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Monday, November 17, 2008

Why Buy Gold and When to Sell Gold

Why Buy Gold and When to Sell Gold
Why buy gold and when to sell gold is not as difficult as it seems.

On the-privateer.com it states, " In any discussion of the future of Gold, or of the price of Gold, the first thing that must be realized is that Gold is a political metal. In the true meaning of the word, its price is "governed".

"This is so for the very simple reason that Gold in its historical role as a currency is fundamentally incompatible with the modern worldwide financial system."

Throughout history, up to August the 15th 1971, in fact, there has always been a link between paper money and gold. The history of money is littered with the connections. Either gold itself was used as a currency, or if paper was used it was backed by or represented a value of gold.

Since that fateful day in August 1971 however, the successful action of having a medium of exchange was dropped and paper itself was called upon to represent value. But paper currencies hinge on the concept that the debt on which they are based will be repaid. The only way this is being done currently is with more paper money.

Richard Russell, editor and publisher of the Dow Theory letters commented in a recent post on his website:

"Quotes are great if you own stock in a public company in a big bull market. But the great majority of amateur investors make more money holding their homes over the years than they ever make in the stock market. And the reason is that if they own a home over the years, and that home is sensibly financed, they aren’t scared out their home by those damnable quotes during bear markets.

Holders of gold might mull over the same concept. Sure gold is quoted every hour of the day around the world. Long-term holders of gold might do well to ignore the quotes. If gold doubles in price, so what? -- are you going to swap your gold for paper? If gold drops by a third, so what? – are you going to dump your gold for paper?

Why not just relax and hold your gold? Hold your gold – why? The reason is that gold is the only true money, it's the only money that remains wealth no matter what happens in the world. Gold is wealth during the biggest boom and gold remains wealth during the worst depression. So why dwell on the daily dollar price, even though gold is quoted everywhere every hour of the day? Forget the bloody quotes, just accumulate gold. It's a good thing to have in today's unstable world."

Why Buy Gold

Why buy gold I hear some people ask. Gold is transitory and the price will always go down again!

In fact gold is not transitory. It has been around and used by man for thousands of years as decoration, jewelry and also, importantly, as a medium of exchange and preserving assets. It may drop temporarily but it always goes up again and is now worth more dollars than ever before.

Why Buy Gold
Why buy gold indeed! Nations and governments come and go. Currencies come and go. Economic conditions come and go. Inflation and recessions all come and go. Various bartering systems come and go. Stocks and shares and the ancillaries to those, futures etc, all come and go. But gold lives on and persists throughout the centuries and continues to be a stable resource for man.

Additionally gold does not tarnish, gold is welcome anywhere in the world. You can buy gold and sell it. Keeping assets in the bank means one gets a paltry interest rate (if that) which is generally eaten up by bank charges and inflation as each year the dollar is worth less than the year before. But gold. Ah! Gold does not hit you with bank charges and is not subject to inflation. Gold does not wear out and is not subject (mostly) to taxes. No. Gold is a stable asset that keeps its purchasing power.

In fact, regardless of the current economic situation, gold remains ... as good as gold! So the time to buy gold is always now, regardless of when now is. The time to sell gold is ... never! And as to how much gold to buy? Well, as much as you can possibly lay your hands on!

Gold Price
The gold price fluctuates daily, even hourly. The live gold price is dependent on market forces, upon the economic conditions and peoples perception of what is happening economically and how the economy affects them. When the economy is unstable, people look for alternatives such as precious metals like gold and silver. The price of gold moves up and down with these apprehensions. The current price of gold to day reflects peoples moods and expectations. Since the economy has been unstable for so long and there is no likely hood of stability any time soon, more and more people are turning to gold.

Gold is undervalued even now. It takes many more dollars to buy an ounce of gold now than it did 30 years ago although you can still by the same products now as you did years ago. Gold has not changed. Only the purchasing power of the dollar which has gone down over 95 percent since 1910. Yet an ounce of gold will still buy now what it did in 1910. That tells you that you have much more chance keeping your assets if you buy gold than by sticking your money in the bank.

In the short term gold prices may change by the minute. But in the long term the price of gold is on a steady uptrend and looks set to continue as more dollars are printed and the purchasing power of becomes less and less.

Gold, in short, is a safe haven for assets.
A Short History of Gold
The historical gold price chart over the past few years shows that gold has been on a long term upward trend. There are peaks and troughs and, of course, who can forget the major spike in gold in 1980 when it hit the high 800s. But over the past 30 year gold price history, the trend has been essentially up and looks like continuing as the value of the currency it is set to continues to diminish in value..

