DENVER — Apollo Gold Corporation announces that it has prepaid U.S. $ 1952000 of U.S. $ 4789000 remaining balance of the under facilities agreement with RMB Australia Holdings Limited ( “RMB”) of the proceeds of unwinding of its hedge position more fully described below.
On 12 October 2007, Apollo entered into U.S. $ 8000000 facility agreement (the “Facility Agreement”) by and between Apollo and its wholly owned subsidiaries, Montana Tunnels Mining, Inc. and Apollo Gold, Inc., that borrowers and guarantors, and RMB as a lender. The facility agreement has been fully reimbursed by Apollo in 2008 with the last installment payments are made in August 2008.
On 1 July 2008, Apollo has entered into an amendment to the facility agreement (the “Amendment”) and borrowed an additional U.S. $ 5,150,000 (the “credit facility extended”) and entered into put and contracts ( “contracts”) for gold, silver, lead and zinc as a requirement of the amendment. As of September 30, 2008, the balance of the facility was extended loan of U.S. $ 4789000 .
On 23 October 2008, Apollo held part of the contracts in early debt management since the decision of the present value of some contracts exceeded the December 2008 repayment obligation (U.S. $ 1717000) in the context of the Credit extended and products in U.S. $ 2010000 were applied as follows:
1. Repayment of principal $ 1,952,000
2. Interest at December 31, 2008 $ 49,300
3. Costs $ 8600
As of October 23, 2008, and after giving effect to prepay U.S. $ 1952000 described above, must Apollo U.S. $ 2837000 million expansion under the loan facility. This operation has no effect on other terms of the amendment.
As of October 23, 2008, Apollo has the following and pending contracts.
Put call
Price Price
$ $
GOLD Jan-09 OZS 977 800 1,075
Feb-09 OZS 977 800 1,075
Mar-09 OZS 977 800 1075
Total 2931
SILVER Jan-09 OZS 8,262 16.25 18.8
Feb-09 OZS 8,262 16.25 18.8
OZS-09 March 8262 16.25 18.8
Total 24,786
Lead Jan-09 Lbs 372,476 0.775 0.835
Feb-09 Lbs 372,476 0.775 0.835
Mar-09 Lbs 372,476 0.775 0.835
Total 1,117,428
Apollo Gold Corporation
Apollo is a gold mining and exploration company that operates the Montana Tunnels Mine, which is a 50% joint venture with Elkhorn Tunnels, LLC, in Montana, the Black Fox advanced stage development projects Ontario, Canada, and the Huizopa project, an early stage exploration project in the Sierra Madres of Chihuahua, Mexico.
Showing posts with label gold price. Show all posts
Showing posts with label gold price. Show all posts
Sunday, October 26, 2008
Monday, October 13, 2008
The investment of Gold
I have never believed gold is an investment. My definition of an investment is it must generate income - shares in companies generate profits and dividends, property gives rental income and deposits give interest.
Gold does not give income - the only way people can profit is to buy it speculating on an increase in value.
Nevertheless, gold does have its uses. Firstly, it can work as a reasonably good hedge against inflation. Gold is supposed to have “real” value which holds its spending power even when paper money does not.
While gold has sometimes hedged inflation well, it is not a panacea against inflation - at times inflation has been high but gold has fallen in value.
Secondly, gold acts as a “crisis hedge” - in times of political or economic turmoil people hold gold. The idea it has value is nothing more than a long-standing convention and only followed in some societies.
Historically, gold has always had value and when, as now, people do not trust a promise written on a piece of paper, or when there are wars and major dislocations, people can carry their wealth with them in the form of gold, reasonably confident it will have a value.
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In the last three years, the gold price has doubled - from US$450 ($748) to US$900 ($1496) per ounce at present.
Among the main reasons for the significant increase has been the number of people troubled by the very high indebtedness of much of the western world and worried about the effects of runaway inflation.
