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The Case for Gold

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  1. 1. Since 1971 GOLD has become the single most important metal in the world.For forty years, Americans were forbidden by law to own, buy or sell gold except in the formof jewelry or coins of numismatic value; from January 30, 1934, to January 1, 1975, while theAmerican embargo persisted.Especially since 1975, however, gold has been much in the news because tens of thousands ofcitizens have bought gold since it became legal to do so; and because of the massive changes thathave taken place in the role and price of gold in our world economy. Gold is virtually indestructible-- ornaments placed in Egyptian tombs in 2500 B.C. Were still in perfect condition when discovered by archaeologists in the 1920’s. Gold coins recov- ered from sunken ships after 300 years glistened just as though they had come fresh from the mint! Gold can be conveniently stored and transported; it is impervious to rust, corro- sion, and the elements; it is malleable, ductile, lustrous, and ornamental; it is easily worked with other metals; it is heat-resistant and an excellent conductor of electricity. (It insulates space vehicles from intense heat on re-entry into the earth’s atmosphere.) Gold is even be- lieved to have therapeutic qualities in lotions and baths.First used by the Egyptians for adornments, utensils, and evidence of personal worth, gold wasgradually adopted as a medium of exchange after civilization advanced to extensive tradingbetween peoples. At first, trading was by barter: a few bushels of wheat for a bowl or a small rug.But barter was clumsy; what was needed was a material or article to serve as a standard mediumof exchange. Dozens of things were used at one time or another: copper, iron, silver, rugs, cattle,land , shells, stones, goats, skins, and even women! Of all things tried, metals seemed most prac-tical as a universal medium of exchange, and of the metals, the best were silver and gold. These(particularly gold) were first used in bars, gold dust, and then in rings of a fairly standard size.The real breakthrough in the use of gold as money was in 560 B.C. When King Croesus of Lydiainvented coinage. He struck coins of both gold and silver, shaped like lima beans and bearing an
  2. 2. official imprint. These coins caught on rapidly. The trade of the would increasingly implementedcurrency made of gold and silver:silver for everyday purchases in the marketplace, and gold formore expensive transactions, and as for counting houses and government treasuries. The famousgold coins of the world were the daric (Persian), the dinar (serving the Arab world for centu-ries), and the bezant or solidus minted in Constantinople (the Eastern Empire) and accepted inthe world trade for 800 years, until doubloon, the Napoleon, the Pound Sterling, the AmericanEagle, and the Double Eagle.For over 2,500 years, until August 15, 1971, the leading currencies accepted in internationaltrade were either made of gold, convertible into gold, or backed by reserves of gold! That’s howvital gold has been in the history of the world. But on August 15, 1971, President Nixon closedthe gold window, and the American dollar, ceased to be convertible by Central Banks of othernations into one thirty-fifth of an ounce of gold, with gold stabilized at $35 an ounce.From that date, no currency of any nation has had official gold backing of convertibility. Accord-ingly, without the discipline of gold’s backing currencies and with the price of gold no longerfrozen at $35 an ounce by the U.S. Treasury, gold began to move up on world trading markets inLondon, Zurich, the U.S., and Hong Kong. In 1971-72, gold moved into the $40 range, and thensoared to $197 an ounce in late 1974, falling back to $103 in 1975, and then moving steadily up-ward to an amazing high of $850 in January 1980, thereafter Gold languished for more than twodecades below $400 per ounce until climbing to $1900 per ounce in 2011.Whatever accounted for this surging popularity of gold, and its avid purchase by individuals, es-pecially in in the past few are some of the catalysts which began on January 1, 1975and has now evolved into Gold ownership for the past three half decades, as seen in the chartbelow: 25 YEAR GOLD CHART
  3. 3. First, Gold is very scarce and has always been. New world production each year is below165,000,00 metric tons in human history, and all the Gold each year would take up a space nolarger than the lower half of theWashington Monument.Ever since 1933, U.S. Treasury officials have downgraded and disparaged gold. In addition,Keynes called it “a barbarous relic,” Congressman Reuss said it was good only for filling teeth,Secretary of the Treasury Fowler (under President Johnson) belittled gold, and Paul Volcker,in the 1970’s former Chairman of the Federal Reserve Board, has ridiculed gold and been vo-cal in his drive to see it “demonetized.” Gold has since risen more than 1500%; Outperformingstock portfolios and most Equity Funds. Recently, Ron Paul has risen in the Presidential Prima-ries with his canadicy based upon a return to the Gold standard. This strength is based upon aground swell ogf support for the backing of our monetary system with Gold. Importantly, thisreflects the greatest mass electorate support for the return to the Gold standard. Whether this isdone by election or through Gold price adjustment upoards, Gold should be of keen interest toinvestors worldwide in the various investment opportunities bullion, coins, funds, Futures/Op-tions, or Special Situation Gold exploratory companies.Historically, the US has continually tried to de-emphasis the importance of Gold in the mon-etary system. For example,In downgrading gold, the International Monetary Fund has sold off half its stores of the metal,and the U.S. Treasury itself back in 1978 and 1979 had auctions in which our precious goldreserves were sacrificed at bargain prices (around $275 an ounce), only to see hoarders and thecentral banks of a dozen other nations snap them up, while gold was on its way to new highs!Why? Gold has had an unassailable record for 2,500 years as a monetary metal. It has movedinto new price orbits only because of the depreciation of currencies around the world, especiallythe dollar.Why has gold remained so buoyant when our Treasury