Monday, March 23, 1998

Gold Coffin?

On Wall Street, reports of death are often exaggerated

By Dennis Butler

In medicine the definition ofdeath is relatively straight-forward -- cessation of brain activity, loss

of heart function, etc., and the ultimate result is, of course,

indisputable. When death is pronounced on Wall Street, however, it is

usually a good idea to ask for a second opinion. What prompts us to bring

up this unpleasant subject is the talk heard in recent months about the

death of gold as an investable asset. We are now told that gold's only

friends are old-timers unable to abandon an old friend. As its price

approached levels last seen in 1979, everyone from central bankers to

speculators seemed to be beating a hasty retreat from the metal, and mutual

funds specializing in gold stocks began to close down. Nevertheless, we

seriously doubt that gold has come to the end of its millennia-long service

as a store of value and refuge from calamity.

Our skepticism stems from the fact that this is not the first time the

financial community has proclaimed the demise of an asset. As surprising as

it may seem today, it wasn't long ago when equities were considered a poor

place to put one's savings. In the late 1970s, for example, owning stocks

had proven to be a painful experience for the previous decade. In the

1968-1979 period, stocks returned only 3.1% a year, as reported back then

by Business Week in its celebrated cover article on The Death of

Equities. By way of comparison, single-family housing increased 9.6% in

value annually, diamonds 11.8%. Gold returned an astounding 19.4% a year

following its deregulation in 1971. With inflation running at an annual

rate of about 6.5%, it wasn't surprising that investors turned in growing

numbers to hard assets such as gold to protect their savings, as well as to

financial products -- including CDs and money-market mutual funds -- that

provided high current yields.

There seemed little prospect that stocks would ever again regain the

popularity they enjoyed in the 1950s and 1960s. During the 1970s the total

number of shareholders had fallen by seven million. The portion of

investors' money allocated to equities also declined. Pension funds that

had put 120% of new cash into stocks in the late 1960s ( by selling bond

holdings ) now put only 13% into the equity markets. Of total assets in

mutual funds ( $65 billion ) , $22 billion was in money-market funds. Stocks

made up less than 50% of fund holdings, down from more than 80% at one

time. Alternative equity investments were growing rapidly. The volume of

futures trading, for example, grew 36% from 1977 to 1978 alone. Trading in

options contracts grew to 57.2 million in 1979, from 1.1 million in

1973.

Wall Street, too, was abandoning equities; there was no money to be made

in selling and trading stocks. It turned to the burgeoning futures and

options markets; some firms even invested in businesses outside of

securities. In a view eerily reminiscent of the early 1930s, many investors

had concluded that stocks as a class represented speculation; the largest

returns achieved during the previous 10 years ( including those of safe

money-market funds ) seemed to have accrued to those taking few risks.

With the benefit of hindsight we know, of course, that equities were far

from being dead and were, in fact, extremely attractive investment vehicles

at that time. Remarkably, however, stock prices that averaged 60% of asset

replacement value provided no incentive to buy ( except for other

corporations, which had embarked on an unprecedented takeover binge ) . A few

observers, including Warren Buffett, did recognize the opportunity. But

they were truly the exceptions.

Almost two decades later, what a difference a bull market makes! Stocks

now are the asset of choice, necessary if investors are to meet their

retirement goals. Gold, now dead as a store of value and hedge against

inflation and calamity, provides no return and has no place in our

portfolios.

Let's examine the current situation logically. While the distribution of

assets in the financial system has significantly changed in 20 years, the

fact that more than three-quarters of the assets in long-term mutual funds

are now invested in stocks is indicative of the major shift toward the

equity markets that has occurred during the bull-market years. As a

consequence, stock prices have been bid up to the point where the average

equity yields less than 5% on earnings, versus the historical average of

7%-8% ( 13%-14% at market lows ) and high-grade bond yields of about 6.6%.

Other traditional valuation measures such as dividend yields and

price-to-book ratios also indicate that stocks are quite expensive. Gold,

on the other hand, now sells for $280-$300 an ounce, down from about $370 a

year ago, above $400 in 1996 and an all-time high of $875 in 1980. The

average world-wide total cost of producing the metal is about $315; cash

costs are about $257. At current prices, more than half of the world's

mines are unprofitable. As a result, lines are being shut and exploration

projects put on hold. Meanwhile, there is a gap between physical demand and

actual gold production amounting to as much as 1,000 tons a year.

Gold-company shares are similarly depressed. In fact, investors can now

purchase gold on Wall Street for less than the cash costs some companies

incur in producing the metal-including low-cost operators. Following the

same path that corporations took in the late 1970s, gold companies

themselves recognize the values that are available and a number of them are

studying acquisitions of other firms in the current depressed

environment.

