My top 10 reasons why it is still the right time to invest in Gold

Is now the right time to invest in Gold?  An excellent question to ask in October 2011!  

Gold as an investment consideration has received high volumes of publicity, and rightly so; it has a strong, historical track record in volatile times.  Large gains in the last 10 years means gold has gone from $200/ounce to approximately $1,600/ounce. 

With most investors taking the ‘buy low sell high’ philosophy, this leaves many who would invest with the simple problem of ‘have I missed the boat’?  In other words, have all the gains been made, and with a swift end to economic uncertainty, am I going to make a heavy investment loss?  I, for one, believe there is plenty still in this run, with economic uncertainty more than likely to continue for the foreseeable future. 

What we need to look at is fundamental economic indicators and some pointers to make an informed investment decision.  Below are my top 10 reasons why gold remains a bull market for investors:

* Central Bank Interest rates are likely to remain very low for several years.

Japan is always an interesting model, as one of the first countries in the last 20 years to head towards 0% interest rates.  “The lost decade” of 1990-2000, where low inflation and high values led to cheap credit, created an asset bubble and the inevitable crash (sound familiar?).  One of Japan’s answers was to lower interest rates to stimulate the economy but this did not do nearly enough.

Japan got stuck in recession, including the following 10 years, now known collectively as the “lost years”.  The problem was that in usual recessions, interest rates tend to be high, like the 15% experienced in the UK in the early 1990s.  The lowering of interest rates was always seen as the “go to” measure. 

In the West, we have followed a similar model and now experience near zero interest rates.  Any upward movement would have a catastrophic effect on the housing market, with so many purchased using highly leveraged, cheap credit.  Therefore, it is hard to see how we will pull ourselves out of this in the next 10 to 20 years.  As I will look at later, it means the economy is unlikely to improve over in the near future and will almost certainly stagnate.  As a result of the required low Central Bank interest rates impacting on an already weakened currency and a lack of liquidity, gold will always rise in value as alternative havens are sought.  It therefore offers an investment opportunity right now on this basis.

* Bank deposit interest rates will also remain low for several years

As a result of point 1, point 2 follows.  Savers are in for a rough time, getting next to nothing from their chosen bank.  In many ways, it is an excellent situation for banks, who do not have to pay savers much of a return, and many savers will accept this.  Investors looking for a return on their capital can only look in a few directions, and one is to invest in gold, whose value will remain robust whilst interest rates are low.

* The stock market continues to tank.

In the UK, the London Stock Exchange has gone from a high of around 2,000 points to it current position of 848, so a loss of more than 50% of its value in the last 4 years.  With the lack of liquidity since 2008, and the numerous liquidity issues affecting governments and continents, like the Eurozone, let alone companies, it is difficult to see much value in the stock market unless it is found with a seriously well-trained eye.  It is also true that fears exist about the bond market.  This is a more complex subject, to be dealt with another time.  So a falling stock market correlates historically with rising gold prices, and the indicators suggest this will continue and provide an ongoing investment alternative.

* Inflation can only rise with QE.

Standard economics tells us that the larger the volume of money flowing around the system, the less an individual note is worth.  So it is we come to QE!  At some point, inflation has to rise, and in many cases it has already done so, even if our governments downplay it.  You only need to look at a loaf of bread and how much that now costs compared to 12-24 months ago.  However, interest rates are unlikely to go up to combat this due to the damaging nature this would have on the housing market and mortgage loan repayments.  As a result, inflation is likely to be on the up over the medium term, affecting everyone’s cost of living.  So what is the best hedge against inflation?  Gold investing.

* The economy is getting worse, not better.

There are numerous articles out there covering the stats in depth, and in the UK we will have a number of interesting data sheets out this week on manufacturing, etc.  The nuts and the bolts of it is that unemployment is rising, the cost of living is going up, wage levels, in many parts of the private sector are going down, and a large section of the population in the UK and US is tied down with crippling levels of debt.  Coupled with economic indicators, there is little to suggest a recovery is anywhere near close.  In my mind, 10 to 20 years is a minimum.  As a result, investors will see Gold will rise against the failing economy.

* Government debt defaults will affect currency valuations

A weak currency means it has low value of course, and as currency falls, gold rises as an alternative form of barter.  As we know, not only private individuals are in debt, so are local councils and whole governments, right up to the US.  With the increasing threat that governments cannot pay their debts, currencies weaken, and investors will see gold rising.

* Record returns from some gold funds

From a more positive investment point of view, Business Today Online reported an Exchange Traded Fund for gold in India had reported record monthly rises for their investors of 15% in August 2011.  This suggests that the price of Gold, and therefore their investment returns, are still on the increase!

