A Golden CD

10/21/2005 12:00 am EST


Steve Sjuggerud

Founding Editor, DailyWealth

"I’m still excited about the prospects for investing in gold," says Steve Sjuggerud in True Wealth. "And there is now a way to invest in gold where your principal is 100% protected and FDIC insured, and you have unlimited upside potential."

"Everbank set it up as a five-year CD called the MarketSafe Gold CD . If you put in the minimum of $1,500 today, your absolute worst case in five years time is you get your $1,500 back. These CDs are FDIC insured, so you really do have no risk on the downside. There are no fees at all, either, which is nice. What’s your upside? It’s unlimited. Specifically, you get the average of the price of gold over the five-year life of the CD. Gold is at $465 as I write. Note what you receive is not based on the price that gold is at the end of the five-year CD, but the average over the five-year life.

"Let me give a few hypothetical examples, based on different gold price movements over the five-year life of the CD, so you can see what you’d be getting into.

Gold Price at End of Year 1: $500
Gold Price at End of Year 2: $600
Gold Price at End of Year 3: $700
Gold Price at End of Year 4: $600
Gold Price at End of Year 5: $500

"In this first example, the average of those numbers is $580. Since gold started at $465, that’s a gain of 25%. So at the end of five years, your CD would cash out with a 25% gain. The interesting thing in this example is, the price of gold actually ended the five years at $500 an ounce. So you would have made more money in the no-risk gold CD than you would have if you’d held the gold over that period. Wow!

"Of course, it doesn’t always work that way. Let’s say that the price of gold ends every year up by $100 an ounce:

Gold Price at End of Year 1: $500
Gold Price at End of Year 2: $600
Gold Price at End of Year 3: $700
Gold Price at End of Year 4: $800
Gold Price at End of Year 5: $900

"You may not think gold will hit $900, but we’re just making another example here. The average closing price of gold for each of those years is only $700. Sure, you’d be up over 50% on your initial no-risk investment. But you would have missed out on an additional $200 of gold price upside. In this case, by going the no-risk way, you would have sacrificed some solid returns.

"Our third and final example is if the price of gold ends up down in price, after going up. I won’t show you in numbers, as you probably get the idea by now. However, if the price of gold went up for a few years, and then went way down, you’d still end up with a decent profit on your no-risk gold CD, even of the gold price ended the five years much lower than current levels. This is good stuff.

"I’d add that the only difference in the hypothetical example (which we used to make it simpler) and the real thing is that Everbank takes the price of gold twice a year instead of once a year. This CD is not for everyone. Quite frankly, I think the right thing to do is own the gold with all the upside. But for some reason, many investors have not bought gold. If you haven’t bought because you’re afraid it might go down and you might lose money, then you no longer have an excuse.

"With this CD, you can’t lose money. The very worst case scenario with this is you have dead money for five years but you don’t lose a penny. That’s a heck of a lot better than the downside risk in most everything else these days. You should own some gold, period. If you’re looking to take baby steps into gold, and buy gold with no-risk, then you ought to consider this Everbank MarketSafe Gold CD."

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