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YES

THERE IS..... A BETTER WAY

TO INVEST IN GOLD

 

It is common knowledge, that the majority of Advisors, recommend some 10% to 15% of an investor’s portfolio should be invested in gold as an " insurance policy " .

When buying an insurance policy, many variables have to be considered, the same applies to a "gold insurance policy ".


The best insurance policy that we could buy should contain:

1)    Safety of investment. ( A bond maturity date )

2)    Revenues. ( A bond interest coupon )

3)    A "floor" ( A bond yield )

4)     Capital gains. ( Whether the price of the common share )
                                             ( increases or decreases )


Can we obtain, s  a  f  e  t  y ,   r  e  v  e  n  u  e  s  and   c  a  p  i  t  a  l    g  a  i  n  s  in one insurance policy ?

Read-on, and let us have a look at how it can be done.

There are many ways to invest in a " gold insurance policy " One of the easiest insurance policy, is to buy physical gold, it is easy to buy and it is easy to sell.

 

 

PHYSICAL GOLD:

 

POSITIVE REASONS: 1) If you believe that inflation is coming back. 2) If you believe that the economy is going "down the drain", and that paper currencies will soon be obsolete, physical gold will be one of the main currencies available for transactions.

NEGATIVE REASONS: 1) Physical gold does not produce any revenues. 2) Physical gold does not have any maturity date at which you can get retrieve your investment.

 

Another way to buy:  We could buy Bonds of a Gold mining company, it is easy to buy and it is easy to sell.

 

BONDS OF GOLD COMPANIES:

 

POSITIVE REASONS: 1) By buying a bond of a Gold company, we are making a loan to that company, which in return will pay us interest on the loan. The company will also return to us $1000 per bond on the maturity date. If the price of gold increases, that company will be in a better position to repay their debt at maturity.

NEGATIVE REASONS: 1) By buying a bond, we secure our investment knowing that our investment will be returned to us on the maturity date, and we collect the interest. This is all that we will receive, even if the price of the underlying common share, doubles or triples, we will not be able to participate in that capital gain.

 

A third way to buy: An insurance policy that is relatively easy to buy or sell is the common shares of a Gold company.

 

COMMON SHARES OF GOLD COMPANIES:

 

POSITIVE REASONS: 1) By buying common shares of gold mining companies, you would have a greater leverage in the increase in the price of Gold than by buying physical gold. 2) You would participate in the increase in the price of the shares.

NEGATIVE REASONS: 1) If, the price of gold decreases and stays low for an extended period of time, the price of the common share will decrease and you will have to wait to be able to recuperate your investment. 2) Common shares of gold mining companies pays no dividend or very little dividend. You might be sitting for quite a while with a loss and none or very little income.

 

 

What is one to do ? An investor would like to: 1) have a maturity date, in order to be sure that on that date, he will be able to recuperate his investment, (Safety). 2) have a good "income" from his investment, (Revenues). 3) just like a bond, have a "floor" under which the price should not fall.

What would an investor want more, if he could have those three selections ?
With all that security and good income, we might as well "go for broke" and ask
 to be able to participate in the good fortunes of the company.

What one would like naturally is "THE BEST OF BOTH WORLDS".
Income and safety through a "bond" and capital appreciation through common shares. As the title says, " YES, THERE IS .... A BETTER WAY TO INVEST IN GOLD ".
That better way is, C o n v e r t i b l e   b o n d s.

 

 

CONVERTIBLE BONDS:

 

Convertible bonds, have the same characteristics as conventional bonds. They have a coupon, pay interest twice a year and at maturity they will redeem their bonds at "par" ($1000).

The bonus with convertible bonds is that they are convertible into a known number of common shares of the company. The number of shares into which it is convertible multiplied by the price of the common share is called the "conversion value". The convertible bond will always trade above its conversion value.

