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Better Than Buy-and-Hold Gold Investment


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We were asked to comment on a specific long-term investment plan, one for the next 10-15 years. Namely, the question was about purchasing 6,000 oz of gold, keeping it and using it for everyday expenses. While we cant reply directly to a given person if that is a good idea specifically for them, because that would be an investment advice and we cant provide such, we will do our best to discuss the question in general terms for the benefit of likewise-leaning persons.

First of all, in our opinion, its not a bad idea. A bad idea in our view would be to keep it in cash and let inflation slowly eat it away. An even worse idea would be to use ones entire capital for aggressive trading with huge position sizes and immense leverage. Or to pick up shares in just one or two junior mining companies based on some investment forum gossip and becoming a victim of a pump-and-dump scheme or plain old corporate management risk.

So, purchasing 6,000 oz of gold is not a bad idea as it avoids many pitfalls and dangers that a partially informed investor might fall for.

But, is being not bad enough to be good? And how to define enough in general? Long-term investments are a very important matter, and one needs to make decisions with utmost care. Not bad will be a good choice when buying a t-shirt. But will it cut it when determining what to do with ones life savings?

Actually, it depends. It depends on many factors, but the key thing seems to be how much would one really needs and how much one has. If you have billions and you only need millions, then its probably enough. If you have millions and only need thousands, its also likely enough. But good luck finding anyone who has millions and would be satisfied with thousands.

Most people who say that they dont want more capital, say so only until they realize what more capital really means. Preserving capital seems like a nice goal, until people think what more capital means. Their lifestyle improvements, the financial security, or helping to secure their childrens and grandchildrens future. Heres a firsthand example. Even though I could afford a nice shiny new car for a long time, I didnt buy it, until I realized how much safety the extra airbags in the backseat row mean. What about the stress and health in general? A nice vacation every few months wouldnt hurt. Just ask your significant other. Tuscany is pretty nice this time of the year

Solution: Check for investment plans that are likely to outperform gold, thus likely providing greater returns.

But if I just buy gold and it then appreciates in value over time I should be fine

That may very well be the case. But you know what else might happen? Market can fluctuate thats what markets do in general. Buying gold at $1,800 or so and then waiting almost a decade only to see it at $1,300 would almost definitely be detrimental. Stress causes so many adverse effects to ones health that its hard to count. A losing decade might have easily caused one of many unfavorable health outcomes, and/or it could have caused family arguments regarding the investment choice. And thats not even counting the losses themselves[PR1].

Fortunately, gold is not at $1,800, but close to $1,300. Still, based on myriads of factors, it seems that its on its way to about $900. At this time, it seems that gold will move there in the next several months and then start to move back up. But What if the outlook changes in the next couple of months and it turns out that we will have to wait for the rebound for much longer?

Solution: Having investment plan that takes one off the market if a big move lower appears likely.

The worst thing is that the market is not the only thing that may change. What if something really bad happens out of the blue in the meantime? Imagine that yourself or someone you love gets seriously sick, or has a serious accident that requires immediate and costly medical care. Youll definitely fall back on your investments to help. But would that mean selling at the desired price? No, you would sell at whatever price the market currently offers, because it would be urgent to get cash. It wouldnt be that bad if it happened after a gold rally above the purchase price. But, what if it happened during the move down? In such a case, what might have otherwise been a sizable but still reasonable correction within a profitable upswing, could become a move that erases almost the entire investment position. Hopes for stable future would go down the drain along with it.

Moreover, just because today the odds favor a certain market outcome, doesnt mean that the same will be the case also in six months. Lets keep in mind the period that were discussing here: 10-15 years. You know what was unthinkable 5 years ago? That Donald Trump would become the U.S. President. A lot of things can happen, and setting an investment plan in stone without timely reviews and adjustments based on changes in circumstances can cause severe trouble.

Solution: Reviewing ones strategy periodically or having someone trusted do it.

To summarize, buying gold with the buy-and-hold approach while spending it along the way seems to be a very good idea at first sight, but taking a closer look reveals that while its not bad, it could be greatly improved. In other words, there are areas where this simple plan aiming to profit on a long-term uptrend in gold is not likely to perform particularly well.

Golds long-term performance is likely to be good, but the performance of a precious metals portfolio consisting of: gold, silver, gold stocks, silver stocks, and junior miners is likely to be even better and this article discusses it in great detail.

Taking a more active approach than a simple set-and-forget investing can also help to outperform and gain flexibility in light of less predictable changes. You will find details on how we fared over here.

There is also a dimension of the precious metals market that a simple buy-and-hold-gold plan entirely ignores. Its the difference in performance that we can see in mining stocks and silver. Miners tend to outperform in the initial part of a given upswing, while silver tends to catch up this may seem simple, but it remains efficient as very few people know this (plus, we havent disclosed the formula for our silver-miner indicator). As our research shows, by moving from one part of the precious metals sector (mining stocks) to the other (silver), its possible to multiply the buy-and-hold gains while remaining invested in the precious metals market at all times. We have described this technique as buy-and-hold on steroids.

It is our opinion that an actively managed precious metals investment portfolio (one that reflects major changes in the long- and medium-term trends) is a far superior approach to a simple buy-and-hold strategy. On the surface, the latter appears simple and easy to execute, but the former takes into account more of the unpredictable changes, and is likely to outperform - bringing more profits, robustness, and diversification. The end result is a greater peace of mind.

Finally, a word of disclaimer: I may be biased, as Im applying the above-mentioned techniques in my private precious metals investment fund with regard to my own and my clients investment capital.

We hope you enjoyed todays analysis, and we encourage you to sign up for our free newsletter. Youll be updated on our free articles on a daily basis, and youll get access to our premium Gold & Silver Trading Alerts for the first 7 days as a starting bonus. And yes, its free. Sign up today.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


[PR1]High inflation would like mean higher gold prices, so it might not be the best argument here. I understand your point, but it seems that it makes the case more complicated and less understandable. I think that less is more in this case.



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About the author


Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same. 

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation. 

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions. 

High quality of analytical tools available at http://www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital. 

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential. 

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society. He also holds a master's degree in Finance and Banking, and is currently writing his thesis after having finished his PhD studies in Economics. 

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