Friday, February 4, 2011

Peter Schiff: The Simple Truth About Gold Leverage Programs

In this article Peter Schiff explains the new craze of leveraged gold accounts.  Haven't people learned their lessons about large amounts of "leverage"?  Peter wrote the following explaining how this program works: "the dealer lends you money to buy gold, on the assumption that gold will go up faster than the rate of interest on the loan. In other words, if you call with $5K, they'll give you another $20K in credit to make a $25K total purchase of gold bullion."

If you have the gambler mentality maybe this would interest you, however in my opinion this sounds like a potential disaster.  Here are a few items that make this to risky in my opinion.
  1. You do not take possession of the gold. 
  2. Additional fees such as leasing fees, administration fees, storage fees, eat at your potential profits
  3. If gold corrects you will most likely see a substantial loss and you can expect a "margin call."
  4. You pay a commission on the value of the purchase
We are still in stage two of this gold bull market.  We will see many corrections ahead.  As we get deeper into stage two and then stage three, there will be days where gold may drop $100 - $300 or go up $100-$300.  Like any mania we will also see services like this coming out of the woodwork.  Keep it simple buy physical gold and take possession.  There is no reason to take this type of risk.  As the Fed continues it's dollar devaluation policy and we see hardcore inflation you want to hold physical metal.  As a reminder this is what a mania chart looks like.

As you can see by the ten year gold chart below we are no where near a mania.

Full Article Here

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