Byron King: How to Up Your Investing IQ With Gold

Have you ever actually held a bar of gold in your hands? Byron King, editor of the Outstanding Investments and Energy & Scarcity Investor newsletters, suggests that you should give it a try. But becoming a smart investor shouldn't just be about physical gold, King says. He also encourages investors to use investments in gold mining juniors to increase their exposure to precious metals. Read on in this Gold Report interview to find out about the handful of companies he's expecting to shake up the market in 2013.

The Gold Report: Byron, many gold investors spent the early part of December exiting their long positions in gold. Is 2013 the year the gold bull market ends?

Byron King: I don't think the gold bull market will end any time soon. I believe that much of the recent gold exit has been a reaction to the impending tax changes on Jan. 1, when tax rates will go up unless there is Congressional action. I don't think very many investors are selling physical gold or silver. I do think people are selling paper and electronic gold to lock in gains and pay capital gains at the lower 2012 tax rate. It is tax-driven selling, not a reflection that the world's monetary or economic system is getting well.

TGR: How should investors handle the tax-loss selling season?

BK: People have to make their own decisions. If investors own a physical precious metal, the last thing they ought to do is sell out. Really, never sell actual gold or silver if you can avoid it. With the paper gold, or electronic gold, or gold shares? It depends on the investor's situation. If you have large gains, perhaps you want to lock in the gains, sell and pay a 15% capital gains rate in 2012, versus selling it after Jan. 1 and paying a higher rate. If that's your case, then sell now and buy it all back next year. Everyone is different, however.

TGR: How should investors position themselves in gold for 2013 and beyond?

BK: Right now, an investor ought to have cash, which is dry gunpowder, as well as physical precious metals in one's possession. I don't mean own a certificate, own a call on gold or gold in somebody else's storage locker. I mean, own the gold!

TGR: What should that portion be approximately?

BK: That's a matter of individual taste. My view is 10–15% of your portfolio ought to be in precious metals. Some people say 5%. Some people say 25%. The University of Texas at Austin, which has a very large endowment, owns over 663,000 ounces (oz) of physical gold. Kyle Bass, a wealthy Texas resource investor, convinced the board of directors of the endowment to put 5% of the endowment into physical gold, and more importantly, to take delivery.

TGR: You say that the sector is poised for a rebound. Which part of the sector is most likely to rebound first?

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BK: Large producers are refocusing and re-emphasizing capital discipline. In the last 10 years, as gold went from $300/oz to $1,700/oz, many gold mining companies—most, really—added new ounces for the sake of adding ounces. They expanded their resource base and added reserves without any real regard to the profitability of each ounce. The culmination of that came with Barrick Gold Corp. (ABX:TSX; ABX:NYSE) this summer. The company has all that gold, and not all that much profit. So Barrick fired its chief executive officer and brought in a different management team. The board of directors and the new management announced a re-emphasis on the profitability of each new ounce that it adds.

The Barrick situation was a reflection of how the price of gold went up six times in the last 10 years. In general, the share price of large gold miners did not have that same bounce.

TGR: Perhaps the biggest issue with gold mining companies right now is steadily creeping costs. Some analysts believe that mining companies aren't watching their costs as closely as they could be. Do you believe that some companies have better control of that than others?

BK: Yes. For example, take here .
Byron King writes for Agora Financial's 'Daily Resource Hunter'. He edits two newsletters: Energy & Scarcity Investor and Outstanding Investments. He studied geology and graduated with honors from Harvard University, and holds advanced degrees from the University of Pittsburgh School of Law and the U.S. Naval War College. He has advised the U.S. Department of Defense on national energy policy.

DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview are sponsors of The Gold Report: Argonaut Gold Inc., NOVAGOLD and Argentex Mining Corp. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.

3) Byron King: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

Written By: The Gold Report