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HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL
Understanding free market economics leads to exceptional investment success.
Meet Scott Smith, Editor of Swiss Confidential
Contributing Editor to TheDailyBell.com
Before his recent retirement, American-born Scott Smith spent nearly 30 years as a member of the Swiss investment banking community. He spent most of his long career at legendary investment banking giant Credit Suisse, where he was an executive working in the foreign exchange and derivatives departments. Over the course of his career, Scott became privy to the closely guarded, somewhat regimented, wealth building and asset-protection strategies that have made the Swiss among the wealthiest people in the world - wealthier even than Americans, according to the World Bank. In addition to writing special reports, such as this Swiss Perspective, Scott is also a contributing editor to the TheDailyBell.com and the editor of a membership based investment newsletter called Swiss Confidential. In each issue of Swiss Confidential, Scott shares with subscribers the valuable analytical techniques he learned while working within the fast-paced Swiss investment banking industry – techniques that often enable him to uncover investment opportunities before other mainstream financial commentators. Scott’s unique Swiss-inspired approach is to break down the propaganda and look for reasons not to invest. He was trained to humbly recognize that experts have a limited frame of reference for their so called expertise – including his own. And since he accepts full responsibility for the investment opportunities he introduces in Swiss Confidential, you can be assured that he performs an extensive amount of due diligence. When analyzing the merits of a potential investment opportunity, Scott believes it is imperative to assemble a due diligence team comprised of third party experts specifically for the purposes of analyzing that particular investment. His team approach is designed to probe deeply behind the curtains of propaganda and ask the real questions - the tough ones most people don’t ask – the one’s that allow for an intelligent decision to be made. Armed with common sense information, real facts and figures, Scott is able to confidently offer his premium investment analysis and conclusions to his subscribers. It’s the kind of financial information and guidance that can help you protect and grow your wealth as the global financial crisis deepens over the next few years. Swiss Confidential also reflects Scott’s reverence for personal responsibility and free-market principles. And in keeping with those principles, he accepts the duty to protect your personal information.
For more information about Scott Smith’s Swiss Confidential, please visit www.SwissConfidential.com
. Chapter 4 The Future of Gold .. . . . .000-an-ounce mark. . . . ... . 13 Factors that could send gold past the $2. . .. . . . . .. . . . . . . . . . . . . . . . . . . . which is published by Appenzeller Business Press AG. . . . . . DISCLAIMER: This white paper is an informative compendium of independent economic views and analysis. . . . . . nor does it verify the accuracy of the information being provided. . . .. . . . .. . . .. . .. . .. . . . 4 Chapter 1 Crisis and Opportunity.. .. . . . . . .. . . . . .. . .. . . . . . .. . .. . . . . . . . . . . . . . .. . .... . . . .. . . . . .. . . .. . ... . ... . . . . . . .. . . .... . .. . . . . Readers must accept the responsibility for performing their own due diligence before acting on any of the information provided within this white paper regardless of the source. . As a business publisher. . . . . . .. . . . . .. . . . . . . . . .. . .. . . . . . . . . . . .. .. . Appenzeller Business Press AG does form business relationships with third party companies some of which may be mentioned in this white paper. . . . . . . .. . .. . . is impersonal and not tailored to the investment needs of any particular person and should not be construed as financial or investment advice... Appenzeller Business Press AG does not accept any liability or responsibility for. . . . . . .. . .. . . . .. . .CHAPTER 1 : CRISIS AND OPPORTUNITY The Advantages of Gold Investing Safety and Security in Uncertain Times INSIDE Introduction . . . . . . Traditional Investments .. .. . . . . . . . . . . . . Chapter 5 The 4 Ways to Invest in Gold . . . .. . . . . . . . All Rights Reserved. . . . . .. . . .. . . .. . . . . . ... ... .. . The information contained in this white paper is for informational purposes only.. .. . . . . . . . . 5 How the growing economic crisis has opened the door to the investment opportunity of a lifetime.. . . . .2009 Appenzeller Business Press AG. .... . . . . . . . . . . .. . . 10 How an unprecedented series of global events has made it critical to invest in gold NOW. .. . . . . .. . . . . . . .. . . . . . . . . .. . . . . . . .. .. Chapter 2 Gold vs. . . . . . . . . . .. . . . . . . . .... . . . . . . .. . . .. . .. . . .. 7 Why gold is the most trusted currency in human history Chapter 3 Approaching a Perfect Storm .. . . . . .... . . .. . .. . . . . . . . . .. . . . . . . . . . 16 Your options for a stronger and more diversified portfolio Copyright 2008 . . .. .. . . . . . .. . . . . . . . . . . . . . . . . . . . . ... . .. .. .. . . . . . . .. . . .. . .. . . . . . . . . . .. . . . . . .. ... .. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 3 ..