The value of the gold, of course is not changing. One can still buy the same value of goods and services with one ounce of gold as one could 30 years ago. But the value of the dollar has plummeted and it takes a lot more dollars to by those same goods and services than it did 30 years ago. The gold has not changed. One ounce of gold is still one ounce of gold. But the dollar has changed and the price of gold reflects that.

Buy Gold Coins
Some of the best places to buy gold coins are of course gold mints, gold dealers, gold shops and eBay. From these one buys gold retail and one can also buy gold wholesale. The main trick when buying gold is to keep the premium over the spot price of gold to a minimum. This is difficult with gold coins as the manufacturing costs are high and the mint and dealer want their profits.

The advantages with buying gold coins is that they are easy to buy, store and transport. Also to sell. You can sell gold coins anywhere in the world. Gold coins are easier to sell than bars. Dealers who buy bars will want to assay the bar fist and this may require sending the bar off, if the dealer is online, which can be a bit of a security risk.

The disadvantage, of course, is the price you pay for gold coins. The premium is higher than bars and can be up to double the price of gold for small coins such as the one tenth ounce for example. This means it is going to take a long time to recoup the value of the gold.

What you do will depend largely on the reason why you buy gold coins. It may be you enjoy just collecting certain types of gold coins, or for convenience if you travel a lot and need to be able to convert gold into money quickly.

Buy Gold Bullion
Out of all the ways to buy gold, the best buy is gold bullion. You can buy gold online either as gold coins or gold bars or even share in actual gold pooled by buying gold from GoldMoney.com, probably one of the cheapest and most secure ways to buy gold. You can also buy direct from Mints or dealers and all are equally valid ways of buying gold. Each method has its advantages and disadvantages..

To buy gold bullion in the form of coins and bars means you will have to pay a premium. How much this premium will be depends on the coins and bars you buy. The smaller the bar or coin in weight the higher the premium per ounce. The higher the bar or bigger the coin the less premium per ounce you pay. The premium itself is stable as the fabrication and other associated costs per coin or bar stay the same.

One way of not having to pay a heavy premium is to buy gold from goldmoney.com. Here the gold is stored in vaults and you can buy any amount of that gold. This system guarantees that you actually own gold, not shares in gold and your account details and balance will reflect that holding. One of the main advantages here is that the premium and fees are so incredibly low. Instead of paying vast sums over the spot price of gold you simply pay a small storage fee that amounts to less than one percent per year and a management fee of one quarter of one percent. This must make it the cheapest gold around. The system is fully transparent and you can see the bar count and audits on the website.

The only possible disadvantages are the costs associated with wire transfers in and out of the account in some cases. But that can be disadvantage with any online purchase of gold.

Buy Gold, Pure Gold
Bu gold, pure gold! That is the catch cry but which gold? Canadian Maple leaf, 24k American Gold Buffalo Coin, Krugerrands,, whatever gold coin you buy it should be 99.99 fine gold or 999.99 pure gold. Sometimes you will find coins that have a lesser quantity of gold in them. Some mints are now offering gold coins as 22 carat instead of the 24 carat. These may say they are 99.99 fine gold and of course the gold contained within the coin IS 99.99 fine gold. Any gold anywhere is 99.99 fine gold. But if it is alloyed or mixed with another or other metals then it is not a pure gold product. Look at the Karat. Is it 22 Karat gold? Or 24K gold? The 24K gold is pure gold. The 22k gold is not all gold. It may be advertised a pure fine gold and the gold itself would be but it is not all solid gold..

When you buy gold coins always, always check the karat and ensure it is 24 karat gold as well as being 99.99 percent gold.

Buy Gold Eagles
American Gold Eagle Coins are perhaps one of the most popular of the gold coins and are official legal tender in the USA.

They are considered a beautiful gold coin. the $20 Double-Eagle gold coins minted from 1907 to 1933 has the graceful Striding Liberty design inspired by the Augustus Saint-Gaudens on the obverse and the reverse of the coin displays a nest of American Eagles.

All American Eagles ere struck with 91.67% (22 Karat) fine gold and the total gold weight is stamped on the reverse of the coin.

One interesting aspect of American Eagle Gold Coins is that the weight, gold content and purity are all guaranteed by the US Government.

You can buy American Eagle gold coins from most coin dealers as well as on eBay and the American Gold Eagle and are likely one of the most traded of gold coins in the US.

Buy Gold Maples
The Canadian Gold Maple has been said to be the most beautiful gold coin in the world. It is certainly one of the best being a pure .9999 (24 karat) gold coin with no alloys added.

