THE 3 BEST WAYS TO INVEST IN GOLD

The 2013 Gold Investor’s Guide

By Jeff Clark, Editor of BIG GOLD

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WELCOME TO CASEY RESEARCH!

We’re glad to send you our recently updated and wildly popular The 3 Best Ways to Invest in Gold special report.

We’re absolutely confident that if you follow its advice, you’ll be in position to make spectacular gains in gold and gold stocks in the months and years ahead.

Now, we don’t recommend investing in gold because we’re gold bugs. We do it because gold is the safest way to protect yourself from failing currencies and out-of-control governments... and be-cause it’s the best way to profit from fundamental factors working in your favor.

SHOULD YOU STILL INVEST IN GOLD?

Have you ever stopped to ask yourself why, if the economy is as strong as the government claims it is, they’re still printing money in such large quantities and piling on the debt in ever-increasing amounts? This is not the sign of a healthy fiscal and monetary system. And it’s not just the US.

Consider the following:

• Since mid-2007, we’ve seen 511 interest-rate cuts around the world

• 36 countries now have negative real interest rates

• Globally over the past 20 months, 385 stimulus policy initiatives were announced

• As of June 2013, not one G20 country had a balanced budget

Economic stimulus is, of course, nothing but deceptive code for money printing. And it is not consequence-free. The yen is down 30% against the US dollar in nine months, the result of Prime Minister Abe’s aggressive “whatever it takes” promise to spur inflation. We consider this reck-less negligence—yet this kind of policy response is being mimicked by many of the world’s central banks, with the full support of political leaders.

While mainstream money types declare that gold is dead and have been selling, the global monetary environment remains tenuous and reinforces the need to buy and hold gold—a rock-solid conclusion.

But if you believe that there will be no repercussions for past excesses; that the Fed and other cen-tral banks will be able to navigate a clean exit from unprecedented money creation; that skyrocket-ing government debts will be paid off without diluting currencies; that politicians will implement

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real solutions that balance government budgets and force them to live within their means; that the debt ceiling is irrelevant; and that inflation won’t surface whether or not global economies im-prove—then maybe holding some gold and gold stocks isn’t the right choice.

If you don’t believe these things, then the prudent response is to prepare for the inevitable fallout from monetary disorder, by having meaningful exposure to gold.

We see very few governments taking the kind of action that will actually fix the world’s underlying economic and fiscal problems. The “free lunch” that mainstream commentators seem to believe in—that inflation, for example, won’t result from money printing—will appear very costly indeed when prices start rising. The Fed is in a tight spot: it cannot exit its bond-buying program quickly or easily, because the ramifications are unacceptable to politicians. So the dilution continues, with the fallout put off to another day.

It’s hard to fathom how we’ll escape the dire fiscal and monetary conditions in many of the de-veloped world economies without some serious fallout—and a strong response from gold. Never before has such an enormous monetary experiment taken place on a global scale. If ever there was a need for monetary insurance, it is now. This makes our personal game plan far more important than the carefully crafted machinations of any Fed chief, politician, or government economist.

It is thus imperative that investors have meaningful exposure to gold.

THE #1 REASON TO BUY GOLD TODAY

Excessive debt is the root cause of the crisis. And yet we continue to pile it on. In spite of massive debt loads shouldered by most G20 countries, the deficit spending continues. Think about that for a moment: not one member of the G20 can balance its budget; all are spending more than they have. This can’t be resolved without some pain.

Though some would argue that deficits are necessary to counter periods of slow or negative eco-nomic growth, it’s the recent trajectory of debt growth that’s scary—and unsustainable.

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Here’s a look at the government-debt-to-GDP ratio of the G20 countries.

Throughout history, debt levels over 90% of GDP are historically linked to significantly elevated levels of inflation. Specifically, when the ratio has met or exceeded 90%, inflation rose to around 6%, vs. the 0.5% to 2.5% range when it was below 90%. History also shows that the link is not si-multaneous, yet the emergence of higher inflation has always been an eventuality.

