A Simple Gauge on Gold

[TrueVine]

Prayer, for revelation on how to invest my resources and the resources of my clients, is the foundation of my investing. This is where I get my mid to long-term focus. God always has a strategic direction for His resources. Additionally, for various short-term decisions, there are simple tools that investors can utilize.

For those who are currently investing in gold I have found a simple gauge that can help when determining when to add to or reduce your position. I use the level of premium or discount on the Central Gold Trust (ticker: GTU) to help determine current buying or selling pressure on the metal. GTU is a closed-end fund, which means the number of shares generally does not change. It trades (like a stock) at a price different than its Net Asset Value (NAV)—at a premium or discount to it.

If I am looking to buy gold I ideally want to do so when there is light buying pressure. This sets me up for a buy low, sell high position. If I am looking to reduce gold holdings I ideally want to do so when there is heavy buying pressure. Often times this will have me selling near a short-term high in the price.

If you go to www.morningstar.com you can view the current premium or discount on GTU. Today (Jan 4, 2011), there is a premium of 1.73%. This is very low compared to the average. Morningstar also gives you the 3-year low and 3-year high of this premium/discount measure. The 3-year low was a discount of 1.6% and the 3-year high was a premium of 34.53%!

I remember in June 2010 when there was a premium of 9-11%, primarily because of the European debt crisis. This was a good time to reduce holdings of gold because the price subsequently fell from around $1,250 to $1,150.

In the fall months of 2010 there was consistent negative press on the price of gold being too high (bubble talk); yet, all along GTU continued to have a small premium of generally 2-3%. This was a good indicator to continue to maintain or add to positions.

There is often an American (prideful?) bias of global markets, but one must remember that Indians, Chinese, Russians and others are buying gold and their actions have a major impact on the price.

This post is not meant to promote short-term trading, but to help investors looking to accumulate positions or temporarily reduce positions in various investments in which they have a long-term strategic reason to be invested in. This analysis of premiums/discounts can generally be applied to all closed-end and exchange traded funds.

God bless,
Joshua
www.truevineinvestments.com

[DerrikCFP]

What rules of thumb do you use for a max amount to allocate to precious metals?

[TrueVine]

Derrik,

Excluding the portfolios I manage, I advise people to have some "junk" silver (U.S. coins minted before 1964 - they are 90% silver & 10% copper) on hand to barter with in a potential currency collapse or hyperinflation. In portfolios, I generally have a core holding of gold and mining stocks, primarily focused on silver. The Lord has led me to ultimately concentrate on the mining stocks (gold / silver in the ground or at the refinery). At this point, I suspect this is because gold will eventually be confiscated, taxed very heavily, or manipulated in some way by world governments. Portfolio allocation for both generally ranges from 15 - 35%, depending upon market conditions and my client's risk profile.

Best Regards,
Joshua

[4jacks]

I advise people to have some "junk" silver (U.S. coins minted before 1964 - they are 90% silver & 10% copper) on hand to barter with in a potential currency collapse or hyperinflation.

I plan on bartering with my nickel plated 45 caliber should the currency collapse.

I'm just joking. But joking aside, this is one of the things that Dave Ramsey talks about in his "I hate Gold" speeches. When economies do collapse, precious metals are just as worthless as gold. He always uses New Orleans after Katrina hit as an example. A Gold bar literally wouldn't buy you a cup of water. It was the basic goods that became valuable.

I just honestly don't prepare for those types of situations. But if I were to, then I think the best investment would be a couple chickens. Because if the economy collapse like that, then selling eggs will get you all the gold you can hold.

[TrueVine]

Holding physical coins, such as "junk" silver, is really just a practical sidebar. The real purpose for investing in the sector is to protect assets against the destruction of the currency. Over the last decade, the value of the U.S. dollar has declined 27%, and that is based on a manipulated government CPI calculation. Gold has risen over four-fold, and silver over seven-fold as a reflection of this.