The Canadian Gold Maple Leaf Coins are among the purest gold coins available then.

All Canadian Maple Leaf Gold Coins have a bust of Queen Elizabeth II, on the obverse designed by Arnold Machin and on the reverse (tails or flip side) we have the famous Canadian Maple Leaf symbol.

Canadian Maple Leaf gold coins are official legal tender in Canada and can be bought from most of the major coin dealers.

Buy Gold Krugerrands
Everyone has heard of Krugerrand Gold Coins. They have been made famous in exciting and adventurous movies.

In fact the Krugerrand was named after Stephanus Johannes Paul Kruger, a former South African President and well known person involved in the formation of the South African Republic. His head is on the obverse, or "heads" side of the coin

The Krugerrand was the first gold coin to contain one ounce of fine gold. These days you can also get half ounce, quarter ounce and even one tenth ounce Krugerrands.

If you want to buy gold Krugerrands, they are generally available from most coin dealers, at a premium, and, although not the prettiest coin, perform the basic function of having gold cons available when you need them.

Buy Gold Bars
One of the best ways to buy gold is to buy gold bars. These can be from the simple one ounce gold bars up to the 400 ounce gold ingots. In practice most people buy the smaller gold bars as 400 ounce ingots are somewhat impractical.

1 ounce gold bars, 1 kilo gold bars, Swiss gold bars, all are popular and all can be obtained for a premium. All gold bars are .999 fine gold and 24 karat. Each is stamped with the weight, purity and manufacturer. The larger bars also have a specific number unique to that bar stamped on them.

The larger the bar you can afford, the less the premium. Bars are more difficult to sell than coins however so are more suitable to people who have no intention of selling their gold.

Best Gold to Buy
In truth the best gold to buy is solid gold as distinct to "paper gold". This means buying actual gold bullion and not stocks or shares in gold. Stocks and shares are subject to other influences and stock market fluctuations. Some people say that gold does not provide any interest. This is a good thing since if gold were to pay interest then the return on gold would be dependent upon other factors instead of it being just pure gold.

Some people say that gold stocks are better than gold itself. This is another fallacy as gold stocks are subject to other market forces, such as, for example, when there has been a stock market crash, gold stocks have suffered the same fate, which gold has actually moved up.

Gold could be considered just another commodity, such as sugar or pork bellies. This is clearly incorrect as sugar and pork bellies are consumed and have to be replaced. All the gold that ever was is still around either in circulation or stored somewhere. It does not decrease and alone is accumulated and saved and used as a currency back up.

In fact gold stands by itself. The best gold to buy is solid gold bullion. Either by purchasing and storing the gold yourself or in bank vaults or through a trusted custodian.

Yes gold bullion in the form of gold coins and bars is definitely the best gold to buy.

Gold Price

The gold price continues to be in the news a lot due to the steady rise of the value of gold as measured against the dollar.

But what does the gold price mean?
The value of gold actually does not change much. What does change is the amount of paper or electronic money needed to purchase an amount of gold, most universally measured as US Dollars (USD) per Ounce.

The gold price is also measured in 'price per kilogram' and 'price per gram'. For example the jewelry industry usually is concerned with the price of gold in grams whereas investors usually watch the price per ounce.

For over one hundred years from 1800 through to 1970, the cost of gold remained fairly stable with a very gradual rise from 19 US dollars an ounce to 38 US dollars an ounce.

Then in 1975 there is recorded a jump to 175 US dollars per ounce! This is a massive jump in just a few years. Not only that but in 1980 there was an even more massive jump to 641 US dollars an ounce.

In 1985, however, it plummeted by almost half and was steady in the 270 to 425 range until recently when it started it's march upward again.

However, whereas in the 1980s there was a dramatic rise, this time, so far, it appears more steady.

What does the rise in the gold price mean? Does this mean that there is less faith in the US dollar? Or is it just that people prefer to own something more solid than paper currency?

It was pointed out recently that if the US reverted back to a gold backed currency then, with the vast quantity of paper money (dollars) currently printed and in circulation, then it would take $52,000 USD to purchase one ounce of gold.

That gives new meaning to the word inflation!
It seems evident that the gold price demonstrates people's confidence in gold much more than in the dollar and, for gold owners, that can only be a good thing.

It is likely that in these economic and troubling times people will seek something that remains stable. And gold has a tradition of being stable come what may and, what ever the gold price, people will certainly be willing to pay it.

Thursday, November 13, 2008

Which Gold Investment?