In recent years plenty of people, frightened by the loose credit that has been prevalent, have sought refuge in gold.
The future price of gold will probably follow the ongoing credit crisis - each piece of bad news will see further rises in the value of gold.
Many high net worth individuals have perhaps 5 per cent of their portfolios in gold. These people are not so much speculators, but will hold some gold forever - they will ensure they survive no matter the extent of any meltdown.
It is for this second reason I own a bit of gold.
I favor having it stored somewhere safe, such as in a safe deposit box at your bank.
You can never be sure what economic or political disasters might eventuate in the future.
Owning gold in the form of coins or ingots is different to owning gold “futures” or gold mining companies.
Futures are effectively a promise from someone else that may not be fulfilled, and owning gold mining companies means selecting one with good management, plenty of proven reserves and in a country which is politically stable.
Gold can be bought at the Auckland-based New Zealand Mint, which can also store it.
Gold does not give income - the only way people can profit is to buy it speculating on an increase in value.
Nevertheless, gold does have its uses. Firstly, it can work as a reasonably good hedge against inflation. Gold is supposed to have “real” value which holds its spending power even when paper money does not.
While gold has sometimes hedged inflation well, it is not a panacea against inflation - at times inflation has been high but gold has fallen in value.
Secondly, gold acts as a “crisis hedge” - in times of political or economic turmoil people hold gold. The idea it has value is nothing more than a long-standing convention and only followed in some societies.
Historically, gold has always had value and when, as now, people do not trust a promise written on a piece of paper, or when there are wars and major dislocations, people can carry their wealth with them in the form of gold, reasonably confident it will have a value.
Advertisement
Advertisement
In the last three years, the gold price has doubled - from US$450 ($748) to US$900 ($1496) per ounce at present.
Among the main reasons for the significant increase has been the number of people troubled by the very high indebtedness of much of the western world and worried about the effects of runaway inflation.
In recent years plenty of people, frightened by the loose credit that has been prevalent, have sought refuge in gold.
The future price of gold will probably follow the ongoing credit crisis - each piece of bad news will see further rises in the value of gold.
Many high net worth individuals have perhaps 5 per cent of their portfolios in gold. These people are not so much speculators, but will hold some gold forever - they will ensure they survive no matter the extent of any meltdown.
It is for this second reason I own a bit of gold.
I favor having it stored somewhere safe, such as in a safe deposit box at your bank.
You can never be sure what economic or political disasters might eventuate in the future.
Owning gold in the form of coins or ingots is different to owning gold “futures” or gold mining companies.
Futures are effectively a promise from someone else that may not be fulfilled, and owning gold mining companies means selecting one with good management, plenty of proven reserves and in a country which is politically stable.
Gold can be bought at the Auckland-based New Zealand Mint, which can also store it.
Monday, August 25, 2008
The Latest News on the Price of Gold : - Five reasons gold is headed to $1,500
Managers of two top-performing gold funds expect gold to soar further. Here’s why, plus five stocks they expect to share the ride.
Gold’s much-heralded climb above $1,000 an ounce was pretty short-lived. Gold’s long-term ascent won’t be.
With gold now trading closer to $900, this is a great time to load up on more exposure to bullion, which is only taking a breather before heading to $1,500 an ounce and higher.
That’s the view of two gold gurus who have been correctly calling bullish advances in the yellow metal for years, most recently predicting the move to $1,000 an ounce. That was in November, when it seemed like an audacious forecast.
With their forecast proved correct — if briefly — they’re not backing off. “There is lot more upside for gold,” says Thomas Winmill, who manages the Midas Fund (MIDSX), one of the top-performing precious metals funds, with a three-year average annual return of 41.6%. Winmill thinks gold could see $1,500 in 12 to 18 months.
Frank Holmes, who manages the second-best-performing gold fund this year, U.S. Global Investors Gold and Precious Metals Fund (USERX), sees bullion going to $1,500 to $2,000 an ounce in the next leg up. He’s not offering a time frame for that target.
