Monday, December 20, 2010

Should you buy gold?

Should you use some of your income investments to buy gold?

I would like to cede the platform to my guest contributor Mr. Alfred Ferol. He considers himself an average investor, yet as his former financial adviser, I must tell you I learned as much from him as he did from me.

I asked Mr. Ferol to share some of his wisdom with us in regards to buying gold.

Mr. Ferol writes that it depends on the scenario you foresee. He reminded me that gold has few industrial uses. Gold is used mostly for jewelry, to protect against the eroding value of the dollar and for some to use in case of a doomsday scenario.

He then refreshed my perspective of the doomsday scenario. The doomsday scenario has existed historically many times over he said. During times like the holocaust, people used gold, diamonds, and other rare items to barter for food and even lives. In this case, gold was more valuable than cash or real estate or a stock in any company. Yet, he cautioned, you must realize that even in this scenario your gold is not valuable if your counter party (buyer) is as hungry as you are.

If you want to own gold today to hedge against the declining value of the dollar and you do not believe in the doomsday scenario, then as an income-investing student you look for a stock that meets all TheMoneyMadam's criteria.

Yikes? That means I am looking for jewelry.

How do I buy jewelry that makes me money?

Yes, Mr. Ferol said you can make income from gold. He suggested we buy Tiffany (TIF).


Tiffany (1) makes money, (2) shares earnings with you in a dividend, (3) has a strong balance sheet, and (4) periodically increases the divided and basically sells gold etc.

However, Tiffany is expensive, almost at its high.

Reduce your cost basis. Buy it today and write a call for January that will reduce your basis. You receive the dividend and the money from the option and if we are right and gold in the form of jewelry continues to increase you will benefit from a quick 10%gain.

TheMoneyMadam thanks you Mr. Alfred Ferol for your contribution.