How Much Gold You Should Own

Ben Bernanke recently warned congress of the consequences of overspending which could include inflation. If you think inflation will accelerate in the future, it may be a good idea to consider gold to offset the affect of inflation on your investments. For more on this, read the following article by Dr. Steve Sjuggerud from Daily Wealth.

You often hear "You need to own gold!" But how much is the right amount?

You don't want to own too little gold and have the purchasing power of all your savings shrink dramatically. You can't afford that. But you don't want to be an end-of-the-world nutcase either.

Well, one of the world's shrewdest investors – Jean-Marie Eveillard – has 10% to 12% of his extremely successful investment fund allocated to gold and gold plays...

Jean-Marie Eveillard's First Eagle Global Fund beat the stock market every year this decade. What's more, he's done it conservatively... He doesn't take big risks. Over 30 years, he's proven to be one of the most successful mutual fund managers ever.

So what's Jean-Marie Eveillard recommend buying today?

"After equity markets have gone up 35%-40% or more over the past three months, ideas that are immediately appealing are few," he told Bloomberg news today. But he did have one big idea... gold.

Right now, his fund is about 10% invested "in gold and gold mining securities," he said.

His explanation is simple: "It's insurance to protect against the fact that current policies by the American government and the Fed are potentially wildly inflationary."

Jean-Marie likes gold because he expects the Fed will leave interest rates near zero for a very long time.

The Fed will "stay pat until the politicians give them the green light to raise rates, which will take quite a while. As long as unemployment is very high, politicians will be reluctant to push up short-term rates."

When I got into investing nearly 20 years ago, Jean-Marie was already a legend. After doing my homework, his First Eagle Global Fund was one of the very first investments I ever bought. (Back then, it was called the SoGen fund... it still uses its old symbol, SGENX.)

Jean-Marie started managing the fund in 1979. If you had invested $10,000 in the fund back then, it would be worth roughly $500,000 today. (Heck, I should have kept my money in there!)

His "big idea" now is very simple. Gold pays no interest. And money in the bank pays nearly no interest. You can print money. But you can't print gold. If the Fed keeps interest rates near zero for the foreseeable future, the obvious outcome is that it will take more slips of paper (dollar bills) to buy an ounce of gold.

He believes his clients' money should be about 10% or so allocated to gold and gold investments. What's right for your situation? That's up to you. But if you're substantially under or over the legendary investor's gold allocation, then you ought to consider getting more in line with him...

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Gold Investment: Is There Still Room For Growth?

With national debts growing all over the world, a strong case can be made for the future of gold prices. Even though gold values have risen from under $300 in 2002 to nearly $1000 in 2009, some gold experts believe there is still a lot of room for growth. For more on this, read the following article from Dr. Steve Sjuggerud at Daily Wealth.

Yesterday, I spent an hour and a half with two of the most experienced gold investors on the planet...

It was a bit by accident... I was at a private two-day meeting on the Eastern Shore of Maryland, and I needed to leave early to get to the Baltimore airport. Both Van Simmons (my good friend and a legend in the coin world) and ace gold-stock analyst John Doody needed to be at the airport too, so they hitched a ride with me.

At the meeting, John had told us gold stocks will "surprise on the upside" this year. In short, if you don't own gold stocks now, you need to buy. Let me share John's reasons why...

The cost of producing gold is down. According to John, oil makes up 25% of the cash cost of producing an ounce of gold. The price of oil has fallen by over half since last summer.

Also, the value of the currencies in gold-producing countries has fallen. John showed a table including the currencies of Australia, South Africa, and Canada (among others). The currencies had lost between 15% and 40% of their value versus the dollar.

Don't underestimate the importance of this... Much of the cost of production of gold (like local labor costs) is in those local currencies, but the gold is priced in U.S. dollars. In short, a fall in the currency is an instant boost for most gold producers.

So the price of gold is up while the cost of production is down. This directly increases profit margins. Gold-mining companies should report excellent earnings in the next few quarters... surprising on the upside.

John tracks three solid indicators to figure whether gold mining companies, as a group, are cheap or expensive. He looks at 1) market value versus ounces in the ground, 2) market value versus production, and 3) market value versus operating earnings. He tracks these in his excellent, data-heavy monthly newsletter, Gold Stock Analyst.

In his most recent newsletter, John said gold stocks were undervalued by 19% based on the first two of these metrics above.

Lastly, John explained sentiment toward gold stocks is still pretty bad. He had just spoken at the New York Gold Show, which he said was relatively poorly attended.

So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed the move in gold stocks, you haven't.

If you haven't bought gold stocks yet, you should. And if you want to get the complete picture on gold stocks, then you should get to know John Doody.

Dailywealth.com offers a free daily investment newsletter which focuses on contrarian investment opportunities.