Like Winmill, Holmes is worth listening to because his precious metals fund is also consistently one of the top performers. His Gold and Precious Metals Fund is up 40.1% a year over the past three years. Their funds do 6 to 7 percentage points a year better than the average for their peers.
How gold goes 50% higher
If they are right about the move up to $1,500, that should drive some of their favourite gold and silver stocks significantly higher over the next year or two. Here’s the short list: Goldcorp (G.TO), Kinross Gold (K.TO), Freeport-McMoRan Copper & Gold (FCX.N), Pan American Silver (PAAS.O) and Silver Wheaton (SLW.TO).
Another way to go, of course, is to simply buy shares of their funds.
Here’s a look at why they think gold will see $1,500 within a year or so.
Reason No. 1: The US dollar’s value is declining. “Gold is attractive as a safe haven when the (US) dollar is declining,” says Holmes. But why will the greenback continue to weaken? Above all, the U.S. Federal Reserve has been slashing interest rates dramatically, and it may reduce them even more. This makes investors move money to other countries — especially emerging-market economies that have higher interest rates and higher growth rates. As investors move away from U.S. assets, they sell the dollar and push it down. And they buy other currencies, pushing them up against the dollar.
Investors are also losing confidence in the U.S. economy and U.S.-based investments because of the growing federal deficit, the subprime mess and concerns about the Fed’s new role in bailing out investment banks exposed to too much subprime debt.
Reason No. 2: More U.S. inflation on the way. To see where inflation is headed, just take a peek upstream in the production process, says Winmill. Prices on intermediate goods — or stuff that is midway through production — advanced 8.8% during the 12 months through the end of February. Prices on early-stage “crude” goods were up 24%, according to producer price index data released by the Bureau of Labor Statistics (BLS). “I see those price increases coming into the economy,” says Winmill. “That is inflation in the pipeline.” Prices on finished goods gained 6.4% in the same time frame.
Consumers, of course, are already aware that prices for food and gasoline have gone up. But as inflation persists, they’ll hit a pivotal point in their thinking, when they switch to expecting prices to continue climbing. “That will trigger a psychology of investing in gold as a place to hang on in an inflationary environment,” believes Winmill.
Reason No. 3: Investors will seek greater safety. Inflation is already so high that investors are losing money in traditional “safe” investments like U.S. government bonds. Consumer prices are advancing by about 4% a year, according to the BLS, while two-year U.S. Treasury bonds are yielding around 1.6%. So investors who now buy two-year government bonds will be losing 2.4% of their money per year. If the Fed lowers rates even more and inflation advances, the negative returns on government bonds will only widen.
“Historically this has been very good for any kind of hard asset, and particularly gold,” says Winmill. “In a negative interest rate environment you don’t want to hold bonds because you lose purchasing power.” Winmill sees plenty of room for a shift in the flow of investing dollars toward gold, because only a minuscule amount of money in managed accounts is dedicated to investments in commodities.
Meanwhile, people continue to lose lots of money on investments like real estate and debt instruments backed by subprime mortgages — which will keep scaring them into buying perceived safe assets like gold. “There is massive deflation in real estate and financial assets, and gold has traditionally done well when there are concerns about deflation,” says Holmes.
Reason No. 4: Oil is getting pricier. Holmes points out that that over the past five years, gold and oil prices have moved in sync 90% of the time. The reason: When oil-producing countries take in more money because oil prices go up, they diversify by investing in gold. Typically, this creates a 10-to-1 relationship between the price of an ounce of gold and a barrel of oil. Thus $1,000 gold makes sense when a barrel of oil is $100. But that ratio can jump to 15 to 1 when geopolitical turmoil drives other investors to the safety of gold, says Holmes.
He thinks oil could trade as high as $125-$130 a barrel this year because of a basic imbalance between demand from emerging economies and short supply due to a lull in exploration investments during the 1990s, when oil prices were much lower. “If oil were to run to $125 a barrel because of a geopolitical event, gold would easily go to $1,500 an ounce,” says Holmes.
