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The Hard Asset Advisor
Newsletter of American Gold Exchange ← 800-613-9323
[email protected] ← P.O. Box 9426 Austin, TX 78766 ← www.amergold.com ← February, 2000
Gold Price Going Up Back Over $300!
Forces Building to Propel Solid Bull Market for Gold!
Gold is on the rise! Since September 1999, gold
prices have increased by around 20%. In the last
two weeks, gains have accelerated as the gold
market responds to a combination of interest rate
hikes, inflation fears, and stock market volatility.
At American Gold Exchange, we’ve been telling
you for several months that a new bull market for
gold is building. In our opinion, the new bull
market has begun! In this issue of The Hard Asset
Advisor we will explain the fundamental facts of
why gold will no longer remain undervalued (that
is, valued under production cost) and how you can
profit from this exceptional time to invest in gold.
Inflation – Oil & Interest Rates
The price of gold is often a direct reflection of
the rate of inflation. In recent years, while inflation
has been unusually low, gold has been trading at
the bottom of its range, as low as $252 an ounce
last summer. Now things are changing. Inflation is
once again a real concern and the price of gold is
rising accordingly.
Fundamental to inflation is the cost of oil. Oil
was at $11 a barrel in 1999; now it is almost $30 a
barrel. Saudi Arabia, one of the world’s largest oil
producing nations, recently announced they will
Precious Metals Prices
Monday 2/14/00
Gold:
Silver:
Platinum:
DJIA:
NASDAQ:
$308.50
$5.24
$537.00 “Spot”
10,519
4,418
defend the oil price at $25 a barrel, and OPEC
production limits are in place to support this price
level. This strong rise in the price of oil is just
beginning to ripple through our economy. I now
pay more for diesel for my Mercedes than I have
paid in the last 10 years. Federal Express has added
a 3% fuel surcharge to my monthly bill. Airline
tickets are rising. And because we have no viable
alternative to oil in our daily lives, we’d better get
used to even higher prices!
When inflation rises—or threatens to rise—so
do interest rates. The cost of money is now going
up—and gold is money! Inflation is the typical
result of economic expansion. Fueled by the
unprecedented explosions of high tech and ecommerce, the U.S. economy has been unusual in
its ability to stave off inflation in recent years while
growing at breakneck speed. But economic cycles
will have their turns, and we are now approaching
a point of maturity in the longest economic expansion in U.S. history. A hot economy generates high
employment rates and consumers flush with cash
and optimism. With so much disposable income
available, competition for goods and services
increases, and the price of those goods and services
also increases. No wonder Alan Greenspan is
worried about inflation and is raising the prime
rate!
Don’t believe everything you hear from the
economic “pundits” on television. Last year, when
oil was $11 a barrel, the TV talking heads predicted that it would drop to $7. Now oil is about
$28. The same thing happened with gold: when it
was $250 an ounce, many pundits predicted a
bottom at $180. Now gold is $310. The talking
heads are now telling us not to worry about inflation, and that the biggest bull market in stocks will
continue ad infinitum. Yeah, right!
Updating Important Developments in the World Gold Market
February 2000
The Hard Asset Advisor
Gold Supply and Demand
Page 2
price were based strictly on supply and demand
fundamentals. In both instances, announcements of
Worldwide demand for gold now totals about
reduced supplies resulted in strong gains for gold.
4,000 tonnes, yet all the mines in the world proWhy? Because, it is worth repeating, worldwide
duce only about 2,500 tonnes of gold a year. This
demand for gold is much larger than normal supleaves a 1,500 tonne primary deficit in the differply.
ence between demand and supply. So why has gold
In our estimation, the appropriate price for gold
been so low in price? In the 1990s, many European should be $375 to $400 per ounce, or about 25%
Central Bankers were indiscriminately dumping
higher than today’s price. Frank Veneroso, a noted
gold into the market, significantly increasing
commodities expert, believes the equilibrium price
available supplies of the metal and causing prices
of gold should ultimately rise to around $600 or
to fall. In response to this declining price, the large more. On the strength of current fundamentals
gold mining companies chose to “sell forward”
alone, gold could regain the $375 to $400 price
their gold production. In other words, they’d sell
level very quickly, just like it did in 1993 when the
contracts at today’s price for what they planned to price rose from $328 to $400 in just a few months.
deliver to the market next month or next year. This Add strong inflation to the equation and things
strategy works to their advantage when prices are
start to get very interesting. In the late 1970s,
falling because they lock in their sales at today’s
inflation caused gold to spike to $850 an ounce. In
higher price. By becoming forward sellers, of
today’s dollars this price equals between $1,600 to
course, they promise to increase supplies in the
$2,000 an ounce! Is gold going to $2,000? Possifuture, which further lowers the price. At the same bly. But $600 or more an ounce suddenly doesn’t
time, they send the message to the market that they seem so far fetched!
have no confidence in gold’s short-term price
stability and believe instead that prices will fall.
