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Whether it’s stock market volatility, concern about the direction of the economy, or distrust of the government, interest among investors in gold is rising. Whatever the reason, buying gold as an investment is all about speculation.
Speculation that higher inflation is heading our way.
Speculation that bad economic times are coming.
Speculation that we could see another depression, or worse.
The thinking is that if any of these (or other) scenario’s play out, the price of gold will rise even higher. Rise, that is, from the record high price it’s already reached.
I had to laugh over the weekend when I read a USAToday.com article about corn reaching a new high this year on speculation over lower yields than expected.
I found it humorous thinking those who are clamoring for gold, probably won’t chase corn fortunes the same way they’re chasing gold.
But whether it’s gold, or corn, or #2 lead pencils, they’re all commodities. They don’t pay dividends, they can be highly volatile, and their price is often driven purely by speculation.
Then again, if the reason someone is buying gold is they’re convinced the world economy will crash and the “reset” button will be hit, then maybe corn would be a better play than gold.
After all, you’d at least have something to eat…
A collection of interesting financial stories you may have missed this week.
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Is your hair worth $1 million? – CNBC – if your business is hair, there’s probably no better endorsement model than the Pittsburgh Steelers safety Troy Polamalu. This week, Proctor & Gamble, maker of Head & Shoulders shampoo, took out a $1 million insurance policy on Troy’s hair through Lloyd’s of London.
Why all smartphones are $199 – CNNMoney – Of the four major wireless companies, there are 13 different smart phones for sale. Not one of them costs more than $199. Whether you buy the iPhone 4 (the best selling smartphone of all time) or a nine month old Blackberry Bold, you’ll pay $199. Why?
Strongest jobs recovery in decades. Seriously – CNNMoney – A jobless recovery? Hardly. By historical standards, the labor market is recovering nicely — job growth has started earlier than in past recessions. But the unemployment problem isn’t going away. What does the future hold for hiring? Read more to get CNN’s take.
What kids learned during the recession – CBS Moneywatch.com – Want to have some fun tonight? When (or maybe I should say if) you see your teens at dinner ask them what they learned about money during the recession. If they say they nothing, as mine did, push a bit. Hopefully they’ve realized how problems of others, can affect them in ways they didn’t originally realize.
Run your home on an iPad – CNNMoney – No more leaving the air on all day just so your house is cool when you walk through the door. You can simply turn it on, or program it to turn on, 10 minutes before you’re due home. The app is free, but of course you’ll need a home module and an iPad.
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The recent Marcellus Shale gas & oil leasing phenomenon has created a lot of excitement for landowners throughout West Virginia, Pennsylvania, and Ohio. For many it’s turned into a windfall of money and a lot of decisions that need to be made.
Decisions to ensure you not only secure favorable leasing terms but protect the assets you now have.
I’ve not only had personal experience dealing with lease negotiations directly as a land owner but gained valuable knowledge attending a variety of seminars on the topic. Here are some things I’ve learned:
- Rule of Capture. Read this carefully. Gas companies can take your gas WITHOUT your permission! They can’t drill on your property without permission but they can drill on nearby property and extract the gas from right under you- LEGALLY. Remember this when negotiating your lease and know that playing hardball may backfire.
- Pugh Clauses add protection. In the event the leasing gas company only identifies a portion of your leased land in the drilling unit (typically 640 acres), a Pugh clause will release the unused acreage you own to negotiate with another gas company.
- Renewal Clauses. The standard renewal clause seems to be at the same rates as the original lease. An alternative would be to negotiate a first right of refusal. This would give you the ability to negotiate a better deal with another gas company giving the original lessee the right to match the offer.
- What Dictates the Value of My Land? Lease payments can vary dramatically. Understanding what drives the price can help you secure the best deal. First, the more acreage you have generally the higher price you can demand. Second, where your property falls within the Marcellus Shale footprint and proximity to existing productive wells. And third, the number of companies competing for your lease.
- Future Royalties Unknown. Since there is no historic data in the Marcellus Shale gas play, well production is relatively unknown and unpredictable. Because of this we have no accurate way to determine future output and therefore future royalties. You can calculate theoretical returns but should never rely on them as it may not be a reliable source of future income.
- Royalties can impact your Taxable Estate. If you were to die while engaged in a gas & oil lease, future royalties could be factored into your taxable estate. Although the future estate tax exemption could change, it is set to be just $1 million starting in 2011. With a large enough plot of land and a handsome royalty rate, your future royalty value could reach these figures.
- Consider the Tax Consequences. The bonus money generally paid up front can create a hefty tax bill. Find out what your liability will be and consider taking payments over time vs. all up front. This can potentially save you thousands in taxes.
- Everything is negotiable. The initial offer and associated lease documents are all open for negotiations and you should take special care in making sure you receive the terms most suitable to your specific situation. I’d recommend consulting with an experienced gas & oil lease attorney prior to entering into any contract.
I’m sure you’ve heard all the lottery winner horror stories. The gas & oil lease play is no different and you can easily end up worse off than you are today by mismanaging the financial windfall a gas & oil lease can provide. Be informed and plan accordingly.
I’ll be writing more on Gas & Oil Leasing in the near future. If there’s a specific topic you’d like to read more about you can email me here.