Which is the best way to invest in gold?
We believe there are a number of different ways to invest in gold:-

* Gold Accounts
* Gold Futures
* Gold Mining Shares
* Gold Bars
* Gold Coins

Gold Accounts
It is possible for larger investors to have gold accounts with major banks. In many countries such as the UK, this is not easy, as there is little tradition of banks offering gold account and dealing facilities. Accounts are usually only available with "private bankers" for individuals with a few million to invest. You may wish to read why we do not offer storage or accounts.

Gold Futures
This is a highly professional market, but is more for the speculator than the investor. It is essential to use a trustworthy commodity broker, as there are many potential abuses and pitfalls.

Gold Mining Shares
This is probably the best way to make a "paper" investment in gold. There is a simple theory that when gold bullion prices and demand increase, then gold mining share prices will follow. Some mines fully hedge their future production however, so the theory does not always hold true for all producers. Mining shares in general can be quite risky.

Physical Gold - Bars
Taking physical delivery of your gold is a very safe way of investing in gold. Gold bars are one method of achieving this.

Physical Gold - Coins
Gold coins are often more convenient than bars, and can often be bought for lower premiums than bars, weight for weight. There is a large selection available. The first decision is often whether to buy older coins or new "bullion" coins.

source:http://www.taxfreegold.co.uk

Lower Gold Price = Buying Opportunity

Our Opinion
We don't tend to hype the future gold price as do many other gold dealers, partly because it is often difficult to make any predictions. We explain this in our other gold price page which you should read first.

Update as at 7th March 2002
Gold prices and demand recently made a few strong upward surges, mainly sparked by the Japanese Government announcement that they were to reduce or withdraw guarantees to Japanese bank depositors. This caused strong demand in Japan, which we expect to continue.

A Lull
In the past few days, gold prices have been slightly lower. We believe this creates a good buying opportunity for those looking to invest in gold. Many investors wait for prices to start rising before they buy. We believe this is an error, and that it is better to buy when prices have recently softened.

In General
Although this page ws originally written at the time of a specific brief dip in gold prices, the advice we give is good general advice at all times. It is better to buy when prices are lower than when they are higher. It just seems so obvious, that we don't find ourselves saying it often enough.

Gold Bars or Gold Coins?
Which is the better way to invest in gold?
On this page we will assume that we are considering the options for a larger investor, although smaller investors will benefit by reading our advice also.

Gold Bars
For the serious and large scale investor, gold bars are a simple and efficient way to invest in gold. The larger bars are usually available at the lowest premiums over their intrinsic gold value, smaller bars tend to cost more. There is a trade-off however, in that larger bars are not as flexible when it comes to selling. If you own a kilo bar, and you wish to sell, say 100 grams, it's not easy to slice off one end of your bar. Your choice of buyer is also more restricted as you will need to sell to a larger dealer, it is unlikely that you will find a private buyer as most people are not familiar with gold bullion bars.

Gold Coins
It is sensible to consider modern one ounce gold bullion coins as being one ounce circular bullion bars, guaranteed by a government rather than a refiner.
Because coins are mass produced, and very efficiently so, they are available at very competitive prices compared with similar size bars.
Because gold coins are almost universally recognised, they are also easy to resell.

Changing Premiums
By "premium", we mean the percentage over and above the current gold value at which an item trades.
In the past (the 1960's), we have seen the premium on gold sovereigns as high as 40%. The exact prices and premiums depend on the market factors at the time, and can change from day to day or hour to hour. It is more likely for us to pay a premium for "older" gold coins such as sovereigns than "modern" coins such as Krugerrands.
For large purchases, typically 100 or more Krugerrands or 1,000 sovereigns, the premiums can be very close to those on gold bars. Small changes in percentages can make sovereigns, Krugerrands or bars more or less attractive. These changes are the result of changes in supply and demand.

Resale Considerations
It's very simple to look only at the percentage premiums when buying. In this case, most people would conclude that kilo bars were the "best buy", but this ignores the strong possibility that coins, particularly the older types, can be resold at premium prices, and can often be resold privately to collectors.
In the last quarter of 1999, we were paying about 10% premium for sovereigns, and about 4% premium for Krugerrands. Although our buying prices often represent a small discount to the current gold price, at times we do pay a premium for almost all types of coin. More dealers, jewellers or individuals worldwide would recognise and buy coins than bars.