Reason No. 5: Gold should follow other commodities. Since so many other metals, including copper and oil, have smashed their inflation-adjusted price records, why shouldn’t gold follow, asks Holmes. If it does break through its inflation-adjusted high, set in 1980, it would trade north of $2,000 an ounce.
Here’s a closer look at the five precious metals plays that should benefit from a spike in the price of gold to $1,500 an ounce.
Goldcorp
Both Winmill and Holmes count the Vancouver, B.C.-based Goldcorp among their favourites. Winmill likes it because it is the fastest-growing low-cost producer among “senior” mining companies, or those that have producing mines.
The company expects 50% growth in gold production over next five years, driven by development of two promising Mexican projects called Peñasquito and Los Filos, and expansion of its Red Lake mine in Ontario (180 kilometres north of Dryden). Factoring in proceeds from the sale of mining byproducts like zinc and copper, the company should produce gold at $250 an ounce for the next five years, says Winmill.
Goldcorp is relatively safe because its holdings are in politically stable North American countries. It also has no insurance in the form of advance sales of gold meant to protect against a price decline. That’s good for investors if gold goes to $1,500 an ounce, because they will get the full benefit of the price increase.
Kinross Gold
Like Goldcorp, Kinross Gold is a low-cost producer about to see rapid growth, which is why it places high on Winmill’s list of favourite gold stocks. New projects in Brazil, Russia and Washington state should help increase production by 60% in 2009, compared to last year. Gold production costs (factoring in proceeds from the sale of silver, considered a byproduct of gold mining) should fall to $335 an ounce or less. One risk: The Kinross project in Russia could face interference or even a takeover by the Russian government.
“The operations in Russia come on line in the second quarter, and that is usually when the Russians make their move,” says Winmill.
Freeport-McMoRan Copper & Gold
The world’s largest producer of molybdenum and one of the largest producers of copper, Freeport-McMoRan also has an estimated 41 million ounces in gold and 231 million ounces of silver reserves. That makes it one of the bigger players in the precious metals space.
Freeport’s Grasberg mine in Indonesia has the largest single gold reserve in the world. Freeport-McMoRan’s stock still looks cheap, despite healthy gains in the last year. It trades for about 7.1 times expected 2009 earnings, compared with 15.4 times 2009 earnings for other large companies that produce both copper and gold, according to Citigroup (C.N) analyst John Hill, who has a buy rating and a $125 price target on the stock.
Two silver plays
Because silver will move up in price for the same reasons that bullion does, our two gold gurus put two silver producers at the top of the list of their favourite precious metals plays.
Winmill likes Pan American Silver, which he says looks cheap considering that the company expects production to increase by 14% to 19.5 million ounces this year. Bear Stearns (BSC.N) analyst Michael Dudas thinks production could advance to 25 million ounces by 2009 — one reason he has a $40 price target on the stock.
Holmes likes Silver Wheaton, which makes money by purchasing silver from miners in long-term contracts and then reselling it. The company has contracts to purchase silver for about $3.90 an ounce, according to Morningstar analyst Vahid Fathi. That looks pretty good given that a move in gold to $1,500 suggests silver would sell for $30 an ounce.
By Michael Brush
Gold’s much-heralded climb above $1,000 an ounce was pretty short-lived. Gold’s long-term ascent won’t be.
With gold now trading closer to $900, this is a great time to load up on more exposure to bullion, which is only taking a breather before heading to $1,500 an ounce and higher.
That’s the view of two gold gurus who have been correctly calling bullish advances in the yellow metal for years, most recently predicting the move to $1,000 an ounce. That was in November, when it seemed like an audacious forecast.
With their forecast proved correct — if briefly — they’re not backing off. “There is lot more upside for gold,” says Thomas Winmill, who manages the Midas Fund (MIDSX), one of the top-performing precious metals funds, with a three-year average annual return of 41.6%. Winmill thinks gold could see $1,500 in 12 to 18 months.