0% 50% 100% 150% 200% 250%

Saudi ArabiaRussiaChina

IndonesiaAustralia

South KoreaTurkey

South AfricaMexico

ArgentinaIndiaBrazil

GermanyCanadaFrance

United KingdomUnited States

ItalyJapan

Government Debt to GDP Among G20* Nations

© Casey Research 2013 Source: IMF *20th member - the European Union - does not have a debt-to-GDP ratio

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Here’s a closer picture of the trajectory of US debt in relation to its GDP.

Total US government debt recently crossed the proverbial line in the sand and now equals 104.9% of GDP. We’ll point out that this is higher than crisis-stricken Cyprus and Spain, where the figures are estimated at 85.8% and 84.2%, respectively.

Further, the Fed’s official figures exclude the nation’s swelling yet politically untouchable un-funded liabilities, namely Medicare and Social Security. If these figures are added to the equation, public debt levels skyrocket to astronomical heights.

In reality, the level of debt carried by the US is so high that it will never be paid off, at least not in dollars with today’s purchasing power. Instead, the Fed and Washington, and leaders from other

11,000

12,000

13,000

14,000

15,000

16,000

17,000

2009 2010 2011 2012 2013

Billi

ons o

f Dol

lars

Total Government Debt GDP

Total Public Debt Now Eclipses GDP

© Hard Assets Alliance 2013 Source: FRED St. Louis

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countries, are devaluing currencies in order to reduce the burden of debt repayment. This is a central thesis to investing in gold: there is no way out of this level of debt overhang except currency dilu-tion. The #1 catalyst for precious metals for the foreseeable future is indeed currency debasement. It’s staring us right in the face, begging us to protect our assets and hedge our future standard of living by denominating a meaningful portion of our savings in gold and silver.

WHEN WILL GOLD TAKE OFF?

Because the Fed continues to pour money into the economy, it’s difficult to say for certain when gold will make a dramatic move. The historical record indicates that a surge in money growth doesn’t impact economic activity until 9-18 months later. Add another 12 months or so for it to show up in consumer price inflation.

In other words, the Federal Reserve is always driving with a loose steering wheel. Most of the experience behind those numbers is with relatively tame ups and downs in the business cycle—not the kind of financial violence we’ve been seeing over the last several years, which adds another variable. So while pinpointing the exact timing is difficult, what we do know is that there are clear and unavoidable consequences to wildly energetic money creation, including, sooner or later, ram-pant price inflation.

Are there signals? The primary sign won’t be inflows to ETFs (though they are indicators), or jew-elry sales (the ‘70s bull market had nothing to do with bracelets), or even dramatic increases in the sale of physical bullion (we had that in ‘08 and gold was up 4.3%—hardly meteoric).

No, the payday rise in gold will occur when there is a significant shift in the psychology of the general public.

That shift may already be under way, in spite of what the mainstream media claims. Most dealers report that demand for physical metal is at runaway levels and that they have a hard time keeping up. Central bankers were net sellers of gold as recently as 2009—and are now heavy net buyers, lending strong support to prices. The US Mint and others have frequently suspended sales of their more popular coins, due to overwhelming demand. And don’t forget Chinese demand. Imports through Hong Kong along with China’s own production—it does not export any metal—exceed the amount of ounces sold in GLD by roughly double, an astonishing fact that is overlooked by most journalists. We think this recent quote from Zhang Bingnan, secretary-general of the China Gold Association, will turn out to be quite prescient: “The dumping recently of holdings in gold exchange-traded products by overseas investors may not prove to be a wise move.” Institutional investors are starting to enter the gold market as well. The University of Texas announced that its

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endowment fund (the second-largest in the country next to Harvard’s) had taken possession of a billion dollars’ worth of physical gold. JPMorgan now accepts physical gold as collateral. Morgan Stanley reports that its preferred metal exposure is gold. And Deutsche Bank stated in a report, “We see gold as an officially recognized form of money…” We’re convinced these trends are bound to pick up steam.

Before the gold rocket takes off, let’s look at the three best ways I know of to invest in gold so that you’re positioned ahead of the crowd.