gold can be a great appreciation tool. In this white paper. APPENZELL AR. like gold. recession. and from our Swiss Perspective. It is a hallmark of our Swiss tradition to be cautious and conservative and to maximize profitability. Gold as an investment With serious economic events coming together in the form of a declining dollar. for their clients. and why the investing elite are now investing in gold. crisis and economic uncertainty. 4 APPENZELLER BUSINESS PRESS AG. like a roller coaster. It is no wonder that many advisors. You’ll discover the long connection mankind has had with gold. Gold is protection. inflation and an uncertain market. SWITZERLAND . it is more important than ever to look into gold as an alternative hedge to protect your wealth. An economic crisis is growing.INTRODUCTION Introduction The world is in the midst of uncertain times. storing and managing hard assets. the market swings up and down unpredictably. its use as the oldest currency in the world. and most importantly how gold has been used to protect wealth in times of war. This uncertainty impacts stocks. fund managers and financial experts are putting as much as 30% of their portfolio into gold. And. During the past few years. and as you will see. and why it can bring you profits despite the economic climate. investors have made greater gains with gold than with stocks or bonds. its symbolism for wealth across cultures throughout time. Gold is a hedge. bonds and mutual funds. Gold is safety. Read on and discover the advantages of gold. Appenzeller Business Press AG has been providing some of the world’s leading banks and institutional investors with advice for buying. we do not see this changing. you’ll discover why gold should be your source of financial security and asset diversification.
SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 5 . The global stagflation of the 1970s is a perfect example. Here is what investors face: Crisis Scenario #1—Inflation: Inflation is a rise in the overall level of prices of goods and services. lasting more than a few months. there is a growing fear among investors about economic attacks on their investments. And when no one is buying or selling. Money that is simply printed without something valuable to back it has always led to economic disaster. Today. In this way the federal government can spend more on programs without raising taxes—but the value of the dollar suffers. each existing dollar is worth less. History proves this. the supply of American dollars has doubled. So how did things get like this? The Fiat Currency System Almost all money exists today in the form of paper issued by a central bank. Crisis Scenario #2—Stagflation: This is extremely slow growth combined with high prices and high unemployment. A decline in the Gross Domestic Product (GDP) by 10% is a sure sign of a depression. As more money is printed. people lose jobs. by pumping more money into the system. Why? Because of the expansion of the money supply. Again. The result was a runaway wage-price spiral and a recession. reduced industrial production and reduced wholesale-retail sales. Crisis Scenario #3—Recession: A recession is a significant decline in economic activity spread across the economy. Keep in mind that it was during the Great Depression that private ownership of gold was made illegal. The Great Depression of the ’30s marked a decline in GDP by 33%. Over time this system takes wealth out of the hands of people who invest and save—and puts it into the hands of an elite few who control the system. The result is that your ability to buy the goods and services you need is stolen from you. lowering the value of the dollar and reducing your ability to save. to spend and to invest. Things get more expensive. Crisis Scenario #4—Depression: A severe or long recession is referred to as an economic depression. And those who control the central banking system too often find it in their best interest to create money out of nothing. savings and retirement funds. in a fractional reserve banking system. Central banks tried to battle economic disaster due to high oil prices.Chapter 1 Crisis and Opportunity How the growing economic crisis has opened the door to the investment opportunity of a lifetime. A series of poor choices by central bankers. Their solution? Pump more money into the system. large financial investment firms and governments across the globe have made the current economic environment tumultuous and highly risky. and therefore has less buying power. Consider that since 1997. there is reduced spending power and an increase in prices resulting in reduced GDP.
a privately controlled corporation. the world looked to the U. the value of your home.S. So every run of the currency printing press continues to dilute the value of the dollars in your wallet even further. without the advice of the members of the international monetary system or his own State Department. has acted as America’s central bank. the dollar has lost nearly 50% of its value against the euro. Federal Reserve.S. It is growing two and a half times faster than the economy. What does this mean for you? • Your purchasing power declines as prices rise. Until recently. In the next chapter you’ll learn about the advantages of investing in gold. your buying power and the actual wealth you own. stopped the direct convertibility of dollars into gold. dollar as the store of value. The system fell into total breakdown in 1971 when President Richard Nixon. It only has value because the government and society say it has value. 6 APPENZELLER BUSINESS PRESS AG. uncertainty and crisis. as they do not keep up with the rate of inflation. Truth be told. • Your savings are decimated.CHAPTER 1 : CRISIS AND OPPORTUNITY Since 1913 the U. Not anymore. SWITZERLAND . And recently. It is merely a piece of paper with a promise of value. but instead it is fiat currency. the dollar is just money without objective value. today’s paper money is not real money at all.000 years it has continued to be the most trusted currency in human history. Here in Switzerland we were shocked. And. In the past six years. • Your investments are in jeopardy. But there is also opportunity in the midst of turmoil. Without gold collateral to back it up. why it is valued above all precious metals and why for over 6. since that time their manipulation of the money supply has affected the price of goods and services. APPENZELL AR. the dollar traded for less than 100 Japanese yen—for the first time in 13 years! Another measure of the money supply is MZM (money zero maturity) —all of the money readily available in the economy for spending and consumption.