Frank Holmes, who manages the second-best-performing gold fund this year, U.S. Global Investors Gold and Precious Metals Fund (USERX), sees bullion going to $1,500 to $2,000 an ounce in the next leg up. He’s not offering a time frame for that target.
Like Winmill, Holmes is worth listening to because his precious metals fund is also consistently one of the top performers. His Gold and Precious Metals Fund is up 40.1% a year over the past three years. Their funds do 6 to 7 percentage points a year better than the average for their peers.
How gold goes 50% higher
If they are right about the move up to $1,500, that should drive some of their favourite gold and silver stocks significantly higher over the next year or two. Here’s the short list: Goldcorp (G.TO), Kinross Gold (K.TO), Freeport-McMoRan Copper & Gold (FCX.N), Pan American Silver (PAAS.O) and Silver Wheaton (SLW.TO).
Another way to go, of course, is to simply buy shares of their funds.
Here’s a look at why they think gold will see $1,500 within a year or so.
Reason No. 1: The US dollar’s value is declining. “Gold is attractive as a safe haven when the (US) dollar is declining,” says Holmes. But why will the greenback continue to weaken? Above all, the U.S. Federal Reserve has been slashing interest rates dramatically, and it may reduce them even more. This makes investors move money to other countries — especially emerging-market economies that have higher interest rates and higher growth rates. As investors move away from U.S. assets, they sell the dollar and push it down. And they buy other currencies, pushing them up against the dollar.
Investors are also losing confidence in the U.S. economy and U.S.-based investments because of the growing federal deficit, the subprime mess and concerns about the Fed’s new role in bailing out investment banks exposed to too much subprime debt.
Reason No. 2: More U.S. inflation on the way. To see where inflation is headed, just take a peek upstream in the production process, says Winmill. Prices on intermediate goods — or stuff that is midway through production — advanced 8.8% during the 12 months through the end of February. Prices on early-stage “crude” goods were up 24%, according to producer price index data released by the Bureau of Labor Statistics (BLS). “I see those price increases coming into the economy,” says Winmill. “That is inflation in the pipeline.” Prices on finished goods gained 6.4% in the same time frame.
Consumers, of course, are already aware that prices for food and gasoline have gone up. But as inflation persists, they’ll hit a pivotal point in their thinking, when they switch to expecting prices to continue climbing. “That will trigger a psychology of investing in gold as a place to hang on in an inflationary environment,” believes Winmill.
Reason No. 3: Investors will seek greater safety. Inflation is already so high that investors are losing money in traditional “safe” investments like U.S. government bonds. Consumer prices are advancing by about 4% a year, according to the BLS, while two-year U.S. Treasury bonds are yielding around 1.6%. So investors who now buy two-year government bonds will be losing 2.4% of their money per year. If the Fed lowers rates even more and inflation advances, the negative returns on government bonds will only widen.
“Historically this has been very good for any kind of hard asset, and particularly gold,” says Winmill. “In a negative interest rate environment you don’t want to hold bonds because you lose purchasing power.” Winmill sees plenty of room for a shift in the flow of investing dollars toward gold, because only a minuscule amount of money in managed accounts is dedicated to investments in commodities.
Meanwhile, people continue to lose lots of money on investments like real estate and debt instruments backed by subprime mortgages — which will keep scaring them into buying perceived safe assets like gold. “There is massive deflation in real estate and financial assets, and gold has traditionally done well when there are concerns about deflation,” says Holmes.
Reason No. 4: Oil is getting pricier. Holmes points out that that over the past five years, gold and oil prices have moved in sync 90% of the time. The reason: When oil-producing countries take in more money because oil prices go up, they diversify by investing in gold. Typically, this creates a 10-to-1 relationship between the price of an ounce of gold and a barrel of oil. Thus $1,000 gold makes sense when a barrel of oil is $100. But that ratio can jump to 15 to 1 when geopolitical turmoil drives other investors to the safety of gold, says Holmes.