[4jacks]

Yeah, but what can you really do with the silver or gold if the US Dollar should collapse?

In my mind, I picture a complete collapse of the US Dollar to mean that the US Armed Forces and Local Police No longer protect us (After all, they don't get paid, so why would they) Therefore, we will have Marshall Law (or something similar). Which I just don't think having a gold or silver coin would be valueable. Like I said, If I were to plan for that, I would stock up on Firearms and Chickens.

[TrueVine]

A dollar collapse doesn't mean that the currency is no longer in use. If the dollar loses 50% of its value (for example) paper assets denominated in dollars (bank savings, US bonds, etc.) will quickly lose half their purchasing power. Given this scenario, gold and silver would rise substantially. An investor can then sell gold and/or silver and purchase other assets. One would likely be able to buy equity shares very cheap in this situation. To a lesser degree, an investor who implemented this strategy in the last decade (see my previous comment) could have already capitalized on this.

As I mentioned at first, "Prayer, for revelation on how to invest my resources and the resources of my clients, is the foundation of my investing. This is where I get my mid to long-term focus." This is not some kind of Christian cliche. I have implemented this investment strategy, with specific variations, based on direction of the Holy Spirit. When I have asked God what to do with His resources He has never ignored me—it is impossible. I invest by faith (I can't see it yet), based on His revelation.

[4jacks]

Well, you will have to forgive me, I don't do a lot of investing, I'm still working on other goals. So I think about things very analytically, and skeptically.

Are you saying that God told you to invest in Gold?

[TrueVine]

No problem. The reason I'm writing on this forum is to help fellow believers.

Please see my previous response to Derrik.

[4jacks]

Yes, I'm reading and it has peaked my curiousity. You said:

The Lord has led me to ultimately concentrate on the mining stocks (gold / silver in the ground or at the refinery).

So could you tells more about how that came about? You asked God how to invest the money of your clients, and he literally told you to invest in precious metals? Where there some signs?

I'm not trying to get on your case, I'm genuinely asking. I do believe in the gifts of the spirit, but I think prophecy like this is pretty rare. So I'm skeptical.

When did this happen? When did you start investing your clients that heavily into Gold and Silver? Was it ten years ago? Are you confident that God will lead you to the time to sell all the precious metals? Becuase Gold is obviously in a very inflated bubble, you don't want to be invested in it when it crashes.

[TrueVine]

I would recommend reading the "Investing With God" series on the Education tab of my website. There is only one article out there so far, but I will be adding more to the series over the next several weeks/months.

[4jacks]

I didn't see anything relavent to the question under the Education tab of your site, and also I did not see anything title specifically "Investing with God". There is a three page essay on "The holy spirit - Part 1" but once again that didn't seem relavent.

If you don't want to answer the question, you don't have to.

[TrueVine]

Has God lead you to make the investments you currently have (other than company sponsored retirement plans)?

[4jacks]

Has God lead you to make the investments you currently have (other than company sponsored retirement plans)?

I really don't have much as far as "investments" go besides whats in my company sponsored stuff.

My wife and I were really pretty far in-debt and not living financially responsible at all. We were spending more than we were making. I don't know if I would say that "God lead us". I would term our experience as God opened up our eyes to how stupid we have been living and gave us some wisdom through scripture. Our turning point was when I really started to listen to the Crown Financial podcasts. They really pointed out the bible scriptures about how debt was dumb, and such, they way they taught financial responsibility made sense, and eventually we caught on.

So we sold our house, went through some tight times and now we are almost debt free. We are pretty much going to follow the Crown Money Map or Dave Ramsey Baby Steps, they are pretty comparable. Pay off the debt, then save for another house.

That was probably a big side track from the answer you were looking for, so I'll just go ahead and throw it out there that when I do get to that point, I will probably continue to follow the advice of Crown Financial and Dave Ramsey. Crown is big about pointing to scripture especially the script about diversification. I haven't looked into thier other investment advice. Dave Hates Gold, but he also really doesn't recommend single stock investments, he advices to stick to mutual funds that have a great track record.

