Gold Trading (I dare you)

Week 13.3 PM Trading (I dare you)

I’m sure you have read many articles on Gold and Silver’s gurus. Here is some of crucial idea for you to think. One of your biggest saving is the house you own. I do read the newsletter from Miles Franklin, the author told us that he and his son sold off their house during the peak period in USA and has been renting since then. He used the money to buy precious metal and as off now he has 40,000 oz of silver.

For most people, your house is the biggest assets you have and if it is correctly invested or leverage it can bring you tremendous profit.

Past analysis

Let said you have a house in 2006, you refinanced your house for RM200K and use the money to buy gold at RM2300/oz or silver at RM50/oz. You can buy 87 oz of gold or 4000 oz of silver.

Refinancing Cost

In case of RM200,000/- loan

Legal fee + stamp duty = RM10000/-

For simplicity of calculation assume a flat interest rate of 4% per annum which work out to 7.8% per annum for nominal rate.

For 5 years, the interest rate is 4% x 200,000 = RM80,000/-

Etc + safe box storage fee + insurance :- RM10,000/-

Total cost = RM100,000/-

Case 1: Brought Gold

If you convert gold at today April 2011 price, price 87 x RM4600 = RM400200.  Do you think you can sell off your house at RM400K. Most likely not! However it’s depends on location.

You still make a nett-gain of RM200,200 – RM100,000 = RM100,200/-

You make a gross gain of RM200,200.

Case 2: Brought Silver

In case of silver, the price at April 2011 is RM150/oz

4000 x RM150 = RM600,000

Your gross gain is RM400,000

Your nett-gain is RM300,200

You still own the house on loan, you can pay off your loan anytime. You don’t have to move anywhere. Zero moving cost. Off course, you can also sell off your house. Just bear in mind if you sell off your house, you need to pay the rent and may not be able to afford the same house you sold earlier.

Off course you cannot go back to the past, let us look at the future.

What do you think the prices will be heading to? What risk factor are you willing to bear?

Future Analysis

What is the price of your house now and in the future? Would you be better for you to refinance or sell-off your house and convert the additional cash to gold and silver? Consider all the cost of refinancing and sourcing of new house as well. Well, I have no answer for that. Do your own homework and run through the statistic/calculation etc. Then only you can tell yourself what to do.

a)      Price of gold in 2015

b)      Price of silver in 2015

c)      Your House price in 2015

Note: Taking a loan now is actually stealing if you consider the operation of the Fed Printing Press.