Inflated Stock Prices and Debt
This message undermines general gold market
confidence and creates a self-fulfilling prophecy,
More Americans are playing the stock market
driving prices lower still.
than ever before, and many with borrowed money.
Over 50% of Americans are currently “in the
Dramatic Shifts in Policy will Propel Gold
market.” As stock prices have soared, so has the
Higher
debt accumulated by these investors. Margin debt
at the New York Stock Exchange grew from
The so-called “Washington Agreement” an$140.1 billion in 1998 to $228.5 billion in 1999,
nounced last September will dramatically limit the according to the New York Times. Since 1974,
gold sales of 15 European Central Banks for the
investors can buy on margin by putting up half of
next five years. The artificial flooding of supplies
the initial cost of buying a stock. As long as margin
will now be dramatically curtailed, allowing prices debt keeps pace with gains in share prices, few
to rise to their natural levels. In response to this
have worried. Last November and December,
announcement, gold immediately rocketed up
however, margin debt surged 25% while stocks
almost 30%, and rightfully so. Mining companies
rose 11%.
now have greater confidence that gold will rise in
In response, an alarmed Alan Greenspan asked
price, so many have stopped “selling forward” their securities regulators to study this phenomenon.
production. When Placer Dome, the world’s fifth
Buying stocks with borrowed money has undoubtlargest mining company, announced recently that
edly propelled stocks higher than they might
they would no longer sell forward, gold rose $23,
otherwise have gone. While this kind of deficit
or 8%, in one day! This is just the beginning!
investment works well in a rising stock market,
These two recent upward spikes in the gold
margin debt becomes very costly when prices fall.
February 2000
The Hard Asset Advisor
Debtor-investors are much more likely to sell
holdings quickly rather than hold through a dip or
put more cash in a falling market. Selling therefore
begets more selling, and creates a market that is
even more volatile than it would otherwise be.
The Trend is Your Friend
An old trader’s adage states: go with the trend.
The problem with this sage advice, however, is the
difficulty of knowing just when the trend is changing. And in today’s investment reality, things
change far more quickly than ever before. Clearly,
the trend in gold prices has changed from lower to
higher. Last fall’s dramatic $60 surge was the first
indication; the more recent surge back over $300
confirms our belief that a new bull market for gold
is here. Prices are moving up based on the soundest
possible fundamentals, and the biggest gains are
still yet to be had! It is a safe and smart time to buy
gold again!
Page 3
Has the trend in stocks turned from the longest
bull market in history to a bear market? Can
investors continue to expect 20% annual gains or
more in stocks? Many technicians are arguing that
for every stock setting a new high, twice as many
are falling to new lows. Some are calling this a
“stealth bear market” in stocks. Keep in mind, it’s
an election year. The Clinton/Gore Administration
will do everything possible to maintain a rosy
picture!
Given the fundamentals outlined above, we
believe the smart investment strategy right now is
to put money into gold. Not only is it an excellent
profit opportunity at today’s prices, it is a shield
against inflation, rising interest rates, and stock
market volatility. Protect your wealth and hedge
your bet with the world’s safest form of currency.
Remember, the trend is your friend and the trend
for gold is up!
Late Breaking News
← Platinum has spiked in price. We recommend SELLING! Please call for details.
← Oil is now over $30 a barrel as we go to press!
← We’ve just returned from the Long Beach Coin Show with a superb group of classic U.S. Gold Coins.
Please review the list at www.amergold.com or call to receive a mailed copy.
← Get the inside scoop on the S.S. Central America Shipwreck gold coins BEFORE YOU BUY!
We have all the details, some you may not hear from the marketeers!
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This fascinating (if alarming) chart tracks the behavior of the Dow during the
seven years leading up to
the crash of 1929, and the
seven years leading up to
now. We make no predictions, dire or otherwise,
about the fate of today’s
stock market. We simply
thought you’d be interested
in knowing the startling
similarities between these
eras.