He thinks oil could trade as high as $125-$130 a barrel this year because of a basic imbalance between demand from emerging economies and short supply due to a lull in exploration investments during the 1990s, when oil prices were much lower. “If oil were to run to $125 a barrel because of a geopolitical event, gold would easily go to $1,500 an ounce,” says Holmes.
Reason No. 5: Gold should follow other commodities. Since so many other metals, including copper and oil, have smashed their inflation-adjusted price records, why shouldn’t gold follow, asks Holmes. If it does break through its inflation-adjusted high, set in 1980, it would trade north of $2,000 an ounce.
Here’s a closer look at the five precious metals plays that should benefit from a spike in the price of gold to $1,500 an ounce.
Goldcorp
Both Winmill and Holmes count the Vancouver, B.C.-based Goldcorp among their favourites. Winmill likes it because it is the fastest-growing low-cost producer among “senior” mining companies, or those that have producing mines.
The company expects 50% growth in gold production over next five years, driven by development of two promising Mexican projects called Peñasquito and Los Filos, and expansion of its Red Lake mine in Ontario (180 kilometres north of Dryden). Factoring in proceeds from the sale of mining byproducts like zinc and copper, the company should produce gold at $250 an ounce for the next five years, says Winmill.
Goldcorp is relatively safe because its holdings are in politically stable North American countries. It also has no insurance in the form of advance sales of gold meant to protect against a price decline. That’s good for investors if gold goes to $1,500 an ounce, because they will get the full benefit of the price increase.
Kinross Gold
Like Goldcorp, Kinross Gold is a low-cost producer about to see rapid growth, which is why it places high on Winmill’s list of favourite gold stocks. New projects in Brazil, Russia and Washington state should help increase production by 60% in 2009, compared to last year. Gold production costs (factoring in proceeds from the sale of silver, considered a byproduct of gold mining) should fall to $335 an ounce or less. One risk: The Kinross project in Russia could face interference or even a takeover by the Russian government.
“The operations in Russia come on line in the second quarter, and that is usually when the Russians make their move,” says Winmill.
Freeport-McMoRan Copper & Gold
The world’s largest producer of molybdenum and one of the largest producers of copper, Freeport-McMoRan also has an estimated 41 million ounces in gold and 231 million ounces of silver reserves. That makes it one of the bigger players in the precious metals space.
Freeport’s Grasberg mine in Indonesia has the largest single gold reserve in the world. Freeport-McMoRan’s stock still looks cheap, despite healthy gains in the last year. It trades for about 7.1 times expected 2009 earnings, compared with 15.4 times 2009 earnings for other large companies that produce both copper and gold, according to Citigroup (C.N) analyst John Hill, who has a buy rating and a $125 price target on the stock.
Two silver plays
Because silver will move up in price for the same reasons that bullion does, our two gold gurus put two silver producers at the top of the list of their favourite precious metals plays.
Winmill likes Pan American Silver, which he says looks cheap considering that the company expects production to increase by 14% to 19.5 million ounces this year. Bear Stearns (BSC.N) analyst Michael Dudas thinks production could advance to 25 million ounces by 2009 — one reason he has a $40 price target on the stock.
Holmes likes Silver Wheaton, which makes money by purchasing silver from miners in long-term contracts and then reselling it. The company has contracts to purchase silver for about $3.90 an ounce, according to Morningstar analyst Vahid Fathi. That looks pretty good given that a move in gold to $1,500 suggests silver would sell for $30 an ounce.
By Michael Brush
Thursday, August 7, 2008
TODAY’S GOLD NEWS-OWN GOLD ALWAYS
Smart investors always diversify. Wise investors always include gold in their asset mix. Unlike paper investments such as stocks, bonds, and even dollars, gold is always in demand. When the Internet bubble burst, a ton of tech stocks fell to pennies, even to zero. Since 1980, an ounce of gold has never been worth less than $250.