gold retains value against the Federal Reserve’s monetary policies—actions that often reduce the value of the dollar and cause prices to rise. gold offers a safety net against the uncertain ebb and flow of a volatile stock market. TRADITIONAL INVESTMENTS Chapter 2 Gold vs. Traditional Investments Why gold is the most trusted currency in human history Since the beginning of recorded history. The protection and security of gold have often been entrusted to the stores of vaults here in Switzerland where these assets remained protected in times of crisis. No matter how economies fluctuated. And in times of economic and political crisis. Fourth. And finally. gold has been the only money that matters. few of these reasons are well known. oxygen and most corrosive agents have very little chemical effect on gold. economic upheaval and even two world wars. Many advisors recommend 10% to 30%. which further lower the value of the dollar and push prices higher. Gold is a hedge against inflation and the dollar’s declining value. moisture. Gold is the most malleable and ductile metal on the planet. popes and pirates. there has always been value in gold. gold is a hedge against all other investments as well as economic downturns. Across continents. gold is beautiful and has been the medium of choice for artisans. gold has been the standard for wealth. Third. It should be part of a well-diversified portfolio. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 7 . Heat. Gold readily forms alloys with many other metals. languages and cultures. making it impervious to the ravages of time. gold is protection against government spending deficits. Second. gold has been the centerpiece of luxury and wealth—and the most reliable form of exchange. It’s no wonder gold has been the currency of humankind for over 6.000 years. What’s more. gold is not affected by the devaluation of the dollar. Just a single ounce of gold can be hammered into a sheet of 300 square feet.CHAPTER 2 : GOLD VS. It is an excellent conductor of heat and electricity. It has always been an accepted medium of exchange. Here are the five compelling reasons why you should consider adding gold to your portfolio…and why even in Switzerland. So. It has also served as the very definition of wealth for caliphs and kings. why is gold such a strong investment option? First. jewelers and craftsmen for centuries. but also offers protection against an uncertain stock market and foolish government monetary policies.
8 APPENZELLER BUSINESS PRESS AG.000 tonnes! And with China’s ever-growing middle-class. According to the WGC. (More on China shortly. gold has never lost its appeal as a valuable commodity. computers and even dental fillings and prosthetics.S.000 tonnes go into jewelry or industrial/dental production. It can only be found.500 tonnes. There is such a demand for gold that it inspires people to pay substantially more for it than its mere commodity value. it’s up 124%. so will their demand for gold. It cannot be created. According to the World Gold Council (WGC). gold is always desired and traded with solid. Over the past few years. And as China and India’s industrial needs grow. It has been said that if you were to melt down all the gold ever mined. and approximately 500 tonnes go to retail investors and exchange-traded gold funds (more on this later). communications equipment. TRADITIONAL INVESTMENTS Reason 1: Gold has an insatiable demand For any investment to hold (and grow) its value over time. That’s because gold is a hedge against stock losses and inflation. it must be in demand. the major gold mining companies have had only a modest increase in gold production. India’s demand surpassed 1. SWITZERLAND . it would only amount to a football field–sized rectangle five feet high. As a matter of fact. and China. That’s three times the nominal growth rate of the global economy. And because gold is universally valuable.000 tonnes—a supply deficit that must either be made up by central bank sales or by acquiring gold from other above-ground sources. Reason 3: Gold enjoys instant liquidity worldwide As an investment. While countries. Gold is accepted and actively traded in global markets. antiques and other investment vehicles. but it could take many months or even years to sell real estate. gold is finite. no matter what borders it crosses. in 2007 alone. Turkey. There is also consumer desire for gold.CHAPTER 2 : GOLD VS. governments and stock investments rise and fall. The fact is that the high price of gold is due to its rarity. About 3. Approximately 53% of this demand is coming from just five countries: India. There is only so much of it in the earth.S. their demand will reach record highs. APPENZELL AR. despite increasing demand. the U.) Annual mine production of gold over the last few years has been close to 2.000 years. In U. only three parts out of every billion (0. Where is this demand coming from? There is a huge demand for industrial gold usage for making electronics. Reason 2: Gold is a finite resource Unlike fiat currencies that devalue over time as more money is printed. This translates to an annual demand for gold that exceeds mine production by 1. making it always easy to sell and easy to buy. no other commodity has the liquidity of gold. production has remained flat. But gold is more than a commodity. the demand for gold worldwide has doubled over the last four years. Stocks and bonds are easily sold. And for the last 6. art. it retains its worth. It is a proven source of wealth protection and safety. In fact. dollar terms. in three of the last five years.000000003) in the Earth’s crust are gold. honest value. jet engine parts. Italy.
As you’ll see in a minute. many are predicting gold could rise to between $2. This is because the gold price is not driven by the same factors that drive the performance of other assets. and when mass fear strikes at the heart of paper money. Unfortunately. Its most valuable contribution to a portfolio lies in the fact that it is not correlated with most other assets. By diversifying.000 an ounce. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 9 .” James Dines. the stampede to gold will be awesome. Because of the current economic crisis. when they typically allocate funds to just three classes of assets—stocks. bonds and cash. TRADITIONAL INVESTMENTS Reason 4: Gold ensures real portfolio diversification Asset allocation is an important part of any investment strategy. Reason 5: Gold is an investment with huge profit potential In Switzerland. investors hope to maximize returns while minimizing risk. many investors believe their portfolios are adequately diversified.CHAPTER 2 : GOLD VS. gold is viewed as a quality investment.000 to $5.000 an ounce (plus silver over $100 an ounce)… gold is not merely a colorful trinket but a monetary asset. To counter adverse movements in an asset class. and we reaffirm our old targets for gold of $3.000 to $5. This makes it the perfect addition to any portfolio for safety and profitability. financial analysts and investment experts recommend that gold should make up 10% to 30% of your portfolio. “We would be very surprised if the gold price did not blast right through the old highs. many investment portfolio managers. Editor. a Swiss perspective would encourage 30% or more. The Dines Letter Gold has shown strong returns over recent years.
