average’s support level of $1,527.  While most gold watchers expect the metal to experience turbulence during the next few months, the world hasn’t changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.

“Have the countries around the world solved the debt crisis?” asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. “Have the bailouts ended? Have their currencies stopped tanking?“ With the world already worried about Greece’s fiscal problems, gold summer’s rally was sparked by fears that the U.S. might default on its debt.

After Standard & Poor’s downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.

Panning for gold: You could profit or just have fun

With the wild ride on the world’s markets enough to give even the most seasoned investors the jitters, everyone is talking about gold.

You could shell out $1,700-plus for an ounce of the precious metal, or diversify your portfolio with gold ETFs. But how about finding it the old-fashioned way and panning your way to a get-rich-quick fortune just like the pioneers in the Old West? It can happen: A guy named Jim Sanders found a 9-pound nugget last year which would be worth about $230,000 at today’s prices.

From California to Alaska to the Yukon, gold prospecting vacations have long been a source of entertainment, but now have the allure of big-time profit (which is never directly promised). But don’t book your ticket to the Yukon just yet — unless you promise to not quit your day job. And, keep in mind that the fun is what most folks who take these trips talk about, not banking the motherlode.

“It’s not as much about the gold as it is getting out there and having a good time with friends and families, but yes you can find gold,” said Brad Jones of the Gold Prospectors Association of America. “Yes, serious prospectors do make a living, but they are few and far between and they know what they are doing.”

The association cautions anyone with gold dreams to proceed cautiously, while acknowledging there is gold in them there hills.

To start a cost-benefit analysis of whether you can make money on a gold-panning vacation, remember it costs money to get there, costs money to stay there and costs money to get access to the area approved for mining or panning and for the equipment you’ll need. So you could easily start more than $3,000 in the hole (about an ounce and a half of gold you can cash out).

Mark Castagnoli, president of Placer Gold Design in Vancouver, British Columbia, has plenty of experience in the gold business including in Western Canada’s placer mines. He believes in gold adventures for what they bring to the economy and the potential that you can actually find something more than a bit of gold dust.

Commodities in, cash out for Tea Party wealth advisers as debt deadline looms

Just because some financial advisers associate themselves with the Tea Party doesn’t mean they can read tea leaves. Ultimately, they don’t know what’s going to happen in Washington any more than wealth managers at Fidelity or Merrill Lynch, but they have a pretty good idea of the long-term effects regardless of what happens.

“This so-called crisis will all be over in a week or two or three, and when it’s over, the stock market will go right back to where it was,” says Bob Bennie, a certified financial planner  in Lincoln, Nebraska, and a leading state Tea Party organizer

So what are Bennie and his fellow Tea Party brethren telling clients to do differently as the August 2 deadline draws near?

Nothing.

That’s right: No hunker in the bunker. No massive selloff. No Wall Street equivalent of a Hail Mary play. On the surface it might seem like the same wait-and-see attitude other wealth managers espouse. But while some non-Tea Party people talk of converting assets to pure cash at a moment’s notice, for example, you won’t hear anything like that from this set. No sir.

“If someone came to me with cash today, I would invest it in domestic equities and commodities tomorrow,” says Bennie, who manages about $85 million in assets. “I don’t believe this market is going to take a big tank tomorrow: no way, no how.” He’s investing in gasoline, gold and silver.

To say Bennie is no big fan of Democrats and the White House is putting it mildly. Financial Advisor reported last month that Bennie sued the Nebraska Department of Banking and Finance, alleging the department sanctioned him because he made a public statement calling President Obama a Communist.

How Americans buy gold and precious metals on eBay

Looking to stock up on gold bullion as gold prices soar to all-time highs? Plenty of Americans are turning to eBay’s Gold and Silver outpost. The company says sales of gold bullion have increased more than 60 percent from 2007 through 2010.

Some notable facts about precious metals sales on eBay:

* The top three states for precious metals sold per capita are Alaska, Wyoming and Nevada.

* Almost half of the silver and gold buyers in the first quarter of 2011 never purchased these items on eBay before.

* There are two silver buyers for every gold buyer because silver is so much cheaper.

* Privately minted bars are purchased more frequently than the American Eagle, the bullion coin issued by the U.S. Mint.

What will you get for your money? On Thursday morning, you could buy a 2011 American Eagle silver coin from a top-rated seller for $48, including shipping. This represents a $8.40 (or 21 percent) premium over the spot price of $39.60, according to eBay. You could also purchase a 2011 American Eagle gold coin for $1740 — a $143.10 (or 9 percent) premium over the spot price of $1596.90.