On Wall Street it is generally wise to avoid doing what everyone else is

doing. We think it would be instructive for investors to challenge the

current consensus about equities and gold. The prospects of achieving

acceptable long-term results at the prices currently demanded for the

average equity would seem far from assured. Gold company stocks, in

contrast, offer a potentially fruitful area for investigation. Like life

insurance, which is cheapest when it is least likely to be needed,

insurance against inflation and financial distress -- gold -- can be

purchased now very cheaply because the consensus holds it is not

needed.

To be sure, purchasing gold ( an asset with few real uses ) in any form is

very different from purchasing equities representing businesses that

produce needed goods and services. Furthermore, volatile commodity prices

can remain depressed for distressingly long periods.

Even so, as sometimes happens on Wall Street, death is not necessarily a

permanent condition.

Major gold companies mull global millennium coin

LONDON, March 21 ( Reuters ) - The world's biggest gold mining companies are planning to produce a millennium coin that could absorb more than 1,000 tonnes of gold, Britain's Sunday Telegraph newspaper said. The project is being led by Canada's Barrick Gold ( ABX.TO - news ) but would be coordinated from the London headquarters of Swiss Bank Corporation, the Telegraph said.The companies hope that the planned coin would mop up surplus gold supplies and lift the gold market out of the doldrums.The Telegraph said the prices for different-sized coins would be linked to the prevailing gold price. The most popular size was expected to be the one-ounce coin, which atcurrent values would cost around 200 pounds.Other companies said to be involved in the project include Anglo American Corp ( AMSJ.J ) of South Africa, Newmont ( NGC - news ) and Placer Dome ( PDG.TO - news ) .

Check out Kitcos classifieds, 80 millon dollar diamonds for sale, ads to purchase gold 100 mt at a time. Gee ! Bart I feel important just being around here.

To play the 'what if' game,we can use the July 8, 1997 and July 15,1997 news releases as examles. The second paragraph of the July release explains how the Company would receive about $ 27.25US per ton of base material.

From statements made in other paragraphs of the release, it would not be hard to envision a half million tons of base material. This would have produced $13,625,000.00 ( based on July 8, 1997 metal prices ) . One million tons of base material would have produced $27,250,000.00. ( 1997 )

In order to redo the calculations, I would require Friday March 20, 1998

closing prices for GOLD, SILVER, COPPER, COBALT and ZINC.

Six news releases can be found at www.stockhouse.com

Knight

Many view oil and gold with basic “commodity eyes”. But, I ask you, does supply and demand create the price of these items? On the surface, it does, just as any item. However, look under the cover of public reporting, and we find that, what is being traded is not the actual commodity, but a paper proxy, contracts usually expressed and settled as “various currencies” not the item itself! I offer this consideration to all, would oil or gold hold the same currency price if no paper future market existed? Think long and hard on this, if oil and gold were bought and sold “marked to the market” physical for cash, would the USD price stay the same in todays economy?

Oil is managed from the standpoint of “supply” not demand, as demand is infinite for this now indispensable substance. The world economic need for oil has build our modern financial structure as an upside down pyramid, on oil! Every business, asset, debt, currency and army is “priced in currency terms” that reflect a “full supply of cheap oil”!

But, what is cheap oil? It is defined in two terms, a currency price that allows a country to operate it’s economy in a competitive way, and, in another real commodity price that allows producers to value their product as an asset, not subject to the valuations of the world economy, gold.

From this standpoint, one can see the value of managing both oil and gold. For the oil field owner, operating in a “oil consuming” country, there is no value in this form of management! But, from an “oil producing” country, holding world class reserves, a low USD price offeres all the advantages. It produces an ever “dependent” economic system,

that, “in real terms of need” “upvalues all inground reserves” with a far higher “future need”. That “future need”, as expressed in a drive “to maintain current asset values ( dow jones ) ” creates the political drive to manage oil prices!

( there is more to this point, do I continue, or do you wish to add/debate/discuss, now? )

I must stop here. We can continue another day, yes?

Thank You.

http://www.exchange2000.com/~wsapi/investor/reply-3739392

or the Bema Gold Site to obtain a information packet:

http://www.bema.com/

Hope this helps

Silver: I was pretty much expecting silver to hold within the upward channel this week, helping gold break out of its downward channel. Silver didn't and gold didn't. For sure silver broke through the channel bottom. Even worse than the chart of afternoon London closings shows. But it seems to have recovered. If the rally late Friday holds in the London market ( not plotted on the chart ) , it may be that silver will resume its upward trend. It may take a few days for this to take shape.

Gold: Yes, by its mostly sideways movement, gold did break out of the short term upward channel I defined. However, I fixed that! I just redrew the channel. The fact is, I now don't really have any good rationale to predict the next move in gold. The RSA stocks seem to be holding up. I still think that silver is the key. If it resumes its upward movement, I think gold will follow this time.