The dollar has become like a “hot potato” and they don’t want to hold on to it for very long. But should they coincide. But. SWITZERLAND . which in turn will inflate the currency already in circulation.S. Mix three or more of these factors together. The Approaching Gold Storm Today. a rare investment opportunity could arise.. particularly when there is a war or natural disaster. In times of national crisis. you could have a new gold boom. There have always been cataclysmic events that have driven up the price of gold. 10 APPENZELLER BUSINESS PRESS AG. These events include: • The U. the international community is holding over $6 trillion of a currency in which they lack confidence. It’s also important to keep in mind that in times of great uncertainty. Any one of these events could push the demand for gold to remarkable new highs. Dollar decline and economic downturn For the last 15 years. the demand for gold will rise. including unrest in the Middle East • The aftermath of a central bank gold sell-off • The China factor • Growing inflation Gold can rise due to any one of these factors.S. it seems we are on the eve of events that could dramatically ignite an unprecedented gold boom. the main export of the United States has been dollars. These are the unbacked liabilities of the U. when you combine two or more of them. These dollars will find themselves flowing back into the U. exported to the rest of the world in exchange for foreign cars. and you could have a recordbreaking gold price of historic proportions. people fear that their assets may be seized and that the currency may become worthless. But now. dollar crisis and economic distress • Massive global instability. Appenzeller Business Press AG knows firsthand the need to protect one’s finances through the acquisition of hard assets like gold in times of severe political and economic crisis. electronics and oil. They see gold as a solid asset that will always buy food and transportation.S. The result? High interest rates and high inflation that will hurt the average American who is not prepared for this backlash.. With our client base of leading international banks and high net worth individuals.CHAPTER 3 : APPROACHING A PERFECT STORM Chapter 3 Approaching a Perfect Storm How an unprecedented series of global events has made it critical to invest in gold NOW. APPENZELL AR.
Will you be prepared if or when it does? SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 11 . • Talk of OPEC switching to the euro. In fact Iran already requires euros in payment of exports being sent toward Asia and Europe. national debt is currently $9. And on May 10. Currently.S. Many investors are looking for more security and safety. The wars in Iraq and Afghanistan have a combined cost of almost $1 trillion dollars. Since 1971. 2006. Watch for the resulting inflation to trigger a run on precious metals. these rates contribute to it. and they are finding it in gold. As the dollar weakens worldwide…your only protection is gold.CHAPTER 3 : APPROACHING A PERFECT STORM Other threats to the dollar include… • Immense federal budget deficit. dollars (called petrodollars).4 trillion. These investors are looking to place their money into solid investments they can trust. • U. After this bubble and the resulting credit crunch. rather. There just needs to be enough uncertainty and instability to fuel the fear we see on the evening news. Here is just a short list of existing global conflicts and concerns: • The ongoing war with Al-Qaeda and. These factors have created enormous risks for investors. OPEC oil has been exclusively quoted in U. It isn’t necessary to have all-out hostility. The U. the fourth largest in the world • A near-nuclear Iran controlled by Islamic extremists bent on destroying the West • Instability and violence in the petro-rich Niger Delta. Russian president Vladimir Putin announced the creation of the petroruble to trade oil and gas. keeping investors guessing. Just like in the ’70s. This will continue to weaken the dollar. we are witnessing these today. particularly gold. Congress continues to overspend with an annual budget of $2. the fear of another 9/11 • A nuclear North Korea with madman Kim Jong Il’s finger on “the button” as well as the backing of his army. the dollar weakens. OPEC members Iran and Venezuela have been pushing for a switch to the euro because of the weakening dollar. with it. But recently.S.S. Massive global instability Wars. Low rates won’t protect today’s homeowners and investors from the ravages of inflation. many investors are leery of real estate. • Fear of a massive stock market meltdown. which has led to a drop in world oil production and a rise in oil prices • Ongoing saber-rattling from Venezuelan dictator Hugo Chavez. Why? Because as gold prices rise. This creates a permanent demand for dollars on the international exchange markets. • Rock-bottom interest rates. the market has been quite volatile.7 trillion. fear of war and the current global “War on Terror” have increased the likelihood of a gold boom. real estate bubble. who controls the largest oil reserves in the Western Hemisphere • Unsecured nuclear weapons facilities within the territories of the former Soviet Union Any one of these situations or any combination of them could be the spark that leads to global conflict. With an increasing government debt comes inflation and economic uncertainty.