Older Traditional Coins versus One Ounce Bullion Coins
It's also worth considering whether to opt for modern one ounce bullion coins such as Krugerrands, or older traditional bullion coins such as British sovereigns, Swiss francs, etc. For smaller quantities, these older coins will usually cost more than the one ounce coins, but for larger quantities, the premiums can often be comparable with Krugerrands or bars. Much depends on current market conditions, but any time that these older coins can be bought for similar premiums or only slighter higher, then they are worth considering.
Please see our Older Bullion Coins page for more information.

Our Recommendation
It's a slightly personal view, but we believe that if you can buy British gold sovereigns at around 1% or 2% above the premium on Krugerrands or gold bars, the we would prefer sovereigns. We also think that one ounce coins such as Krugerrands are a better buy than gold bars. Other one ounce coins are worth thinking about, but as Krugers are normally the lowest price, then Krugers automatically win.

source:http://www.taxfreegold.co.uk

What is investment gold?

For the purpose of the new VAT exemption, investment gold is defined as:
  1. Gold of a purity not less than 995 thousandths that is in the form of a bar, or a wafer, of a weight accepted by the bullion markets;
  2. A gold coin minted after 1800 that-is of a purity of not less than 900 thousandths, is, or has been, legal tender in its country of origin, and is of a description of coin that is normally sold at a price that does not exceed 180% of the open market value of the gold contained in the coin; or
  3. A gold coin of a description specified in Notice 701/21A Investment gold coins.
Gold Investment Advice
We try to keep our investment advice very simple.
We cannot predict with any certainty what gold or any other commodity or currency will do over short, medium or long periods of time. Because of this we tend to avoid giving any definite advice or strong opinion. There are some areas where we have considerable experience, and feel we can safely give advice. Some of it may appear obvious, but it is surprising how often we find ourselves repeating it.

Buy in the Cheapest Form
This is one of the most obvious pieces of advice we give. But we usually add "within reason". Generally the cheapest ways to buy gold are bars, krugerrands or sovereigns. Of these three options, gold bars can usually be bought for the lowest percentage premium over gold, followed by krugerrands then gold sovereigns. Most other gold coins are more expensive, and therefore better avoided, at least by serious gold investors. You might think therefore that we would advise gold bars, krugerrands and gold sovereigns as the best gold investments, in that order. We believe however, that sovereigns are worth paying a slight extra premium for, because of their smaller size, and the historic and aesthetic values which you get for next to nothing. Our advice will change with changes in the market, but generally we believe the most effective ways of investing in physical gold are as follows:-

* Gold Sovereigns
Sovereigns are a smaller, more attractive, more historic, and probably better known coin than krugerrands, therefore we believe it is worth paying a slight extra premium over and above krugerrands, to buy sovereigns. If you can buy sovereigns for about 2% differential above krugerrands, we believe this makes them a better long term buy. Currently for investors buying at least 50 sovereigns, the differential above krugerrands is under 2%, sometimes as low as 1%, and this makes them our first choice. Naturally this is slightly subjective, and reflects our personal opinion. Consider though that if you were to buy sovereigns at our 100 piece rate, you could resell them singly at 10% profit, and be very competitively priced. You could not make the same claim for krugerrands.
Sovereigns also have the advantage of being exempt from C.G.T. (Capital Gains Tax) in the UK.

* Krugerrands
Krugerrands are the best known of all the modern one ounce gold bullion coin. They are available in greater quantities, and they can generally be bought at lower prices than any other one ounce bullion coins. This fact alone makes them the only 1 ounce bullion coin worth considering. True they are not particularly attractive, and don't possess much in the way of historical interest, but their production quality is consistently high, and they are a very cost effective way for small investors to buy gold. They are also easy to compare prices of, as they contain exactly one ounce of fine gold.

* Gold Bars
Although at a quick look, gold bars may seem the cheapest way to invest on physical gold, there are some points worth noting, and some drawbacks.
Our price for a single one ounce bar is usually exactly the same as for a single one ounce Krugerrand. Buy two Krugers though, and our quantity price breaks make krugerrands cheaper, and therefore a better buy. Also while it is true that larger bars, such as one kilo sell for a lower percentage premium than krugerrands, they are not as easy to resell. Only a specialist gold dealer is likely to give you a good purchase price for gold bars, and then often with less enthusiasm than for krugerrands, sovereigns, or other highly marketable coins. This restricts your choice of buyer, and most dealers would expect to pay slightly less for gold bars than for coins, expressed as a percentage of their intrinsic gold value.
If you buy large bars such as one kilo, it is not very convenient if you decide to sell a portion of it!
For very large investors, it may be worth considering London Good Delivery Bars, but the first thing to note about these is that, although they are usually quoted as being 400 ounce, or 12.5 kilo, bars, there is a large tolerance in their permissible weight range, from 350 to 430 ounces. There is also most tolerance allowed in their purity, the minimum being .995 or 99.5% pure. Most "small" bars are .9999 purity or 99.99%. Because of these factors, 400 ounce bars are usually only traded between governments, central banks, and major bullion banks, and other professionals.