[TrueVine]

It sounds like you are well on your way.

Crown Financial and Dave Ramsey are excellent resources for budgeting and getting out of debt; however, when it comes to investing they really just give you the same guidance as you would get from secular resources, but with a Christian label on it. The problem is they do not lead Christians to operate by faith in what God is revealing to them to do. This causes believers to ultimately experience the same frustration as non-believing investors and, most importantly, they miss the unique, character building, faith experiences with Christ and the opportunities to glorify God.

I noticed in your previous comments that some of your investment perspectives were coming from Dave Ramsey or the view that "Gold is obviously in a very inflated bubble." I would advise you to trace the source of your information. Does it come from your own relationship with Christ (your union with the Holy Spirit)? If it does, it will lead you to have to walk by faith (in what you cannot yet see) in what He is revealing. What He reveals is the substance and evidence to go on (Heb 11:1). It is important to make sure that the information you are investing with does not come from the news media (which can be manipulated truth) or from the opinion of man. What God speaks to us is reality. It is the only truth we can really go on. This is why I directed you the Education tab on my website because I am teaching on this in my Investing With God series.

[4jacks]

I would disagree with you about Crown and Dave Ramseys teaches on investments being secular with with a christian label. Crown especially. Howard Dayton from crown was the guy to go through the entire bible and map out all 2,000+ bible verses that relate to money, and they always point back to that.

Crown and Dave Ramsey teach investment stradegies that always remain the same. (Diversify) That is straight from Ecclesiastes 11:2. There advice can be summed up by the rule of NOT attempting to time the market. Not to overtly try to buy low and sell high, but to buy continuously (SAVE) and as the market grows, your money grows.

Correct me if I'm wrong, but the way I am inturpretting your method: You are saying God is leading you or guiding you the investments on stocks and commodities.

I have no problem with stock investors. There is nothing unGodly about investing in stocks or gold. However I am very skeptical about the things you are saying. I honestly don't think you are a nutcase or anything, I hope you don't think that. You are saying your advising or putting 15%-35% into precious metals, which seems high to me. But it's a far cry from a nutjob telling people to invest 100% in Gold Coins.

I don't get my financial perspectives on Gold from Dave Ramsey or from own relationship with Christ. I looked up the publically available historical prices on gold and used the intelligence that God gave me to confirm that Gold is a bad investment.

If you stick around long enough, you will find out I am a huge numbers geek.

Anyway, It's not something we really have to argue about. Either you are right, or I am right, and time is certainly going to tell. If you say that God lead you to invest in gold in January of 2001 and you have faith that God is going to lead you to know when to pull those investments, I would be very impressed. Of course if you say that you just started investing in gold this year, then I'm not as impressed, and much less likely to believe that God is really leading you in that specific area.

[tim_v]

... Either you are right, or I am right, and time is certainly going to tell. ...

Somewhat a different issue but I disagree and I think the reason is somewhat important in deciding what advice to take regarding investments.

Suppose I gave the two of you a pair of dice (possibly loaded) and asked you to predict the chances that they would roll 7 or more. One of you might say there is a 60% chance of rolling 7 or more while the other might say there is only a 40% chance. So I roll dice and let's say it was 7 or more. Does that mean the one that said 7 or more was more likely turned out to be right? I don't think so. You see people regularly walk out of casinos after winning money but that doesn't mean they made better predictions than the people that stayed out of the casino.

In the same way people will make predictions about stock and gold markets. There is certainly some chance that gold with do well over the next year and some chance that it will do poorly. Sometimes the outcome that is less likely happens. That doesn't make the people that thought the outcome was more likely correct. The importance of this idea is people tend to think if someone was correct once they are likely to be correct again. But often people were only lucky or they highlight the predictions that occured and ignore or make excuses for the predictions that didn't happen.