* Increasing demand for gold from Chindia.

The same article also provides some evidence of the increase in demand from India and China, which is a long-term fundamental with their growing populations coupled with increased prosperity.  Looking at the jewellery market, demand grew in India by 38% and in China by 25% year-on-year, which is a solid indicator for us investors that demand for gold at least is still likely to be on the up and help provide returns.

* Many new companies created who want your gold show demand is strong.

It is interesting how many companies have been created who wish to buy your gold.  In volatile times, along with heavy debts, it may seem a good idea, if not a desperate need, to sell your family jewels for cash.  However, in the long term, you may be losing out again.  It may be wiser to embark on a debt repayment scheme and negotiate the debt down with providers than sell assets that are actually rising in value over the medium to long term.

* Assets perform in a volatile market

This point may be a summary of sorts, but in a time when currency may become worthless, or a change of currency happens globally as the solution, owning “things” like land, like gold and silver means you have a bartering tool when all else has failed.  History is littered with inflationary disasters, and gold has always been one of the ‘must have’ investments.  It is still time to become a hard asset investor.

So there we are, my current thoughts on the situation.  The long-term economic indicators are still in place for gold to continue rising even if prospective investors have missed out on a significant chunk of the gains.  I hope I have shown that this investment sector is an interesting one to look at.


To learn more, click below for a great introduction to investing in Gold.

http://2c7e0oxb-98s9w01-ffewch4xk.hop.clickbank.net/

Foreclosures or Repossessions as investments

Today, I’m going to turn our attention to repossessions, or foreclosures as they are known in the United States.  I am going to explain to potential investors what a foreclosure is, why it happens, and what the opportunity is that is before them.

For new investors, property repossessions, or foreclosures, are properties where the “homeowner”, cannot repay the loan, or mortgage, that they have on their property through their bank.  A mortgage, being a form of secured loan, means if the buyer/owner cannot make the monthly repayments as agreed, the bank can take the security, or foreclose/repossess.

“Repos” are a feature of a recession, or downmarket, and tend to rise in volume as more people become unemployed, or the cost of living rises to such an extent that the homeowner struggles to meet their monthly commitments.  An unfortunate situation most would agree but a real one it is.

Investing in Repos has become quite popular this time around, particularly as there is so much volume.  Why is this?  A quick history lesson:

In the last boom, the buy-to-let concept really took off, but it was the higher ratio of mortgage to deposit that meant any downturn would be felt more sharply.  In practical terms, instead of a 20% deposit and 80% mortgage, buyers were able to get as much as 105% mortgages with no money down.  This sounds great in principle, particularly if you are familiar with the concept of leverage (i.e. using someone else’s money to make you profit).

However, there is a major downside if the economy turns, as it did.  The larger the loan amount, the more difficult it is to repay if income reduces, the cost of living rises, or the level of debt (through credit cards) has exploded.  So this has led to a huge surge of repo properties hitting the market, not just in the UK, but the US as well.

So what does this mean for investors looking for a genuine investing route today?  Many of these properties can be picked up for less than full market value because the banks just want to get their money back.  Therefore, properties can be as much as 50% discounted from their Open Market Value (OMV), which gives investors the chance to generate a capital gain, even in a downmarket.  If you have some form of deposit to put down, the lower purchase price also means you are more likely to get a mortgage, as the monthly payments are more likely to be serviced.

Click here for a great introduction to foreclosures

Investment tips for City Buy to Lets

On a slightly different subject, having renovated property in London and worked in the property investment sector, many people are asking, how do I invest in today’s climate for capital gain?  I have a couple of thoughts for those people based on experience!

1) Look for ripple areas where downsizing is happening..

This is really interesting and is happening right now.  Think of the richer areas in London and consider the areas around them.  Many folk over borrowed in the good times, even the rich, and have had to downsize.  However, it is unlikely they went too far from their current location if possible, due to children at school, work issues, etc. 

An interesting example is Greenwich and Westcombe Park in South East London, where I have been based on and off for 10 years.  A friend of mine purchased a terraced house in Westcombe Park in 2005, having done nothing to it, and it has been recently valued as 10% above the buying price.  This is incredible when prices are tumbling in many other areas, so why is this?

Simply, many folk have downsized from Greenwich.  Both settlements sit around Greenwich Park, with a number of train stations 20 minutes away from Charing Cross, and 15 minutes from London Bridge, so for these homeowners there would have been little change other than the postcode from se10 to se7.  It is widely acknowledged that houses are selling well and reasonably quickly here.  So the downsize factor is an interesting criteria to consider if you are looking to buy.

2) Infrastructure improvements

An old one, but still one of the best tips going.  Consider new rail or underground links, like the jubilee line extension through South East London.  This will make getting into the centre of London more accessible, and thus likely to increase property demand and prices, which has already started to happen. 

It is important to consider permanent improvements, which brings me onto the hype surrounding the Olympics.  Clearly the surrounding area is being massively improved, but does the area provide sustainable property capital gains based on this one event?  This is up for debate.  The Olympics lasts 2 weeks and is then over, so I would certainly consider the fact that long lasting infrastructure improvements in transportation would have a more significant factor in property uplifts.

I hope those tips help; happy hunting!

What does the Greece story tell investors?

A dreadful tale unfortunately, but one with its own lessons, not just for the Greeks but for investors as well.  How can that be?

As reported by numerous sources over the last month including Reuters (http://uk.reuters.com/article/2011/06/01/uk-eurozone-greece-privatisation-idUKTRE7501WU20110601), as part of the bailout agreement, a privatization agency will be formed, independently from the Greek government, in order to oversee the sale of state assets to potential buyers.

Apart from the political issues, or whether you agree with what has happened, it raised an important issue for investors, particularly prospective ones.  How do you buy and when do you sell?

There is no doubt there is great value in Greek state assets, which will be sold most likely for under market value; a great deal for those large institutions who will invest.  But what it shows is part of the age old investment strategy of “buy low, sell high”, and more importantly why it happens.

The Greeks are in trouble, therefore they have apparently no choice but to sell good quality assets at knock down prices, as they are not in a position of power.; they need to repay their debts.  Compare that to say, the Chinese, who are booming, and would not sell state assets because there is no need to, and certainly not at a discount.

If you are looking at investing into a certain area, be it gold, property, stamps, silver, shares, etc, one of the main criteria to ask yourself is: is their value to be gained?  Or why is this being sold?

In order to get value on an investment proposition, there is quite often some problem lurking, or an urgency to sell, or a sudden drop in price.  An example would be the homeowner who has got himself into too much debt, and needs to sell his property quickly to repay.  If he was not in debt, he would not need to sell.  This is typical discount investing, much of which is happening today.  You may think this is harsh, but it is reality.

Interestingly, if one looks at this the other way now, how many people invest when the market is booming?  The property investment boom, from 2004-8, was one such cycle.  Unfortunately due to bank lending restrictions, many got burnt, but it is widely recognized that the value had been lost as properties were sold for higher prices than the banks were going to value them at.  As another old saying goes, if the man cleaning your shoes tells you to invest, it is probably time to get out.

In summary then, the unfortunate Greece story is an opportunity for large investors to buy up at value.  Whether you like it or not, it is a lesson to be taken for any type of investment.  Try to buy low, and sell high.

Welcome to Investing Today

In today’s climate, there are still a number of ways to invest, which this article will cover now.

For newbies to investing, most people invest for two main benefits.  These are:

1) capital growth of the funds invested and

2) income generated from the investment.

Although what you invest in can be split in numerous different ways, I am going to talk about 3 different types of investing:

1) Investing in companies: this can be through shares purchased on the stock exchange, where companies pay you a dividend (income).  You can also make profits from the change in value of the share or shares you purchased (capital growth).  Bear in mind that the value can go down as well as up!  

It is also possible to provide private loans to companies in return for income over a period of time.   You will need to be a certified investor, what is called in the UK a High Net Worth (HNW), as decreed by the financial regulatory body of the time, previously known as the Financial Services Authority (FSA)

2) Investing in Assets – investors can also invest in assets, predominantly for capital growth over a period of time, but income is available on some investments too.  The most popular of which is investing in property, either residential or commercial.  Larger investors also invest in land, either commercial or even agricultural, which is particularly popular in a volatile market like we have today.  Commodities attract many investors too so one can also consider investing in precious metals such as gold or silver.  Their values typically rise in a downmarket, and are again popular today.

There is also a booming alternatives market where you can invest in anything from films, stamps, wind/solar energy to carbon credits!

3) Investing in yourself – finally it is also possible to invest in yourself by starting and building your own business!  There are literally hundreds of business ideas out there, with investors either building businesses with high income levels, or to sell further down the line as a capital growth strategy, particularly for retirement purposes.

So we have briefly covered a number of generic investing ideas here, which should hopefully give you some direction when searching the internet for the product that suits you best!