Best Way #1: PHYSICAL GOLD

Given the state of the global economy and the US government continuing to administer large doses of the wrong medicine, we first recommend that all investors place from 10% to 20% of their investments in gold bullion.

We don’t mean 10-20% of your gold portfolio; we mean 20% of all your liquid assets.

This may sound extreme to some. But even if the global economy remains in a deflationary dip and the gold price struggles for a while, it remains the safe harbor during the upheaval.

Remember, it’s not simply a question of inflation or deflation; it’s crisis. And that’s exactly what gold ownership is for.

Bernanke and Geithner won’t be rewriting history; they’ll be part of it.

Nothing replaces having physical gold in your possession and under your control.

WHERE TO BUY PHYSICAL GOLD

If you know an honest, reputable coin dealer in your area, that’s a good place to start for smaller purchases. Our editors buy their gold either with a local dealer or online, but either way it’s impor-tant to find a reputable dealer... as in every line of business, there’s no shortage of crooks.

In our experience, the best places to buy physical gold are:

1. MilesFranklin.com (1-800-822-8080). Miles Franklin has some of the deepest contacts in the industry and as a result has been able to source metal when many other dealers can’t. And with

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some of the best prices in the industry, they’re one of our top picks. Be sure to tell them you’re calling from Casey Research to get the best deal.

2. TheCoinAgent.com (1-888-494-8889, or email thecoinagent@gmail.com). Proprietor Wayne Lemonier has some of the lowest costs we’ve seen in the industry.

3. BorderGold.com (888-312-2288). Border Gold in Vancouver, BC is where we go for the Canadi-an Maple Leaf. Costs are so low that you will likely get a better total price with shipping included than you would at your local coin shop.

4. DavidHall.com (1-800-759-7575). We go to one place for rare or numismatic coins: Van Sim-mons at David Hall Rare Coins, who actually helped create the Professional Coin Grading Ser-vice. We don’t recommend entering the numismatic world as an investor unless you are or are willing to become a knowledgeable coin collector.

5. HardAssetsAlliance.com* (877-727-7387; 877-7-assets). This program is ideal for those who have $5,000 or more to invest, as your order is bid out to a network of dealers who compete for your business, ensuring that you get the best possible price. You can take immediate delivery or use one of a number of US or international storage locations. And it can all be done online.

Keep in mind that premiums and delivery times will fluctuate according to market conditions.

There are other online dealers out there, and some may have good prices, too. The things to watch for are total costs (including product, shipping, and insurance) and availability; if a dealer claims it will be several weeks to “locate” the product, we would look elsewhere. It’s also not uncommon to find salespeople who try to talk you into other products, such as proof sets or rare coins (this is especially true with the dealers that advertise on TV), so beware of the hard sell. We haven’t had that experience with our recommended dealers.

Where do you store your gold? There isn’t a magic bullet for safekeeping, as each form has its own risks. Physical gold is subject to theft and fire; paper gold is subject to fraud and mismanagement. The most prudent approach is to own more than one form of gold, in more than one location, with an edge toward physical ownership.

* For full disclosure, Casey Research is a founding member of and receives affiliate fees from the Hard Assets Alliance. Some but not all of the recommended companies have affiliate agreements with Casey Research. Casey Research’s recommendations are based on the value and competi-tiveness of the products and services offered by these affiliates, and its recommendations will not be influenced by the presence or absence of affiliate fees.

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BEST GOLD ACCUMULATION PLAN

You can get started owning physical gold with as little as $50 a month, thanks to new savings pro-grams that can automatically withdraw the money from your bank account.

So, instead of shelling out $1,200 or more for an ounce of gold, you can start buying that ounce and more in monthly installments. This program stores your gold as well (you can also accumulate silver through this program), and you can take delivery any time.

We’ve vetted several of these programs and have found SilverSaver to be the most convenient for automatically accumulating metal.

SilverSaver, despite the name, allows you to purchase gold, too. It is the easiest of these programs to automatically purchase physical metal right from your bank account. Storage is at the First State Depository in Delaware, and you can take delivery at any time.