[pochax]

To expand on what Tim said, there is an ambiguity about what TruVine is saying (at least to me)....is (s)he saying that God led only him/her to invest in gold or is (s)he saying that God gave TruVine an objective "leading" such that gold will be a good investment (no matter who invests in it)? to say the former is a subjective call (subjective does not mean right/wrong, it just means it is a personal experience which is difficult to judge one way or the other since no one else experienced it) and i can't fault TruVine for doing what (s)he felt God led him/her to do. however, if it is the latter such that God gave TruVine this special revelation that gold was THE investment to bank on, i would be skeptical for the scriptural basis that any one else should follow that 'calling'. personally, i would acknowledge that God did not give me (at least consciously to my knowledge) a pre-set asset allocation. thru the God-given gifts of human reasoning, empirical evidence, and sound investment knowedge compiled from those far smarter/expert in the field than myself, i set an asset allocation for the purpose of what i do believe is scripturally-based: that we should be good stewards of what we are given in this world since it does not belong to us but to God and we are given the privilege to manage it so use the tools that God has given you (wisdom, diligence, humility, curiosity, knowledge, reasoning, etc.) to "invest" (using term loosely here) it for God's Kingdom and purpose. historical evidence does not suggest that gold will continue to be a good investment, nor did i receive such a special premonition from God to invest in gold, so it is not in my asset allocation. it doesn't make me wrong or right (just as tim described with probabilities), but based on what i'm able to understand, i could not in good conscience put money that God gave me into gold for fear that i will lose it and thus be a poor manager of God's assets.

[4jacks]

Somewhat a different issue but I disagree and I think the reason is somewhat important in deciding what advice to take regarding investments.

Suppose I gave the two of you a pair of dice (possibly loaded) and asked you to predict the chances that they would roll 7 or more. One of you might say there is a 60% chance of rolling 7 or more while the other might say there is only a 40% chance. So I roll dice and let's say it was 7 or more.

Tim, I think your analogy contains a small error, with a big implication.

The CHANCE of rolling 7 or more (with unloaded) dice is 58.33%. That is the correct answer, there is no other correct answer. (unless my math is wrong it has been a few years)

Asking someone to tell you the chance or probability is different than asking them to guess which way the event will occur. I can LOOK at a craps table and TELL everyone around me that the probability of of rolling a 7 is 16.67%. However, once I place my money on the table, I go from the realm of looking and telling, to Betting. With that I am saying "The next roll will be 7". That event has a definite outcome. I will either be right or wrong.

We can't calculate stocks and commodities so easily, however the same principals apply. We can Discuss on the forums the Chance and probability of Gold going up or down. But once you invest your money into that commodity, you have said "The value of this commodity will go up". And like the bet, you will either be right or wrong.

That is why I said that either Truevine is right and I am wrong, or I am right and Truevine is wrong. I was only refering to the investment in precious metals, I wasn't trying to say his whole philosophy or anything else is wrong. I apologize if it read that way.

To expand on what Tim said, there is an ambiguity about what TruVine is saying (at least to me)....is (s)he saying that God led only him/her to invest in gold or is (s)he saying that God gave TruVine an objective "leading" such that gold will be a good investment (no matter who invests in it)? to say the former is a subjective call (subjective does not mean right/wrong, it just means it is a personal experience which is difficult to judge one way or the other since no one else experienced it) and i can't fault TruVine for doing what (s)he felt God led him/her to do. however, if it is the latter such that God gave TruVine this special revelation that gold was THE investment to bank on, i would be skeptical for the scriptural basis that any one else should follow that 'calling'. personally, i would acknowledge that God did not give me (at least consciously to my knowledge) a pre-set asset allocation. thru the God-given gifts of human reasoning, empirical evidence, and sound investment knowedge compiled from those far smarter/expert in the field than myself, i set an asset allocation for the purpose of what i do believe is scripturally-based: that we should be good stewards of what we are given in this world since it does not belong to us but to God and we are given the privilege to manage it so use the tools that God has given you (wisdom, diligence, humility, curiosity, knowledge, reasoning, etc.) to "invest" (using term loosely here) it for God's Kingdom and purpose. historical evidence does not suggest that gold will continue to be a good investment, nor did i receive such a special premonition from God to invest in gold, so it is not in my asset allocation. it doesn't make me wrong or right (just as tim described with probabilities), but based on what i'm able to understand, i could not in good conscience put money that God gave me into gold for fear that i will lose it and thus be a poor manager of God's assets.