Palladium/Platinum: The line from the palladium peak in October, extended upward at the slope of the overall upward trend of palladium turned out to be a very good predictor of the top in palladium. I look for palladium's double top to reach 278-280 ( so far hit 275 ) . I still think platinum will touch the top of its upward channel, around 423-425. I think its likely that PA and PL will reach these levels at the same time, within the next week or two. Maybe even on Monday.

Mr. Allen,

I ask for your time and personal thoughts on this “now to be”, ongoing discussion of gold. In my world, “ To understand gold, one must start with oil”! Let us go back in time, to the early 70’s. Many did view the oil market as an attempt at a “cartel” to keep the price high in USD terms. My view, from the where I stand, did show a “cartel” for public

image. However, the oil market was never controlled to move the price higher! It was controlled to keep the price down! Even “back then”, oil was managed in much the same way as gold is today. Yes, oil became “gold” from an economic viewpoint, “black gold” if you will! In that time, as today, oil and gold had to be managed to keep their true value, in terms of currencies from destroying the free market financial system based on low prices for both. Politically, there is much more to gain, by producing countries, by “managing” it’s price down, than by “allowing” it’s price to rise thru freemarket use!

( there is more to this point, do I continue, or do you wish to add/debate/discuss, now? )

LGB -

You tellin' me that my proof ( paid $695 ) is worth 900? I don't follow the collector side of this market, so I didn't have a clue on what it is worth today. Let me rephrase: The best investment I made last year was buying a 1997 PE Proof.

Shoulda' bought more like you did.

OK

You are in the real world. I hear you telling people everyday how hard the physical is to come by at decent prices.

Well , you ain't seen nothing yet. Maybe CB'S have all the gold in the world, but as this play unfolds don't be suprised to see those premiums to spot , just get higher and higher.

Gold is cheap, the dollar is a fools game, and I guess time will tell.

Regarding Purchase of Platinum

The number one selling platinum coin in the world ( until this year ) was the Platinum Maple Leaf ( PLF ) The Platinum Eagle ( PE ) creamed the PLF and took a lot of market share from the Royal Canadian Mint. The mint is a revenue generator. I saw some posts here about the profitability of the RCM and some surprise that this is a money making enterprise. The RCM proved that there was a market for platinum coins to individual investors, and the US Mint decided to eat the RCM's lunch.

I was the number one seller of PLF last year, personally selling more than 5% of all PLF sold in 1997. All of my personal platinum holdings are in PLF save a single PE proof that I paid way too much for- but it sure is pretty.

Yesterday, when asked how one should invest in platinum, I responded by telling them to look into buying PE. May I instead suggest a way to support this forum and add a hell of a nice commodity to your holdings?

Buy PLF directly from the RCM through Kitco. If you don't like the Mountie, buy some PLF through Bart. You will love the stuff. You think gold feels heavy, wait until you hold an ounce of platinum, its almost scary, like its Kryptonite or something. When trading platinum, I usually carry a once ounce PLF with me. I am not superstitious, but I like to hold the coin as I describe it to others. The damn thing is indestructible, apart from very minor surface scratches, the PLF has shared pocket with coins and keys, been dropped onto cement from waist height, flipped a million times to decide which way to trade the market ( a JOKE OK? ) , and still looks brand new.

Click on the RCM banner above to inquire about buying PLF from the RCM through Bart. This is a win/win scenario.

I did post numbers, as did others, on the comparative rarity of platinum to gold. While this appears to be a compelling argument in favor of platinum, this whole approach is nothing but a sales pitch. The metals have completely different uses and are valuable for disparate reasons. Gold is money, and will sway with the world economy, platinum is industrial and operates on a more fundamental supply/demand level. One can compare the metals all day long and still be no closer to the truth of either one. Assuming continued, albeit slower, world economic growth, I will take platinum over gold in all cases. In a meltdown of world economies I want gold and guns.

The long term buy and hold approach of many here is sound and safe. This strategy precludes earnings from other investments while these funds are tied up in gold. If everything goes to hell, it will be the owners of gold and guns who become the owners of food and production. This is swell and neato but what if tomorrow is as bright as today? What if ( the simplest course of action, applying Ockham's Razor ) things continue on in pretty much the same way? Platinum as a buy and hold will offer the same safety and security as gold, but offer an opportunity for a 25% - 40% return on a physical purchase. Platinum will go well beyond $500, while gold will have trouble limping to $320. May I suggest that owners of physical gold add platinum to their holdings rather than more gold. By the end of the year, tell me which one you are happier with.