And as investors come to that realization. With the rate of gold consumption at 3. Now a system for selling bullion to the largest population in the world is in operation. This creates the illusion that gold is in plenty of supply. Their answer to the problem is to loan it to various business entities in order to earn a modest rate of interest. the National Development and Reform Commission of China said that “China intends to more than double its gold reserves to 1. 12 APPENZELLER BUSINESS PRESS AG. jewelry and other uses. Geologic Survey. China has become the third-largest consumer of gold in the world. The demand for gold in China increased sharply last year. gold is finite. And the demand for gold continues to grow. there are only 50. existing gold supplies are going to become increasingly more valuable.CHAPTER 3 : APPROACHING A PERFECT STORM Central bank gold sell-off Central banks around the world hold about 33. The world has never been more dangerous. In fact. is less than half of what has already been found and produced from the beginning of civilization. NOW is the time for you start investigating how to incorporate gold into your portfolio. the amount remaining above ground.S. a 26% growth from the previous year. coveted and hoarded. and according to the China Gold Association.1 tonnes.000 tonnes of gold. According to the World Gold Council. Gold ownership for Chinese citizens was legalized in 2004. APPENZELL AR.270 tonnes this year.760 tonnes per year.” Change is coming It is very possible that people in the future will look back at this time and clearly see the convergence of events that led to a run on gold. the world’s supply will be fully mined before 2022. But as we revealed in Chapter 2. What’s more. the demand for gold worldwide nearly doubled in 2007—and much of that demand rests on the shoulders of China. The China factor Imagine having an instant market of over 1 billion consumers virtually overnight.000 tonnes of gold left to mine in the earth’s crust. An economic downturn is in our midst. SWITZERLAND . According to the U. hitting 326. dentistry. Unfortunately.S. (That spells more trouble for the dollar. This availability makes gold seem more accessible for manufacturing. central bankers concluded that all this gold sitting in their vaults is useless as it is not earning interest.) And in March 2006. the Chinese central bank is also diversifying out of U. dollars and into gold.
In fact.002 in March of 2008.000 an ounce. Iran is exporting terrorism and is now nearly nuclear. “We’ve been in gold five or six years now and we don’t think the bull market has run its course yet. According to Morgan Stanley’s top-ranked financial advisor Rick Blosser. Inflation was in the double digits. But is it probable? Consider how today’s events parallel those of 1979. Jimmy Carter was president.002 per ounce in March 2008. the same gold would be worth $2. In 1979. And the dollar is again in decline. Gold fell back during the economic stabilization of the Reagan presidency. adjusted for 2008 inflation dollars.” Let’s take a look at gold since the year 2000… Gold – London PM Fix 2000 – Present 1000 900 800 US$ per ounce 700 600 500 400 300 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Sep 08 200 Table courtesy of Kitco. America is at war with Islamofascism. Oil prices have increased the cost of virtually every product and service. dollar was under siege. gold in 1979 dollars was worth $850 an ounce. at the time. but has been slowly rising since then. In the 12 turmoil-filled months leading up to January 1980. And as you know that trend has continued significantly higher with gold reaching an all-time high of $1. the price of gold more than tripled since 2000 to its all-time high of $1.com As the chart above shows. and the U.CHAPTER 4 : THE FUTURE OF GOLD Chapter 4 The Future of Gold Factors that could send gold past the $2. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 13 .200 an ounce today. The bull market for gold is just beginning.S. But could gold today really make the same kind of price spike that it did back in 1979? The truth is. So it is possible that the price of gold could hit $2. Americans were being held hostage in Iran. Oil prices were escalating on a weekly basis. gold went from $240 per ounce to $850 per ounce.000-an-ounce mark. in 2006 gold broke a critical benchmark when it hit the highest average monthly price in history. But. Inflation is a real hardship.
production was just 272 tonnes. it’s still a major importer of gold. South Africa has been the source for a large portion of the world’s gold supply. Consider China again. In 1970.” If this happens. The decline in supplies from South Africa has resulted in an overall global gold production slowdown. The Financial Times reports this could “slow production by as much as 15% to 20%. Labor unrest. Russia is another example. yet it still imports another 50 tonnes! Not only is China’s retail demand ravenous. 1. creating a severe supplydemand imbalance. Lowered overall mining production Global gold mine production was at an 11-year low last year. and for the forseeable future. for a total of about 1. As the world’s fifth-largest producer. This is the second consecutive year of decline. What’s more. South African production accounted for 79% of the world’s supply. by 2007. which means lower output from major mines. total production costs were up by $99 per ounce. 3. 14 APPENZELLER BUSINESS PRESS AG. there are rumors that its sovereign wealth fund is buying up all the gold it can. APPENZELL AR. Gold-producing countries are holding on to their gold Another reason for the increase in the price of gold is that many of the world’s gold-producing countries are holding on to their gold for economic reasons—or domestic demand is simply so strong that the country has none left for the world market. working with less overhead. Russia’s central bank chairman recently said the bank would be “purchasing gold on all markets on which it is available.” The intent is to use it for the nation’s financial reserves and serve as a bulwark for the ruble. However. the South African government is expected to ration electrical power to mining outfits. Political instability in South African mining Since the 1880s. with about 50% of all gold ever produced coming from this area. it could reduce worldwide gold output by another 55 tonnes. Investors would be wise to look to more efficient small cap mining companies that employ unique business strategies. exploring prospects that are too small for the gold giants.000 an ounce and beyond. The result would most likely be a dramatic price spike. SWITZERLAND . In fact. Recently. China is currently the world’s largest gold producer at 275 tonnes of gold a year.000 tonnes.CHAPTER 4 : THE FUTURE OF GOLD So where will it lead? Let’s take a look at 4 concrete factors that have boosted gold prices in the last five years and which promise to further increase gold values from already historic benchmarks — to levels of $2. political instability and high costs have all taken their toll. 2. Worldwide production is simply slowing as the aging mines yield less gold and as mining exploration companies struggle to discover new mines.