I agree with you 100%.

I do believe in gifts of the spirit. Truevine could be 100% right, gold/silver could continue to grow for 5 years, God could then easly lead him in another direction, and his clients could benefit tremendously.

I'm just catious of predictions so specific, and a little bit skeptical. I worry about, what happens to the faith of the christians involved if this turns out Not to be from God?

Once again, truevine sounds completely sincere and sane, and he's not dishing out 100% investment in Gold. I just happen the think the precious metal bubble will pop sometime this year.

[tim_v]

Tim, I think your analogy contains a small error, with a big implication.

The CHANCE of rolling 7 or more (with unloaded) dice is 58.33%. That is the correct answer, there is no other correct answer. (unless my math is wrong it has been a few years)

You're probably right. I should have just used 1 die.

Asking someone to tell you the chance or probability is different than asking them to guess which way the event will occur. I can LOOK at a craps table and TELL everyone around me that the probability of of rolling a 7 is 16.67%. However, once I place my money on the table, I go from the realm of looking and telling, to Betting. With that I am saying "The next roll will be 7". That event has a definite outcome. I will either be right or wrong.

We can't calculate stocks and commodities so easily, however the same principals apply. We can Discuss on the forums the Chance and probability of Gold going up or down. But once you invest your money into that commodity, you have said "The value of this commodity will go up". And like the bet, you will either be right or wrong.

That is why I said that either Truevine is right and I am wrong, or I am right and Truevine is wrong. I was only refering to the investment in precious metals, I wasn't trying to say his whole philosophy or anything else is wrong. I apologize if it read that way.

But in my situation the dice may be loaded so you don't know that the probability is but I'm assuming that there is a correct answer to what the probability is. So wouldn't you want to bet based on the probable outcome? My point is sometimes the less probable outcome happens. That doesn't mean it becomes the more probable outcome or that people that said it was more probable were correct.

This may be just a matter of semantics but I think it may be important to recognize that someone may incorrectly 'bet' on the less probable outcome and have that outcome occur (otherwise we wouldn't have casinos). That doesn't mean that you should follow their example in the future.

[4jacks]

sidetrack to your sidetrack, My understanding is that a Red, Black, Even, or Odd bet at the Roullette wheel gives the highest probability. Which is still 47.4%. Casinos always have majority odds in thier favor. Becuase that small difference is multiplied out over millions of bets, they make a lot of money.

I see your point, perhaps I didn't give Truevines system as posted in the original post a fair chance, I got caught up in the whole aspect of God revealing to him that Gold was going up.

[robertgpitts]

As a fellow believer, and with all due respect to TrueVine, I'd like to offer another perspective.

Garry Friesen in Decision Making and The Will of God explains that where there are commands or principles in Scripture regarding a decision, we are obligated to follow them.

Where there are no commands or principles, we are free to use the minds God has given us to make decisions based on several factors, including:

- how the decision will affect our walk with Christ,

- the input of wise individuals,

- and, yes, even our own preferences.

Knowing what God tells us in Scripture about the value of saving and diversification of investments, a wise approach might be to keep 5% to 10% of the total portfolio in gold or silver as a hedge against a falling currency.

I offer this as an example of Biblical decision making. I cannot recommend Mr. Friesen's book highly enough.

Robert Pitts
Freedom Personal Finance

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