BullionVault and GoldMoney are also good programs, though they aren’t designed for delivery. If you intend to eventually take possession and want a no-hassle way of automatically buying metal, SilverSaver is your best bet.

Best Way #2: PAPER GOLD

While there is no substitute for having physical gold under your immediate control, holding paper proxies for the metal can be a useful portfolio supplement. In recent years, the market has responded to burgeoning demand for convenient ways to trade commodities by creating a galaxy of exchange-traded funds (ETFs). These are designed to mirror the ups and downs of the underlying commodity and can be bought and sold like a stock. They do not provide delivery of metal to the average investor.

1. The largest and most popular gold ETF, SPDR Gold Shares (GLD), buys and holds gold bullion in a secure London vault, with each share trading at approximately 1/10 the price of an ounce of gold on the spot market. GLD has done a very good job of following gold’s lead, posting gains that have been only slightly below that of the metal itself (due to costs). GLD represents a sim-ple, effective way of extracting some paper profits from gold’s bull run. We like the ETF Physical Swiss Gold Shares (SGOL) even better, since the gold is stored in Switzerland and the custodial structure is less complicated.

2. Want a fund with both gold and silver? Central Fund of Canada (CEF) is a closed-end fund that’s made up of roughly 55% gold and 42% silver. The major difference between it and an

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ETF is that ETFs are structured to keep the share price very close to net asset value (NAV). Not so with a closed-end fund, which responds much more strongly to market sentiment about the fund itself. This means that shares in a gold-based, closed-end fund can trade at a steep dis-count to NAV—or at a premium. Over time, while CEF rises and falls in tandem with gold, those who buy at a discount and sell at a premium will get an added kicker… and those who do the op-posite will get kicked. To watch for the best entry point, visit the CEF website from time to time and click on “Net Asset Value.” The figure is updated daily.

3. Perth Mint Certificates (PMCs) are a form of paper gold. The additional advantage a PMC pro-vides over ETFs is that it gives you instant international diversification. The disadvantage is that it doesn’t trade like a stock, as they’re designed for more long-term holdings. It’s also the only government-backed bullion storage program vaulted and insured by the state of Western Aus-tralia. There is a US$10,000 minimum initial purchase and a US$5,000 minimum for subse-quent purchases. If you live outside Australia, you must use an approved dealer; we recommend AssetStrategiesInternational.com (1-800-831-0007 in North America).

Best Way #3: THE RIGHT GOLD STOCKS

Gold stocks are a leveraged way to play a rising gold price. You might look at gold as your defense and gold stocks as your offense. When the gold price really heats up, gold stocks will rise exponen-tially more. It is this volatility that will bring us what we believe will be life-changing profits.

One bit of caution, though: with this added leverage comes added risk. Gold stocks exhibit greater volatility than gold in both directions. This has two implications:

• Our company recommendations should not be viewed as family heirlooms you can hold into old age or leave to your children. At some point we will be selling our stock positions to lock in big gains.

• We recommend that you avoid trading. You may read others who recommend doing this, but trading in our opinion is not a prudent way to capture the big gains. Keep in mind that you must be right twice to make one profitable trade; you must correctly time the bottom and cor-rectly time the top to capture a gain. A wrong call on one of those can keep you from profiting. And worse—what if you get caught on the sidelines and the stock takes off without you?

Our best advice on how to buy a gold stock can be summed up in three words.

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BUY. HOLD. REPEAT.

Buy when prices drop and give you attractive entry points. There are always corrections, and when those inevitable pullbacks come, you have the opportunity to initiate or add to positions at attractive prices.

That’s what the BIG GOLD editors do.

Hold—meaning don’t trade it, time it, or run the risk of getting caught on the sidelines with stocks taking off. Plus, you’ll get to sleep better at night than those who try their hand at timing.

And repeat until the rest of civilization joins us and pushes our prices much higher.

Until the mania kicks in, we do recommend taking profits when you’re up by, say, 50% or more. This is how we come up with the cash to buy more stocks and bullion.

By following this simple strategy, one can accumulate substantial positions over time at good prices.