including China. let’s take a closer look at the best ways for you to get involved in the gold market. one must conclude that gold’s uptrend is being caused entirely by increasing demand coupled with decreasing supply—a trend showing no signs of abating. A price of $2. that figure had climbed to 1.800 tonnes of gold are held by private investors and 28. Now that you understand the dramatic demand for gold.” $2.500 by the official sector (primarily central banks). the threat of economic crisis and the failing dollar have led to widespread investment demand. So the total production number of 2. Currently 28.447 tonnes for 2007 is misleading. the rest of the world doesn’t actually have access to their production. the history of its value and the causes for the current developing bull run.500 gold…are you ready? When you take a look at all of these the factors that are driving actual gold investment and purchase. one can argue that it is a probable outcome. and jewelry consumption has skyrocketed. In 2001. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 15 . According to the World Gold Council.500 per ounce is quite possible. This factor alone speaks to the potential for a severe gold shortage in the coming years. By 2007. 4. These factors have the potential to ignite a remarkable bull run on gold. since large amounts of this total don’t figure into global supply.000 tonnes. Increased demand for investments and jewelry worldwide Political uncertainty. 400 tonnes of gold were purchased for investment.CHAPTER 4 : THE FUTURE OF GOLD The bottom line? Although China and Russia are two of the world’s largest gold-producing countries. In fact. offer considerable potential for future growth in demand. “Jewelry consumption in the developing markets has been expanding rapidly in recent years [and] several countries.
• Gold bullion • Gold coins • Gold ETFs (exchange-traded funds) • Shares in gold mining companies Investments in any of these strategies. If you have 30% of your assets in gold. particularly low-cost gold exploration companies. Some of these investment options are suited toward portfolio stability. Bullion can be purchased in units as small as one-tenth of an ounce or as large as a 400-ounce gold bar. while others are capable of dramatic returns of 100%. historical and geopolitical factors driving the need to prudently invest in gold. plus the fees levied by the exchange where you purchased your gold. 200% or even 1. we recommend 10% for capital preservation and 20% for wealth accumulation. It is a strategy often preferred by investors who intend to leave their assets for heirs. 16 APPENZELLER BUSINESS PRESS AG. APPENZELL AR. for many investors. are simply too risky and unpredictable).000. own gold bullion. there are four major gold investment options.S. A capital preservation strategy is a conservative way to protect your wealth. The strategy that is right for you depends largely on two goals: capital preservation and wealth accumulation and growth. Wealth accumulation and growth is a more aggressive strategy that could produce significant returns over time. Gold bullion Of all the gold investment options. bullion is the safest and simplest way to invest in gold. SWITZERLAND . In this chapter. you’ll look at various strategies for investing in gold. Still many advisors and wealthy investors have 30% to 50% in gold due to the dollar’s decline and the current U.000% over periods as short as six months to a year. Your investment gains will be largely determined by the rise and fall of the spot market price of gold. economic crisis. Not counting investments in gold futures (which. Note: Many conservative financial advisors recommend 10% to 15% of your total portfolio in gold. It is also considered a “defensive” strategy designed to protect one’s portfolio.CHAPTER 5 : THE 4 WAYS TO INVEST IN GOLD Chapter 5 The 4 Ways to Invest in Gold Your options for a stronger and more diversified portfolio In the previous chapters we have looked at the economic. If you are looking for maximum capital preservation. can be started with as little as $5.
CHAPTER 5 : THE 4 WAYS TO INVEST IN GOLD While gold bullion is extraordinarily safe (remember gold will almost never lose value over the long term. though it can go down in price). And. If you are looking to protect your wealth. Still. Their value is mainly dictated by their troy weight and the prevailing market price for gold. it leaves you open to theft if you keep it at home. Numismatics are rare gold coins. but that involves storage fees. The rise or fall in the gold ETF price will closely track the spot price of bullion. Remember you’re buying a physical amount of gold.numismatics and gold coin bullion. With the strongest possible emphasis. the profit potential for bullion has the kind of modest returns you’d expect from such a safe investment. That’s the upside. Gold ETFs (exchange-traded funds) An ETF is a type of mutual fund that trades on a stock exchange like an ordinary stock. Among the most famous of these coins are the South African Krugerrand. Their value is based on their age. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 17 . the Canadian Gold Maple Leaf and the American Gold Eagle. which will eat into your profits. Gold bullion coins There are two types of gold coin investments that can be made . First. This can present one of two problems. you could store it in a secure location. Gold bullion coins are also produced in fractions of an ounce—typically half. Again. even though there are other options for making larger returns. They differ from mutual funds in that shares of ETFs can be traded at anytime while the host stock market is open. If you are looking to protect your wealth. those who are looking to protect their wealth. Appenzeller Business Press AG does not recommend investing in numismatics. we recommend gold coin bullion. which means you have to actually put it somewhere. Gold coin bullion is an extraordinarily safe investment that can be traded just about anywhere in the world. quarter and onetenth. it is always best to have some assets in bullion (real or honest money). These coins derive their value from the gold content only (not from their rarity as in numismatics). This investment is for the collector who knows and fully understands the risks of this highly speculative investment. which at one time were in circulation and used as money. scarcity and overall aesthetics. Gold coin bullion is excellent insurance against hyperinflation and other calamities. it can be traded at only about 5% over the spot price (a huge advantage over numismatics). it’s smart to consider your investment goals. Gold coin bullion is an option for those investors who are more savings-minded. you cannot achieve it with numismatics. Gold coin numismatics have transaction costs that can be as much as 100% over the spot price of the gold used to make the coin. Second. this “premium” pays no dividends. And. condition. The downside is the risk of theft and the potentially modest returns. The ETF’s exact portfolio is fixed in advance and does not change.