Buy at Low Prices
It makes sense to buy gold when its price is low rather than high. Many people are tempted to buy gold when they hear that the price has risen. Although this can be the right action if the price continues to rise, it is often better to buy after the price has fallen. Conversely, if you believe that the time is right to buy, then don't wait and try to buy it at the absolute bottom, you are very unlikely to get it precisely right. We have heard it said many times that if you can buy within 10% of the bottom and sell within 10% of the top, you would be a very successful and happy investor indeed.

Compare Percentages not Prices
When trying to compare different forms of gold, compare the percentage over the gold price for each option. We call this the percentage premium, or just premium. Because the actual prices fluctuate constantly along with the underlying gold price, simply look at the price as a percentage of, or above the gold content.

source:http://www.taxfreegold.co.uk/investmentgold.html

Tuesday, November 11, 2008

Instead of gold

There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.

The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.

NEW YORK - For years, investors known as gold bugs snapped up the metal and socked it away, betting that a colossal economic crisis would one day slam financial markets and send gold prices through the roof.

For many investors, that grim scenario is in full swing, except for one thing: After briefly hitting $1,000 an ounce for the first time in March, gold has fallen into a rut and shows no sign of budging anytime soon.

Gold's failure to flourish despite broad financial carnage has disappointed many of the metal's champions. Others say it's simply in a lull and is ripe for another big surge. But most gold buyers agree that the metal's lackluster performance lately has been surprising.

"It's been a puzzle for most of us," said Geoff Farnham of Venice, Calif. who inherited some gold holdings and recently began buying gold coins as "insurance."

"In hard times, gold is a good thing to have," the retired software developer said. "Knowing that there aren't a lot of gold coins out there to buy, seeing the price continue to drop has been curious."

It's also been punishing for investment portfolios. Since soaring to an all-time high of $1,033.39 an ounce on March 17, gold has plummeted 30 percent. Gold for December delivery on Monday rose $8.60 to settle at $726.80 — roughly the same level where it traded a year ago.

So what happened? As the financial crisis pummels financial markets around the globe, hedge funds and other large investors who drove gold to dizzying heights earlier this year are now racing to unwind those positions to raise cash and cover huge losses. The massive deleveraging has pounded other commodities from crude oil to corn to copper.

"Gold is being pulled down by indiscriminate selling of virtually every asset," said Jeffrey Nichols, managing director at New York-based American Precious Metals Advisors. "You could call it collateral damage."
Justify Full
Instead of gold, investors are pouring money into the newest safe-haven asset: cash. That has pushed the dollar to multiyear highs against the euro and the pound, hurting demand for gold among investors who buy the metal as a safe-haven against inflation.

With economists now warning that a world economic slowdown could bring about deflation, or a sustained period of falling prices, gold analysts say it's unclear how the metal will respond.

"Gold hasn't been tested in a true deflationary crisis so we don't what will happen to prices," said Jon Nadler, precious metals analyst with Kitco Bullion Dealers Montreal.

Another question is whether demand for gold jewelry and luxury items will pick back up, which could boost prices. The holiday season is traditionally the busiest season for gold buying in the U.S., Asia and elsewhere, but analysts expect the global economic slowdown to hurt sales.

"It doesn't look like it will be a good Christmas for jewelers," Nadler said. "When you don't have a job and bonuses and Christmas parties are being canceled, the mindset is toward frugality and gold takes a hit from that." Still, not everyone is selling gold.

Mark Albarian, CEO of Goldline International, Inc., a Santa Monica, Calif.-based gold dealer, said sales at his firm tripled in October compared to August — a sign that individual investors aren't joining hedge funds in the rush to sell gold.

"Our clients overall seem to be very happy with their gold," Albarian said, noting that gold is still outperforming most assets. "Gold may be back down to where it was last year. But our houses have dropped 10 to 30 percent during that time and stocks are way down. So gold has held up rather well."

Looking ahead, some gold watchers are betting for another big climb. They argue the dollar's recent rally can't last as long as the government has to pay for a string of mammoth financial bailouts by either printing money or raising taxes — both inflationary weights that should weigh on the greenback and be bullish for gold.