Sad to report that El Nino has effectively destroyed the RJ lime crop for 1998. Tender little lime blossoms bravely held on through wind and rain, but the cumulative effects have taken their toll. I expect the spring lime crop will be off by 80%. Where do we trade those lime options?

Primary Colors is a must see for Clinton haters and lovers alike. The performances are superb; chief among are Kathy Bates as a dirt researcher and Billy Bob Thorton as a James Carvelle type strategic operative. is fantastic. Travolta's Jack Stanton is an effective impression of Clinton and he manages to avoid a copycat impression and strike a more human cord than BC.

I count myself among those who have slight regard for Bill Clinton, and even less for his bride; But I think the reason that BC is so popular is that he truly does seem to care. Not many politicians can say, I feel your pain and pull it off. The man reeks of sincerity and, as Spencer Tracy advised a young Burt Reynolds, You have to be sincere, if you can fake that, the rest is easy.

Go see the movie and GO GOLD………

The formation of life may appear to violate the law entropy. Looking deeper into the highly ordered construct of a human we find:

We all need food to eat. In the cultivation, harvesting, transportation, and ingestion of food, an enormous amount of energy is expended. While the end product ( the food ) may appear more ordered than its constituent components, overall entropy increases by merit of the energy expended in production. This is a vastly oversimplified approach, but it is mathematically sound - just don't ask me to do the math.

Beyond food, the mark humankind has put on the earth has forever changed this little ball-o-blue we ride around the sun in. While building a skyscraper or a freeway appears as if unordered components are assembled in a more ordered state. I submit that the components were laying in a natural state of higher order that must be diminished once a component is removed from it native environment. The additional energy expended to transport, refine, mill, or distill, increases entropy in the universe. Nowhere in the observable universe, does the law of entropy appear to be violated.

To put this whole thing on subject:

An ounce-o-gold may reside within a ton of ore. The production of that highly ordered and refined ounce, increases entropy even though the end result is a highly ordered ounce-o-gold. There seems to be no escape from entropy.

PS -

Steven Hawking suggests that it is entropy that prevents time travel to the past. Apart from the obvious paradoxes, travel to the past seems to violate the law of entropy. This may not exclude the possibility of traveling to the future, but entropy would demand that such a trip taken would be a one way ticket. To return to the past, one once again runs into an entropy violation.

I noticed that the Momentum indicator located under

the Weekly Bar Chart has turned positive. Except for

a blip on the indicator last Oct., it has remained

negative for the past 15 months.

Yes -- it is interesting that some things occur in pairs -- such as charge, and magnetic fields -- although magnetic monopoles are still a dream only. And other things do not appear to occur in pairs, despite the tendency of nature to have an opposite for virtually every elementary particle.

It makes you wonder if the supreme being might love to stir the waters every so often -- just to see what kinds of creatures he/she/or? can create.

The universe is much more ordered than it appears, but most of us ordinary mortals perceive it as random.

Thanks again!

http://ccrma-www.stanford.edu/~stilti/images/chaotic_attractors/nav.html

All: I must admit I don't understand chaos theory. It appears that when natural phenomena are stirred up, on average entropy increases. Somehow, when the system involved is permitted to relax somewhat, the first sign of order is little eddies of entropy minima. These entropy minima tend to obey the fibonacci series/phi/golden rule/1.618 stuff. I find it very hard to appreciate order developing spontaneously from Chaos. I can only guess that what we are seeing is the quantization of matter at a level that we can observe.

Have any of you considered the fact that we humans should not exist if entropy always increased, as the physics textbooks say? We are little eddies of entropy minima in a sea of increasing entropy. I consider this as beautiful a concept about life as what aurator posted last night! Imagine life forming from randomness in the primordial soup -- it should not have happened, but it did! Order from Chaos. Intelligent life is several orders more removed from unicellular life.

My guess is that there is little in this universe more precious than intelligent life -- arguably the most highly ordered state of existence in the universe.

May explain some things about why humans and nature all tend to move in semi-randon patterns linked to the fibonacci series.

http://www.wmin.ac.uk/~ccdva/welcome.html

robnoel: You said those who are to cheap to get a Mountie,go find another chat room.

I do appreciate where you’re coming from with this, but with all due respect there are two things that need to be said: 1 ) The Mountie sales will support this site, but they’re not for everybody. And 2 ) This is a gold and precious metal DISCUSSION GROUP, not a chat room ! There is a big, big difference. A big difference. I don’t have a dictionary handy so I can’t prove how big, but I’m sure it’s pretty big.

To tsclaw: The Royal Canadian Mint is a federal government corporation who, amongst many other activities, mint Canadian circulation coins. I don’t know how they do it but their quality of service and product as well as their marketing expertise can ( and does ) give any private sector company a run for their money.