050 for every ounce it mines.CHAPTER 5 : THE 4 WAYS TO INVEST IN GOLD Typically a commission of 0. high overhead and significant operating costs. They are the ideal choice for wealth accumulation and growth. APPENZELL AR. insurance and management fees.4% is charged for trading in gold ETFs. SWITZERLAND . These are often huge companies with large operations. In fact. Junior companies Large gold-producing companies are in actual production.250. are charged by selling a small amount of gold represented by each certificate. look into buying bullion rather than ETFs. operating expenses can eat a significant portion of profits. in addition to an annual storage fee. Assume for a moment that gold is selling for $1. and that increase in profits should quickly be reflected in the company’s stock price. you’ve just made 25% on your money. If it rises to $1. it will still cost $200 to mine an ounce of gold when its $1. But now assume you’ve invested in a carefully selected gold stock—one that spends about $200 to mine an ounce of gold. The reason is simple. Take a look at the gains some of the biggest gold mining companies in the world have made in just the last five years: • AngloGold Ashanti (up 214. They are still paper and represent merely a promise of value. That’s because they have the ability to offer tremendous leverage you just can’t get from bullion or numismatics or even ETFs. Gold mining stocks Gold mining stocks offer maximum opportunity for profitability. There are 3 types of mining companies you can find that offer shares. even with the price of gold trending upward. If you’re interested in the real value of physical gold.1%) 18 APPENZELLER BUSINESS PRESS AG. So. look to gold mining stocks over ETFs.9%) • Gold Fields (up 200.250.7%) • Harmony Gold (up 216. The annual expenses of the fund. What’s more. the company is making $800 for every ounce it mines.9%) • Newmont Mining (up 201.000 an ounce. If it takes $200 to mine an ounce of gold at $1.000 an ounce. if the price of gold rises to $1. removing gold ore from the ground. Large gold producers 2. If you are interested in taking advantage of the real value of gold assets you will not find it in ETFs. Thus the amount of gold in each certificate will gradually decline over time.000 an ounce. and. Intermediate companies 3. If gold is selling for $1. or $250.5%) • Agnico-Eagle Mines (up 369. Not bad. such as storage. if you are looking to maximize your wealth accumulation potential.250 an ounce. the company now makes $1. the costs are fixed. 1.
They also tend to take on projects that appear to be too small for the larger gold producers. turning every $10. They operate with smaller capital needs. these companies offer incredible value and potential. Seabridge acquired nine North American projects with substantial gold resources.61 in March of 2006 to a breathtaking $40 in November of the same year. was created to provide its shareholders with exceptional leverage in relation to a rising gold price. This means they can make quick decisions. Leaders in discovery. They have yet to find gold but have the potential for a major new discovery. Intermediate and junior mining companies have the advantage of being able to operate quickly and efficiently with less overhead than large gold mining producers.000 investment would have led to a whopping $655.197. The best of them have almost a sixth sense that drives them to find mines rich with potential. They are gifted explorers who actually get their hands dirty.737. free from the slow-moving bureaucracies of bloated production companies. triple or quadruple your money in a very short period of time—something that’s nearly impossible when your money is locked into a gold-producing behemoth priced at $57 a share or more. They also tend to be fast-moving operations. making it much easier to double. Low overhead. These aren’t boardroom people sitting behind a desk. Mining exploration lives or dies on its management team and its geologists. both in the boardroom and in the field. If an investor is looking for low-cost stocks poised to hit a megaboom.35% in a single day on news of a gold price spike. Easy share accumulation. when it comes to mining stocks. These companies typically are very small and keep costs low.17 a share.96 million and trading for as little as 16 cents leaped 31. 3.48. The best examples of this type of wealth accumulation and growth strategy may be found in companies like Seabridge Gold. However. A $10.CHAPTER 5 : THE 4 WAYS TO INVEST IN GOLD Still.000 investment into $21. The shares of large gold mining producers typically rise two to four times more than the price of gold itself. and maintain a bare bones overhead. when the price of gold was lower. From 1999 through 2002. Then. They hit upon a major find and the stock jumped to $2. Here are a few examples: Take the case of one gold exploration stock that was trading for $1. including the multimillionounce Courageous SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 19 . Some trade for under $2 a share. Among these mining companies are those with actual resources—gold that’s been discovered or purchased. these projects yield major profit opportunities for small. sometimes as much as 5 to 10 times more than the increase in the price of gold itself. Investors must be cautious of companies without established resources and recognize that with this potential comes a higher level of risk. 2.70. Another stock went from $0. Here are 3 advantages to intermediate and junior mining companies with resources: 1. And that’s on the small side of the scale.or medium-sized companies. Smaller exploration companies often soar higher than that on the basis of new gold discoveries. consider the intermediate and junior mining companies as your best opportunity to profit from a coming gold boom. Seabridge Gold Inc. Still a third stock with a small market cap of just $15. This is a demonstrable fact. there are mining companies in full exploration.