"Fundamentals will re-establish themselves as the driver of the gold market, and we believe we'll see $1,250 gold during this period," Donald Doyle, chairman and CEO of New Orleans-based precious metals dealer Blanchard and Co., said in statement Monday.

In the meantime, Farnham said he's hanging on to his gold. He said he's hopeful the economy will improve and he won't need to cash in his insurance, but with all the uncertainty, he's not ruling out that he might have to.

Thursday, November 6, 2008

Investment strategies

Fundamental analysis
Investors using fundamental analysis analyze the macroeconomic situation, which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity and energy prices. They would also analyze the total global gold supply versus demand. Over 2005 the World Gold Council estimated total global gold supply to be 3,859 tonnes and demand to be 3,754 tonnes, giving a surplus of 105 tonnes. Others point out that total mine production is only about 2,500 tonnes each year, leaving a 1,300 tonne deficit that must be made up by central bank or private sales. While gold production is unlikely to change in the near future, supply and demand due to private ownership is highly liquid and subject to rapid changes. This makes gold very different from almost every other commodity.

Gold versus stocks
The performance of gold bullion is often compared to stocks. They are fundamentally different asset classes:gold is a store of value whereas stocks are a return on value (i.e. growth plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold due in part to the stability of the American political system. This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The ratio peaked on January 14th, 2000 a value of 41.3 and has fallen sharply since. William Anton III wrote in the 2004 issue of Jefferson Coin and Bullion "...downward movement in the Dow/gold ratio is unlikely to stop precisely at the mean trendline. The extreme distension of the the 90s will likely overshoot to the opposite extreme in the current cycle."

In November 2005, Rick Munarriz of Motley Fool.com posed the question of which represented a better investment: a share of Google or an ounce of gold. The specific comparison between these two very different investments seems to have captured the imagination of many in the investment community and is serving to crystalize the broader debate. At the time of writing, a share of Google's stock and an ounce of gold were both near $700. On January 4, 2008 23:58 New York Time, it was reported that an ounce of gold outpaced the share price of Google by 30.77%, with gold closing at $859.19 per ounce and a share of Google closing at $657 on U.S. market exchanges. On January 24th 2008, the gold price broke the $900 mark per ounce for the first time. The price of gold topped $1,000 an ounce for the first time ever on March 13, 2008 amid recession fears in the United States.[34]On September 21, 2008 gold closed at $862 per ounce while Google closed at $449.15.

source:http://en.wikipedia.org/wiki/Gold_as_an_investment

Symbolism of Gold

Gold has been associated with the extremities of utmost evil and great sanctity throughout history. In the Book of Exodus, the Golden Calf is a symbol of idolatry and rebellion against God. In Communist propaganda, the golden pocket watch and its fastening golden chain were the characteristic accessories of the class enemy, the bourgeois and the industrial tycoons. Credit card companies associate their product with wealth by naming and coloring their top-of-the-range cards “gold;” although, in an attempt to out-do each other, platinum has now overtaken gold.

On the other hand in the Book of Genesis, Abraham was said to be rich in gold and silver, and Moses was instructed to cover the Mercy Seat of the Ark of the Covenant with pure gold. Eminent orators such as John Chrysostom were said to have a “mouth of gold with a silver tongue.” Gold is associated with notable anniversaries, particularly in a 50-year cycle, such as a golden wedding anniversary, golden jubilee, etc.

Great human achievements are frequently rewarded with gold, in the form of medals and decorations. Winners of races and prizes are usually awarded the gold medal (such as the Olympic Games and the Nobel Prize), while many award statues are depicted in gold (such as the Academy Awards, the Golden Globe Awards the Emmy Awards, the Palme d'Or, and the British Academy Film Awards).

Medieval kings were inaugurated under the signs of sacred oil and a golden crown, the latter symbolizing the eternal shining light of heaven and thus a Christian king's divinely inspired authority. Wedding rings are traditionally made of gold; since it is long-lasting and unaffected by the passage of time, it is considered a suitable material for everyday wear as well as a metaphor for the relationship. In Orthodox Christianity, the wedded couple is adorned with a golden crown during the ceremony, an amalgamation of symbolic rites.

The symbolic value of gold varies greatly around the world, even within geographic regions. For example, gold is quite common in Turkey but considered a most valuable gift in Sicily.

The price of gold

Like other precious metals, gold is measured by troy weight and by grams. When it is alloyed with other metals the term carat or karat is used to indicate the amount of gold present, with 24 karats being pure gold and lower ratings proportionally less. The purity of a gold bar can also be expressed as a decimal figure ranging from 0 to 1, known as the millesimal fineness, such as 0.995 being very pure.