For 6,000 years, since the beginning of recorded history, gold has been revered as a storehouse of financial value as well as a beautiful substance with which to fabricate jewelry and works of art. From Egyptian pharaohs to modern-day magnates such as George Soros, Warren Buffet, and Bill Gates, people have acquired gold to maintain and increase their wealth. Even in the most stable times or when the stock and/or real estate markets are on fire, the smart money keeps 5-10% of its assets in gold. Being smart, they do not put all their faith in money managers and stock brokers whose income depends on encouraging investment in paper assets. They know that the political and economic climate often changes rapidly and unexpectedly, as it did, for example, on Sep. 11, 2001, and with the US invasion and occupation of Iraq.
In another article we describe the urgent reasons to invest in gold today and the potentially enormous profits you can reap from investing in gold today. Here, however, we stick with the reasons why wise investors always own gold.
Constant demand
About 80% of the gold bought today is used to make jewelry. Gold jewelry is in high demand not only in the world’s richest and most industrialized countries, but also in India, China, and other Asian countries, as well as in Latin America and Africa. The gold jewelry market is so diverse that when demand declines in one area, it is likely to rise in another. Furthermore, demand for gold jewelry tends to decline only during periods of economic downturn. But it is precisely during such periods that investment demand for gold rises rapidly.
Constant rarity
Companies can and do issue additional shares of stock, diluting the shares already held by investors. Governments print money and inject it into the economy, diluting the cash in your pocket and bank accounts. Even many non-paper assets, such as mass produced collectibles, are, well, mass-produced. Their supply is essentially infinite.
Gold, however, is one of the scarcest substances on earth. Tons of ore must be processed to produce an ounce of gold. According to the US Bureau of Mines, all the gold ever mined throughout history and throughout the world would build a cube measuring only 60 feet on edge. Furthermore, as relatively easy-to-mine sources are depleted, new sources of gold are harder and harder to find. And it takes, on average, about seven years to bring a new source of gold into commercial production, which creates a major gap between increasing demand and increasing supply.
Universal liquidity
Many hard assets do not have the liquidity of stocks and bonds. There are times when it can take months or even years to sell real estate, art, or collectibles such as carpets or antiques. Gold, in the form of bars or bullion coins issued by the US Mint and other mints, is traded on an active global market in North and South America, Europe, Africa, and Asia. It is always easy to buy gold and easy to sell it.
Nor are gold sales encumbered by the paperwork and government tax filings that characterize stock and bond trades. Even if stock markets fail, banks close, and governments are in crisis - in fact, especially under those circumstances - there are eager bidders for gold in every city and country in the world.
True diversification
Our parents told us, “Don’t put all your eggs in one basket.” Investment advisors also preach the virtue of diversification. But by “diversification” they often mean split your assets between stocks and bonds, and between large cap, mid-cap, and small cap growth and value stocks, with some international equities thrown in. Unfortunately, when the whole stock market swoons, especially when the bond market crashes alongside it, you can find yourself holding only one basket after all. Such scenarios can and do take place in real life, as many of us have discovered from reading about the Japanese stock market, or about recent events in Argentina - or from reading our own portfolio statements.
Gold, however, is a true portfolio diversifier. Its “correlation coefficient” with the price of global stock has ranged within plus or minus 0.4 since 1993, averaging around zero. In plain English, that means that the price of gold does not vary with the stock market, but independently from the stock market. Owning gold really is holding another basket.
Always own gold
Constant demand, constant rarity, universal liquidity, and true diversification. These are among the key reasons a wise investor always owns gold as a portion of his or her portfolio. Although more investment advisors are recommending gold now than during the 1990s, most still ignore gold and favor holding only paper assets. They have no way of profiting from recommending buying physical gold, which may have something to do with their outlook. In our view, such narrow thinking is always wrong. In today’s economic and political environment, it is horribly, even tragically, wrong.