Gold crash: What could trigger the inevitable

Before you sell that last piece of jewelry, keep in mind that the gold price will not go up indefinitely. There are number of reasons why it might crash.

If you’re overweighted in gold or commodities, the warning is the same: A stronger dollar, strengthening U.S. economy or rising interest rates could derail the epic yellow metal mania. Who knows? Congress could even reach an agreement to clear up its balance sheet and pay down its debt.

What are the chances of any of this happening? It’s beyond the limits of my minuscule, clouded crystal ball, which is about the size of a pinhead. Nevertheless, you should prepare your portfolio for any number of eventualities, which can be easily accomplished with exchange-traded funds.

Gold is troublesome in my book because it really isn’t an investment. It’s a reserve currency of sorts that’s heavily traded by institutional investors. It doesn’t pay any dividends or interest and is bought in times of widespread fear.

The savviest traders buy gold as a hedge against the dollar. In the past few years, it’s also been a bulwark against the Euro as well, which has been bruised by sovereign debt woes in Greece, Ireland and Portugal.

Is the Euro financial fizzle over? I don’t think so, but it’s still not a reason to load up on gold.

The clearest threat to gold’s reign as the reserve currency of nervous Nellies is a possible rebound of the dollar. Given the congressional wrangling over the debt limit, budget and growing inflation, betting on the buck is like trying to figure out whether a racehorse will finish. They often pull up lame.

Are commodities too risky for individual investors?

The commodities sector offered one of the best storylines in recent years:  strong growth thanks to increased demand from emerging markets, an opportunity to hedge against inflation, along with all-important portfolio diversification. Until the recent selloff, silver was the best-performing commodity in 2011, nearing all-time highs of $50-per ounce.

But as silver plunged 30 percent in the last two weeks, and oil, cotton, gold and other commodities prices have similarly been battered, investors seem to be spooked by the volatility. Case in point: the world’s largest silver-backed exchange-traded fund,  iShares Silver Trust, has seen massive outflows.

With so much churn, do mom and pop investors belong in commodities? Although they are often targeted to individual investors because they are so easy to buy and sell, exchange-traded funds (ETFs) that focus on commodities are especially popular with professionals, such as hedge funds, who thrive on volatility. Professional investors have the resources to closely monitor every move of the ever-changing commodities market — but most individuals might not have the time or tools to stay on top of the long list of factors that impact commodities prices, including the futures market, political events, economic data and even the weather. That’s why experts suggest keeping commodities exposure to no more than five percent of your overall portfolio.

Tell us what you think.

Are commodities too risky for individual investors?

• Yes, they pose too much risk
• No, they provide a great investment opportunity

Best ETFs in 2010: Some surprises

Other than gold- and silver-based exchange-traded funds (ETFs), which funds produced the best returns last year?

A reasonable guess would be that anything invested in precious metals did well in 2010. You’d be right, but less-glamorous ETFs investing in Peru, Thailand and Colombia also made the top 10 of ETF Trends’ top-performing list .

I know these countries are hardly on most investors’ radar screens. And I certainly don’t endorse you jumping into these funds now because you won’t get last year’s returns. A broad-based approach, though, will serve you well.

Peru and Colombia make a lot of sense to me and will continue to prosper. Both are resource rich and feature growing economies. That’s why the iShares MSCI Peru fund returned 57.2 percent last year and the Global X/InterBolsa FTSE Colombia fund rose 52.7 percent.

Tiny Peru has one of Latin America’s fastest-growing economies. At eight percent growth last year, it’s keeping pace with China. Colombia, along with Peru, is building a larger middle class and benefiting from resource wealth.

While these Andean countries have been devastated by civil wars and poverty throughout most of their history, they have stabilized politically. They also are in demand for their mined resources.

China, India and the rest of the developing world are paying top dollar for their copper, silver, gold and other commodities. Colombia features the largest coal reserves in Latin America and is also endowed with petroleum and natural gas.

One more boon for commodities: Emerging markets

This post is by Nanette Byrnes, editor of Portfolioist.com

Given the record values commodities hit in 2010 and the fact that they’ve suffered a slump so far in this still-new year, should anyone be thinking about adding commodities to their portfolio now? Some experts say yes.

In recent years there’s been increasing evidence that commodities can be both a hedge against inflation and provide balance in a portfolio, often moving up when other assets move down.