The price of gold is determined on the open market, but a procedure known as the Gold Fixing in London, originating in September 1919, provides a daily benchmark figure to the industry. The afternoon fixing appeared in 1968 to fix a price when US markets are open.

Historically gold was used to back currency; in an economic system known as the gold standard, a certain weight of gold was given the name of a unit of currency. For a long period, the United States government set the value of the US dollar so that one troy ounce was equal to $20.67 ($664.56/kg), but in 1934 the dollar was revalued to $35.00 per troy ounce ($1125.27/kg). By 1961 it was becoming hard to maintain this price, and a pool of US and European banks agreed to manipulate the market to prevent further currency devaluation against increased gold demand.

On March 17, 1968, economic circumstances caused the collapse of the gold pool, and a two-tiered pricing scheme was established whereby gold was still used to settle international accounts at the old $35.00 per troy ounce ($1.13/g) but the price of gold on the private market was allowed to fluctuate; this two-tiered pricing system was abandoned in 1975 when the price of gold was left to find its free-market level. Central banks still hold historical gold reserves as a store of value although the level has generally been declining. The largest gold depository in the world is that of the U.S. Federal Reserve Bank in New York, which holds about 3%[citation needed] of the gold ever mined, as does the similarly-laden U.S. Bullion Depository at Fort Knox.

source:
http://en.wikipedia.org/wiki/Gold

Economic gold

Economic gold extraction can be achieved from ore grades as little as 0.5 g/1000 kg (0.5 parts per million, ppm) on average in large easily mined deposits. Typical ore grades in open-pit mines are 1–5 g/1000 kg (1–5 ppm), ore grades in underground or hard rock mines are usually at least 3 g/1000 kg (3 ppm). Since ore grades of 30 g/1000 kg (30 ppm) are usually needed before gold is visible to the naked eye, in most gold mines the gold is invisible.

Since the 1880s, South Africa has been the source for a large proportion of the world’s gold supply, with about 50% of all gold ever produced having come from South Africa. Production in 1970 accounted for 79% of the world supply, producing about 1,000 tonnes. However by 2007 production was just 272 tonnes. This sharp decline was due to the increasing difficulty of extraction, changing economic factors affecting the industry, and tightened safety auditing. In 2007 China (with 276 tonnes) overtook South Africa as the world's largest gold producer, the first time since 1905 that South Africa has not been the largest.

The city of Johannesburg located in South Africa was founded as a result of the Witwatersrand Gold Rush which resulted in the discovery of some of the largest gold deposits the world has ever seen. Gold fields located within the basin in the Free State and Gauteng provinces are extensive in strike and dip requiring some of the world's deepest mines, with the Savuka and TauTona mines being currently the world's deepest gold mine at 3,777 m. The Second Boer War of 1899–1901 between the British Empire and the Afrikaner Boers was at least partly over the rights of miners and possession of the gold wealth in South Africa.

Other major producers are United States, Australia, China, Russia and Peru. Mines in South Dakota and Nevada supply two-thirds of gold used in the United States. In South America, the controversial project Pascua Lama aims at exploitation of rich fields in the high mountains of Atacama Desert, at the border between Chile and Argentina. Today about one-quarter of the world gold output is estimated to originate from artisanal or small scale mining.

After initial production, gold is often subsequently refined industrially by the Wohlwill process or the Miller process. Other methods of assaying and purifying smaller amounts of gold include parting and inquartation as well as cuppelation, or refining methods based on the dissolution of gold in aqua regia.

The world's oceans hold a vast amount of gold, but in very low concentrations (perhaps 1–2 parts per 10 billion). A number of people have claimed to be able to economically recover gold from sea water, but so far they have all been either mistaken or crooks. Reverend Prescott Jernegan ran a gold-from-seawater swindle in America in the 1890s. A British fraud ran the same scam in England in the early 1900s.

Fritz Haber (the German inventor of the Haber process) attempted commercial extraction of gold from sea water in an effort to help pay Germany's reparations following the First World War. Unfortunately, his assessment of the concentration of gold in sea water was unduly high, probably due to sample contamination. The effort produced little gold and cost the German government far more than the commercial value of the gold recovered. No commercially viable mechanism for performing gold extraction from sea water has yet been identified. Gold synthesis is not economically viable and is unlikely to become so in the foreseeable future.

The average gold mining and extraction costs are $238 per troy ounce but these can vary widely depending on mining type and ore quality. In 2001, global mine production amounted to 2,604 tonnes, or 67% of total gold demand in that year. At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes.