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Monday, February 2, 2009

Can you give us a profile of the typical gold investor?

Traditionally, wealthy, aristocratic European and Asian families have kept a strong percentage of their assets in gold as a protective factor. That same philosophy has caught hold in the United States over the years, particularly in the upper middle class, and there are a number of investors who add gold to their portfolio on an on-going basis as part of a regular gold savings program. This has been good for gold.

Most investors, as I alluded to before, acquire gold not so much because they feel that the price is going to go up, but because they want to insure their portfolios from destruction related to currency debasement -- no matter if their currency is the dollar, euro, yen or reminbi, for that matter.

Our clientele represent an approximate cross-section of America and Europe, but the heavy buying is concentrated in the professions and among people who own their own businesses. Those with family wealth have also moved to diversify into gold in recent years.

In your book, The ABCs of Gold Investing, you start the chapter by saying "Who you do business with is one of the most important aspects of gold investing." Why is that?

A solid, professional gold firm can go a long way in helping the investor shortcut the learning curve. A good gold firm can help you avoid some the problems and pitfalls encountered along the way -- provide some direction. It is very important to pick the right firm -- one that is highly professional, doesn't have a political ax to grind and can help you choose the right gold product mix to hedge your portfolio. Unbiased, objective advice from ones gold advisor is key to this process. So are market information and education. Pricing, product selection, fulfillment and on-going support also rely on that relationship. Picking a gold firm will be one of the most important decisions you make on the road to gold ownership. That's why we started this website and why it has become one of the most important gold sites on the internet.

Can you briefly describe what you believe to be the biggest mistake investors make when starting out as gold owners?

The biggest trap investors fall into is buying a gold investment that bears little or no relationship to his or her objectives. Take safe-haven investors for example. That group makes up 90% of our clientele, and probably a good 75% of the current physical gold market. Most often the safe-haven investor simply wants to add gold coins to his or her portfolio mix, but too often this same investor ends up instead with a leveraged (financed) gold position or a handful of exotic rare coins (often costing five or six figures). These have little to do with safe-haven investing, and most investors would be well served to avoid them -- except as a sideline.

What is your view of gold stocks?

Many of our clients own gold stocks and we believe they have a place in the portfolio. However, it should be emphasized that gold stocks are not a substitute for real gold ownership. Instead, stocks should be viewed as an addition to the portfolio after one has truly diversified with gold itself. Gold stocks could actually act opposite the intent of the investor, as some justifiably disgruntled mine company shareholders learned in the recent past. We cover some the differences between gold stock ownership and metal ownership in 'The Differences between Owning Stocks and Owning Metal' (see link below) so I won't go into the details here. Suffice it to say that gold stocks are stocks first and metal second. There is no such ambiguity involved in actual gold ownership.

What about gold futures contracts?

Futures contracts are generally considered one of the most speculative arenas in the investment marketplace. The investor's exposure to the market is leveraged and the moves both up and down are greatly exaggerated. Something like 9 out of 10 investors who enter the futures market come away losers. For someone looking to hedge their portfolios against economic and financial risk, this is a poor substitute for owning the metal itself.

What is the best approach for the safe-haven investor?

If you want to protect yourself against inflation, deflation, stock market weakness and potential currency problems -- in other words, if you want to hedge financial uncertainties, there is only one portfolio item that will serve you in all seasons and under most circumstances -- gold coins.