Now John L. (Launny) Steffens adds another argument for commodities in 2011: they may provide the safest way to benefit from growth in emerging markets.

Commodities and Emerging Markets Steffens is founder of Spring Mountain Capital, a New York-based alternative investment firm that manages more than $1.5 billion in wealthy individuals’ investments, most of that by investing it in hedge funds and private equity partnerships. Before starting the firm in 2001, he worked for 38 years at Merrill Lynch, running some of their largest business lines.

Steffens is recommending investors buy into commodities in 2011 as a way to get in on continued growth in emerging markets, with a limit on the downside risk.  Commodities, Steffens argues, give you exposure to emerging markets growth (since those markets’ demand drives rising need for oil, commercial metals, beans, and other commodities) but if those fast-growing regions should for some reason hit a bump, commodities could still be a winner as a hedge against the inflation that might come with such a slow down.

6 top financial trends for 2011

Although the old Chinese curse “may you live in interesting times” has a certain irony about it, this year will certainly not be dull for investors.

To prepare for it, you’ll need a plan, as always. I suggest you craft an investment policy statement that puts down in writing your goals and the amount of money you don’t want to lose. Then plan accordingly.

Resolutions are not on my list, nor is a budget, which doesn’t work for most people. Just stick to growing your money in a sustainable way.

And don’t pay any attention to forecasts. Stocks will fluctuate. There will always be volatility. Focus on a point in the future and figure out how to get there. Here are some trends already in motion that will help you in the coming year:

More brokers will be fired. If you have an adviser who makes recommendations based on commissions, they will never fully be in your corner. Make your own decisions. Only hire advisers and planners who are fiduciaries and will take responsibility — and can be sued — for their bad advice. (Sometime this year, the Securities and Exchange Commission will rule on whether all brokers should be fiduciaries, which will be a beneficial change.) If you need an adviser, hire a fee-only certified financial planner (www.napfa.org).

More investors will buy into auto-pilot portfolios. Wall Street has snookered Americans for years. They have conned people into believing that diving in and out of stocks and funds will boost your wealth. Well, it does increase wealth — theirs. Investing doesn’t have to be complicated. Stop investing in actively managed funds, most of which don’t beat the market over time. Figure out how much risk you can take and find a passive index portfolio at Folio.com or myplanIQ.com that meets your criteria for risk. Every major fund and ETF company also offers passive funds. Automatically invest in your 401(k) and other retirement plans. Rebalance every year according to your investment plan statement and goals.

Your taxes can come down even more. Sure, the government will give you a break on payroll and income taxes, but there’s more you can do. Appeal your property taxes. Property prices are averaged over the past three years by most assessors, so you should be due a reduction in your assessed valuation. Check your payroll tax withholding. Getting a refund every year isn’t necessarily a good thing. You’ve essentially handed the government free use of your money for a year. If your withholding rate is too high, lower it and give yourself a raise.

Coming soon: the loud thud of a gold bust

Some time in the future the price of gold will crash and it won’t have a fairy-tale ending for the millions of investors who piled on in recent months.

If I could tell you when gold was going to bust, I’d likely be wrong or bigger than Warren Buffett, so I won’t even try. Just be incredibly cautious now. There are too many signs that gold is frothier than a Starbucks cappuccino.

It’s not that I don’t nod in agreement when gold bugs rant about why their metal holds a special value now. The dollar is in deep trouble as the U.S. sinks deeper into debt. Will Portugal and Spain be the next Ireland on the bailout boulevard? Ben Bernanke may not be able to put a dent in U.S. unemployment or the intractable housing crisis.

And yes, I also know the argument on how gold is nowhere near its inflation-adjusted equivalent of its high in January, 1980. According to the Leuthold Group, gold will have to hit $2,400 an ounce to match the $850 high mark it hit in 1980 in real terms. That doesn’t mean it will, of course.

Yet the back story of the world’s financial insecurity isn’t necessarily about gold being the last or only store of value. It just may be the most popular red herring at the moment.

One flaw in the “gold can still climb to $2,000″ argument is that the last boom was due to the hyperinflation of the 1970s and early ’80s. Everyone who is leery of the U.S. debt flooding the bond market is right to suspect that a new version of stagflation (no growth, higher prices) may be upon us.

Right now, though, we’re in a deflationary mode. This “deleveraging” could go on for some time as demand for credit stays low and foreclosures continue to ravage the housing market. Home prices are still falling in some places and hot money has shifted to stocks and commodities because of record-low yields in Treasury securities and savings vehicles.