Precious Metals Investing For Dummies

Paul Mladjenovic is the owner of Prosperity Network and www.Super MoneyLinks.com. He is also the author of Stock Investing For Dummies, 2nd Edition.

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