In fact, Doug Casey has often said that his success as an investor has come down to one key factor: being able to recognize the difference between something’s price and its value. Whenever there’s a large discrepancy between these two in any form of investment, it’s an opportunity to profit. And that’s especially true with gold stocks right now.

MR. CONSERVATIVE’S APPROACH

The easiest, simplest, and most conservative way to profit with gold stocks is to buy into a gold-stock mutual fund that has a low expense ratio. While there are thousands of mutual funds, there are only a couple dozen gold-stock funds, and not all make a good investment, in our opinion.

There is a second conservative way to buy gold stocks that most of the investing public is not yet aware of: gold (and silver) royalty companies. These are the least-risky precious-metal stocks because they buy a fixed percentage interest in a mine’s gross production and let the mining com-pany do the dirty work. In other words, they profit as gold is mined and the price rises, but they have no exposure to production troubles or rising costs.

They’re conservative—but don’t mistake this to mean that they won’t be profitable: our royalty companies have been our top performer every year since 2008!

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Even when gold stocks as a group were down in 2011 and 2012, our royalty company recommen-dations were up for the year.

When gold (and silver) take off again, profit margins of these companies will soar, as will their share prices.

OUR SECRET TO PICKING GOLD STOCKS

When it comes to picking gold stocks, BIG GOLD seeks out the most undervalued and makes them long-term holdings. We start by analyzing the standard metrics: P/E ratios, revenue growth, market capitalization (or market cap), and debt/equity. That last one is particularly important; if a company is carrying too much debt and has to refinance to fund operations, it’s not likely to raise the cash on very favorable terms.

But there are other factors unique to our sector that must be considered. We know demand is rag-ing and supply dwindling, so we look closely at what proven reserves a company has in the ground, how quickly it’ll be able to get them out, and at what cost. Once we know this, we can calculate a net asset value for each miner that enables us to compare it to its peers.

This net asset value, put through our proprietary mathematical model, allows us to assign each com-pany a number we call the Valuation Ratio (VR). A VR of 1.0 denotes a company that is fairly valued, so the further a stock’s VR falls below 1.0, the more undervalued it is. Conversely, companies over 1.0 would be overvalued. Our valuation ratio is updated every 30 minutes during trading hours.

After taking into consideration a gold (or silver) miner’s VR, along with the standard metrics, we then plug in the intangibles, asking questions like: Are the company’s mines in politically stable areas? How strong is management’s experience? Are the local governments supportive? And so on. The answer to some of these questions explains why we don’t recommend some of the largest gold mining companies, despite having low VRs.

In the end, we arrive at a list of what we believe are the best of the best.

SIZE MATTERS

There are different sizes of gold producers, each with its own level of risk and reward. Here’s the breakdown:

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Major Producers. These companies have multiple deposits, usually in multiple countries, and are considered “majors” because of the size of their reserves and market cap. Generally, a major produces over one million ounces of gold per year. They tend to carry less risk than smaller com-panies, and their stock prices are less volatile.

Mid-Tier (or Intermediate) Producers. A mid-tier company produces 100,000 to 1 million ounces of gold per year. Risk varies from company to company. Perhaps more so than the majors, their profitability is closely tied to the price of gold; as gold rises, these companies will show expo-nentially greater profits.

Small Producers. These companies are either just starting to produce, have smaller operations, or have just one mine. They tend to have higher risk because they may lack diversification and are thus vulnerable if they experience a problem with their primary project. Yet they tend to see the highest growth profile, and as they add reserves or grow production, the market will typically revalue the business and reprice its stock upward. More risk, but more upside potential.

OPPORTUNITY FROM CRISIS

Crisis and opportunity are as tightly bound as gold and money. The current challenging market brings with it tremendous opportunities for investors in precious metals. Many of these opportunities are presented every month in BIG GOLD from Casey Research. Today’s prices represent the precise opportu-nity that every investor strives for: to buy low.

I’d like to invite you to give it a try for just $79 for a full-year, 12-issue subscription. It’s completely risk-free—you may can-cel any time within 90 days for a 100% refund. As soon as you subscribe, you’ll have access to our portfolio recommendations and all back issues.

Learn More Now

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