The upside in the price of the bond is unlimited, it is directly attached to the price of the common share through a mathematical formula: (number of shares X price of shares). Example: If the bond is convertible into a 100 shares and the price of the share is trading at $10, then the conversion value is (100 shares X $10) = $1000. If the price of the share rises to $15, then the conversion value of the bond is (100 shares X $15) = $1500.

The downside in the price of the bond ( the floor ) is limited through its investment value. The investment value is the value it would command as a conventional bond if it were not convertible.

The convertible bond price will rise with its conversion value but its price will normally fall no lower than its investment value

 

POSITIVE REASONS: 1) You have a "maturity date", (Safety). 2) You also have a bond coupon that is larger than the dividend on the common shares (Revenues). 3) You have a "floor" under which the bond should not trade. 4) Best of all, you participate in the good fortune of the company through the rise in the price of its common shares. (Capital gain).

NEGATIVE REASONS: 1) Convertible bonds are more complicated to understand and to select. One has to do his / her homework very diligently. I would advise you, to consult a Convertible bond specialist.



We have finally obtained all of our wishes, all rolled up into one investment. Safety through the bond, capital gain through the convertibility of the bond, and a maturity date at which we should collect $1000 per bond.

It is clear that the best investment is certainly "Convertible bonds".


There is one selection that we have not taken into consideration, "Decision making".

 Please let me explain, the price of the convertible bond is tied to the price of the common share through the mathematical formula (number of shares X price of shares).

If the price of the convertible bond increases from $1000 to $1500, do we sell or do we wait until it increases to $2000 ? Just like any investment we still have the problem of decision making.

The " buying " part of any investment is very easy, it is the " selling " part of that same investment that is difficult. The old "adage" says, everybody knows how to buy, very few knows how to sell.

Could we cancel, erase, eradicate that " Decision making " on the sell side ?
 So far, we have accomplished all of our investment wishes. We have combined them into one investment " Convertible bonds ".

 

Once again, I say YES there is.....a better way.

 

This better way is a : " MARKET-NEUTRAL" HEDGE INVESTMENT PROGRAM.

The program is a sophisticated strategy with a straight forward approach. It uses a technique known as " hedging " which combines investments in Corporate Convertible bonds with the short sale of half the underlying common shares. The program goes far beyond the use of normal hedging techniques. Through a mathematically planned model which  p r e d e t e r m i n e s short and long term goals, in advance, " ELIMINATING THE NEED TO MAKE FURTHER BUY AND SELL DECISIONS ".
 
This program is able to generate substantial profits with only small fluctuations in the price of the underlying common share.
 
EQUAL PROFITS, will results REGARDLESS OF WHETHER THE FLUCTUATIONS TAKE PLACE ON THE DOWNSIDE OR THE UPSIDE.

 

 

 

CONCLUSIONS:

We now have,  " s a f e t y "  with the bond maturity date.
We have  "  r e v e n u e s  "  with the bond’s coupon.
We have a  "  f l o o r "  under which the bond should not trade.
We can lock-in  "  c a p i t a l   g a i n s  ", whether the price of the common share increases or decreases.

 

Following is a list of Gold & Metal Convertible bonds:

 

US$ DENOMINATED CONVERTIBLE BONDS:

Agnico-Eagle, 3.50 % 2004

Trizec-Hahn ( Barrick gold ), 3.00 % 2021

Battle Mountain Gold, 6.00 % 2005

Coeur d’Alene, 6.00 % 2002

Coeur d’Alene, 6.38 % 2004

Coeur d’Alene, 7.25 % 2005

Inco Ltd., 7.75 % 2016

Inco Ltd., 5.75 % 2004

Teck Corp., 3.75 % 2006

CDN$ DENOMINATED CONVERTIBLE BONDS:

Inmet Mining, 5.00 % 2007

Kinross Gold, 5.50 % 2006

Noranda Mines, 5.00 % 2007

Sherritt Mines, 6.00 % 2006

Teck Corp. ( INCO ), 3.00 % 2021

 

The lists are for reference only.

 

 

(better-w,14-01-00)