authorities assured us that gold was deadas a monetary metal? The answer is that in every inflation, in every monetary depreciation ofwhich history has record, gold and land have been the winning investments. These two (alongwith silver) have protected the wealth of individuals and have enabled tens of thousands to sur-vive in times like the German inflation of 1923 and the Hungarian inflation of 1946. Ownershipof gold has been the best way to survive devaluations and rebuild wealth after them. In January1980 gold reached $850.If and when the U.S. Returns to a gold or gold reserve standard, the price will be stabilized at aprice 75 X or greater above the $35 per ounce of 1971. Do not expect that the dollar will everagain be convertible into gold, but you can expect the Federal Reserve Notes, in circulation, willbe backed (25 percent) by gold in Fort Knox valued at possibly $3000 an ounce.With this scenario; prediction of higher long term prices for gold are probable because of contin-ued inflation, and the determination of prudent individuals to own gold in increasing amounts--
  4. 4. whether in the form of bullion, coins, or mining shares.All the important central banks of the world (except the U.S. Banks) have increased their goldholdings since 1978. We believe that gold is on its way back as a stabilizer of the monies of theworld. The only reason U.S. Officials knock gold is that they wish to continue the inflation by (1)the printing press, (2) expanded issuance of government bonds, (3) expansion of outstandingcurrency by Eurodollar loans and commercial bank credit. Because gold has proven the best individual defense in all past inflations, expect it to contin- ue to attract investors and hoarders, the world’s central banks, and Arabs tired of accepting declining dollars in payment for oil. Thus, in the next decade, expectations that gold fever will not calm down or go away: but will soar to new heights is the most likely scenario. There are 5 ways investors can acquire or invest in gold; 1> First, there are ingots-- gold bars-- that are available widely in one-ounce units (and some lower) and in hundred-ounce and larger units. The one-ounce bars are available at most gold and silver coin dealers; the larger bars, which require storage, are best bought at a big met- ropolitan bank (Republic National Bank in New York has a complete gold department), or through a big stock exchange firm that handles gold and can have it stored for you. 2> Another way of owning bullion gold is in so-called bullion coins that sell at prices very close to the London closing gold prices each day. Of these, the most popular is the Krugerrand, minted in South Africa. This coin contains exactly one ounce of gold. The Canadian Maple Leaf is also popular; it too contains one Troy ounce of gold. Another popular coin is the Mexican 50-peso Centenario, which contains about 1.2 ounces of gold. These coins can be bought and sold in major cities around the world, like London, Zurich, Beirut, Hong Kong, Singapore, New York, Chicago, and San Francisco. These coins are the equivalent of buying gold bars, but they are handier and more instantly marketable. 3> A third way of owning gold is via numismatic coins. These are standard gold coins, but they sell for far above their melt-up or bullion value because of their scarcity, their condition and quality, their uniqueness, the country of issue, and their denomination. In the U.S., gold coins have been issued in the $1, $2.50, $3, $5, $10, $20, and $50 denominations. There were at one time seven mints in the U.S., and the rare issuances from some of these mints have great value today. For example, the $3 gold piece was struck in 1854-89, and one of these in perfect condi- tion struck in 1975 would be worth $90,000 today. The accumulated gold coins of the world, since invention of minting, represent billions of dollars. Collection of these coins (many exceedingly rare) is a career in itself, and diligent experts have made fortunes by prudent appraisal and timely purchase. Hundreds of nations, long gone, issued coins, and your choice may be from darics, dinars, bezants, ducats, sovereigns, or the Single and Double Eagle of the U.S. The Content of mod- ern gold coins is as follows:
  5. 5. Nation Denomination Percentage of Pure Gold (Troy Ounce)Belgium 20 trancs .187%Colombia 5 pesos .236France 20 trancs .187Italy 20 lire .194Netherlands 10 guilders .194U.S.S.R. 10 rubles .249Switzerland 20 trancs .187Great Britain 1 pound .235U.S.A. 10 dollars (Eagle) .484 If collecting gold coins as an investment interests you, go to a reputable gold-coin house, read a book and current magazines on the subject, and seek quality: min condition, proof, or bright un circulated (BU) coins preferable; and buy at times when gold prices are low or falling. Store in a safe place. Don’t carry coins around or rub them together or their condi- tion will suffer. The purchase of coins or bars has one disadvantage-- these assets bring in no income or interest, so they must ride in value to be useful to you. Thus, gold tends to “sell off ” in peri- ods of rising interest rates (because many people borrow money to carry a gold inventory). Over the years, however, informed coin collectors have done very well indeed, and the op- portunities are unlimited. 4>Gold Funds are in abundance, and are available through many leading family of mutual funds, such as Fidelity, or Vanguard. The most popular Exchange Traded Fund can be utilized too; Symbol GLD. Speculation in the commodity market is also a good choice. Such as trading in Gold Fu- tures, or Gold Futures Options. 5>Another way to fend off inflation and enjoy income and gain is to make selective invest- ment among special situation gold stocks. This requires The lure of having a 1.00 stock that may move up to $5 or $10 in a short time is almost irresistible! In the résumé of gold shares mostly are producers, but; High Profits from Low Priced SPECIAL SITUATION GOLD exploration companies, that are aggressively acquiring historical mining claims could be the best focus for investors who believe that Gold has not peaked and may be on the springboard to substantially higher prices. These companies run by strong management are seeking to build large portfolios of ‘Historically Significant Gold Claims’ and could be the next BONANZA! in the Secular Gold Bull Market.