For 6,000 years, since the beginning of recorded history, gold has been revered as a storehouse of financial value as well as a beautiful substance with which to fabricate jewelry and works of art. From Egyptian pharaohs to modern-day magnates such as George Soros, Warren Buffet, and Bill Gates, people have acquired gold to maintain and increase their wealth. Even in the most stable times or when the stock and/or real estate markets are on fire, the smart money keeps 5-10% of its assets in gold. Being smart, they do not put all their faith in money managers and stock brokers whose income depends on encouraging investment in paper assets. They know that the political and economic climate often changes rapidly and unexpectedly, as it did, for example, on Sep. 11, 2001, and with the US invasion and occupation of Iraq.
In another article we describe the urgent reasons to invest in gold today and the potentially enormous profits you can reap from investing in gold today. Here, however, we stick with the reasons why wise investors always own gold.
Constant demand
About 80% of the gold bought today is used to make jewelry. Gold jewelry is in high demand not only in the world’s richest and most industrialized countries, but also in India, China, and other Asian countries, as well as in Latin America and Africa. The gold jewelry market is so diverse that when demand declines in one area, it is likely to rise in another. Furthermore, demand for gold jewelry tends to decline only during periods of economic downturn. But it is precisely during such periods that investment demand for gold rises rapidly.
Constant rarity
Companies can and do issue additional shares of stock, diluting the shares already held by investors. Governments print money and inject it into the economy, diluting the cash in your pocket and bank accounts. Even many non-paper assets, such as mass produced collectibles, are, well, mass-produced. Their supply is essentially infinite.
Gold, however, is one of the scarcest substances on earth. Tons of ore must be processed to produce an ounce of gold. According to the US Bureau of Mines, all the gold ever mined throughout history and throughout the world would build a cube measuring only 60 feet on edge. Furthermore, as relatively easy-to-mine sources are depleted, new sources of gold are harder and harder to find. And it takes, on average, about seven years to bring a new source of gold into commercial production, which creates a major gap between increasing demand and increasing supply.
Universal liquidity
Many hard assets do not have the liquidity of stocks and bonds. There are times when it can take months or even years to sell real estate, art, or collectibles such as carpets or antiques. Gold, in the form of bars or bullion coins issued by the US Mint and other mints, is traded on an active global market in North and South America, Europe, Africa, and Asia. It is always easy to buy gold and easy to sell it.
Nor are gold sales encumbered by the paperwork and government tax filings that characterize stock and bond trades. Even if stock markets fail, banks close, and governments are in crisis - in fact, especially under those circumstances - there are eager bidders for gold in every city and country in the world.
True diversification
Our parents told us, “Don’t put all your eggs in one basket.” Investment advisors also preach the virtue of diversification. But by “diversification” they often mean split your assets between stocks and bonds, and between large cap, mid-cap, and small cap growth and value stocks, with some international equities thrown in. Unfortunately, when the whole stock market swoons, especially when the bond market crashes alongside it, you can find yourself holding only one basket after all. Such scenarios can and do take place in real life, as many of us have discovered from reading about the Japanese stock market, or about recent events in Argentina - or from reading our own portfolio statements.
Gold, however, is a true portfolio diversifier. Its “correlation coefficient” with the price of global stock has ranged within plus or minus 0.4 since 1993, averaging around zero. In plain English, that means that the price of gold does not vary with the stock market, but independently from the stock market. Owning gold really is holding another basket.
Always own gold
Constant demand, constant rarity, universal liquidity, and true diversification. These are among the key reasons a wise investor always owns gold as a portion of his or her portfolio. Although more investment advisors are recommending gold now than during the 1990s, most still ignore gold and favor holding only paper assets. They have no way of profiting from recommending buying physical gold, which may have something to do with their outlook. In our view, such narrow thinking is always wrong. In today’s economic and political environment, it is horribly, even tragically, wrong.
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