The golden don'ts

Charles R. Stahl

Don't buy gold for investment. Gold is strictly an insurance of last resort.

Don't buy gold from strangers or anyone you know who is not considered to be 24 carats himself.

Don't buy gold bars for security or as a hedge against inflation, because when you will want to sell them you may have to pay more to prove that those baby bars are real gold than the amount of money you will receive for them. Each of the small bars will have to assayed before the buyer will pay you.

Don't buy gold on margin, unless you trade in the futures market on a commodity exchange of long standing.

Don't pay additional margin on your gold futures position when the market declines. The call for additional funds from your broker is the best proof you are on the wrong side of the market.

Don't buy gold coins which carry a premium higher than 15 per cent over their gold content.

Don't always believe what gold miners, members of the Swiss gold pool and gold bugs in general tell you about the upside price potential of gold bulliok They all have a vested interest in higher prices.

Don't talk about the amount of gold you keep at home.

Don't forget that at 10 per cent compound interest, money doubles in about seven years. In terms of the dollar, gold matched and surpassed that only once, in 1971-1974.

Don't ever believe in the myth that the 'anonymity' of gold always works to your advantage. If gold is stolen from you and resmelted, you won't be able to prove that it was your gold.

Don't keep your gold in a bank safe unless the contents are insured.

Don't buy gold at a discount – there is no such thing.

Don't take delivery of gold when your futures contracts mature if you intend to resell it. (Hold depository receipts from a commodity exchange-approved warehouse instead.) Don't expect to get bars weighing less than 400 oz. without paying a substantial premium.

Don't forget that more gold is produced every year than is consumed by the industry (jewellery, dental, electronics, defense, arts).

Don't believe central bankers will not sell their gold; it is a matter of timing.

Don't believe that the Arabs will swap oil for gold; over the years oil in their wells may appreciate more than gold in their vaults. In the last two years oil prices did just that.

Don't forget that the world's largest unmined gold reserves are in the Soviet Union, and not in South Africa.

Don't buy gold with money you may need for emergencies.

Don't buy gold when it has had a large rise in price and everybody is in a frenzy of optimism about its upside potential.

Don't sell gold when its price is down and everybody is pessimistic about it.

Don't buy gold futures unless you have had previous experience in trading commodities. Keep in mind Adam Smith's recommendation in 'Supermoney' that whenever you have an urge to purchase futures, lie down and stay put until the urge goes away!

Don't believe that all those fair-minded organisations who are eager to let you have all the gold you want are doing it for altruistic reasons. They are all in business to make a profit.

Charles Stahl is President of Economic. News Agency and publisher of Green's Commodity Market Comments