Chile (one of the largest mining countries in the world). SWITZERLAND . Some of the most profitable mining opportunities can be found in Peru (one of the world’s largest gold producers). As a result. Seabridge’s gold ownership per share has risen for six successive years. Instead. Seabridge shares have outperformed the Toronto Stock Exchange Gold Index by nearly 3.S. you’ll find smart. as well as in the gold-rich districts of Canada. who will often buy out these smaller companies once there is news of a significant find. These giants in Latin America include: • Newmont Mining • Barrick Gold • Noranda • GoldCorp • Compañía de Minas Buenaventura • BHP Billiton There are also opportunities in the U. The Seabridge strategy measures its performance in terms of gold ownership per common share. but much of the globe is still dangerous and unstable. look for excellent investment opportunities in the Western Hemisphere where political risk is low. well-managed junior and intermediate companies in addition to the gold giants. 20 APPENZELLER BUSINESS PRESS AG. That’s why project acquisitions and exploration programs are carefully chosen to ensure that the share dilution required to fund these activities is more than offset by additional ounces of gold resources. These deposits are created by millions of years of water movement and erosion. Subsequent exploration by Seabridge has significantly expanded this acquired gold resource base. material deposited in the soil and fans of ancient riverbeds. How do you find quality mining exploration companies? Consider the mine’s geographic location. some companies employ placer mining techniques. Gold resources are found around the world. providing its shareholders with exceptional leverage to a rising gold price. In Latin America. Placer mining is an extraction technique used in the search for gold to explore and process alluvial deposits—that is. In contrast to most other gold companies. There is also the risk of a mine’s operation being “nationalized” by a tinhorn dictator. Consider the cost of mining.CHAPTER 5 : THE 4 WAYS TO INVEST IN GOLD Lake and Kerr-Sulphurets deposits. steer away from mining companies operating in risky parts of the world. For the time being. In order to be more efficient and deliver higher profits. APPENZELL AR.400% from 2002 through 2006. mining laws are favorable and property rights are respected. Open-pit and underground mining costs have soared in recent years. Argentina (an underdeveloped mining location with huge potential) and Brazil (a place filled with underdeveloped gold fields).
developers and producers. Inc. Too often companies try to be all things—explorers. Ideally. Check out their previous accomplishments. Look to see if they have established a successful track record. Areas receiving attention for their alluvial gold potential include the Northern Amazon region in Peru as well as areas of Colombia and Brazil. Ultimately. Placer mining operations have been the basis of the biggest gold rushes in the world has ever seen. Strong leadership knows and understands the necessity of securing in-theground resources. These will be good indicators of the company’s future. There is also an understanding that production is not the main focus. They often fail because of the differences between managing a production opportunity and managing an operation focused on building more gold value behind its shares. Now is the time to act The team at Appenzeller Business Press AG hopes we have added to your knowledge of gold investing in these times of economic uncertainty. SWISS PERSPECTIVE: HOW TO PROFIT FROM THE COMING ECONOMIC TURMOIL 21 . finding more of them and then developing them. 500%…even 1. a significant find can take a $2 stock and rocket its price 400%. It is the key to developing these projects into highly prosperous ventures. and look for a share price under $2—and preferably closer to $1 than $2. Read all you can about the surrounding properties. Look at the properties and study their history. Placer Dome started as a placer mining operation. Whether it’s the 49ers of California or the Alaskan gold rushes. you need to perform your own due diligence. With serious economic events coming together in the form of a declining dollar.000% or more. Consider the management. Case in point is the 2006 purchase of Placer Dome. With a junior exploration company. all the major gold rushes were around placer mining discoveries. Management is critical. Research the management. Try to spot a bargain waiting to be snatched up. by gold giant Barrick Gold Corp. you want to consider the number of shares outstanding (hovering around 50 million). delta regions surrounding ancient riverbeds have been ideal locations for alluvial gold. for $10. it is more important than ever that you look into investment alternatives and consider gold as an option in the creation of a well-diversified portfolio. We are dedicated to ensuring that investors like you have the facts you need in order to make a well-educated investment decision.CHAPTER 5 : THE 4 WAYS TO INVEST IN GOLD Typically.4 billion. recession. Look at the market cap and the stock price. inflation and uncertain markets.
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