Bullion Outlook, Updates & Info

What are Krugerrands?

The Krugerrand gold coin is named after Stephanus Johannes Paul Kruger. Known as Uncle Paul, Kruger was a former South African President and famous figure in the formation of the South African Republic.

The Krugerrand was first minted in 1967 and was the first gold coin to contain exactly one ounce (31.1.55 grams) of fine gold. The Krugerrand was produced to provide a way for individuals to own gold. By bestowing legal tender status upon the coin, Krugerrands could be owned by citizens of the United States where, at that time, private ownership of bullion was prohibited but ownership of foreign coins allowed.

In 1980 smaller sized coins were produced including a half, quarter and one tenth ounce coins. All sizes have continued to be minted every year since. As a result of this the original kruger, as it is often called, is referred to as a “full” or “one ounce” kruger and people in the coin trade understand the kruger or krugerrand to be the full size original coin.

The Krugerrandis 32.6 mm in diameter and 2.74 mm thick. The Krugerrand’s actual weight is 1.0909 troy ounces (33.93 g). It is minted from gold alloy that is 91.67% pure (22 karats), so the coin contains one troy ounce (31.1035 g) of gold. The remaining 8.33% of the coin’s weight (2.826 g) is copper (an alloy known historically as crown gold which has long been used for English gold sovereigns), which gives the Krugerrand a more orange appearance than silver-alloyed gold coins. Copper alloy coins are harder and more durable, so they can resist scratches and dents.

The obverse (“heads”) side of the coin features a portrait of Paul Kruger the fifth President of the South African Republic serving from 1883 to 1900. The word Krugerrand is an amalgam of Kruger and Rand the name of the South African currency. The words “SUID-AFRIKA * SOUTH AFRICA” are shown in an arc across the top of the obverse side.

The reverse (“tails”) side shows a pronking springbok (springbuck) designed by Coert Steynberg . The springbok is the national animal of South Africa. The mint date is shown on the reverse side with the first two numbers of the date centred and to the left of the springbok and the last two numbers to the right. “KRUGERRAND” is shown in an arc across the top and “FYNGOUD 1 OZ FINE GOLD” is shown in an arc around the bottom.

Some interesting facts about South African Krugerrand Gold coin. Proof Krugerrands have 220 crenulations (serrations on the edge) while the bullion coin has 180. The word Krugerrand is a registered trademark of the Rand Refinery. There are no official silver Krugerrands. Silver coins based on the Krugerrand have been privately minted but are an infringement on the Rand Refinery’s trademark.

Krugerrands are available through the usual coin dealers and coin auction houses. When purchasing krugerrands or ‘krugers’, ensure that the size is mentioned clearly. Also ensure the date of mint, price and condition are clearly stated.

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For the most part, most of the dealers are honest, work hard and are good people. However you must be aware that where there is a dollar to be made somebody will try to earn it dishonestly. Buying and selling gold and silver bullion is no exception. For the new inexperienced first-time buyer, the possibility of being scammed is a real one. Some of the scams will simply be illegal, some of the other scams may not be illegal but are pretending to be something that they are not with very little reward for a lot of work and money upfront.

Magazine and TV ads. Don’t be fooled by any of the TV and magazine offers. You will pay well over the odds for any gold or silver purchase this way, there simply isn’t enough profit on precious metals to pay for this sort of advertising, the only way possible as if you are paying too much. The timescales involved for the dealer to place the ad with the magazine and the time it takes for you to place the order, can be anywhere around 60 days. Precious metal prices fluctuate day by day, silver has risen by 55% in a 60 day period in 2006. Advertising the price 60 days before publication is fraught with danger. The fair markup of around 5% can be swallowed up easily. If this is the case, put yourself in the shoes of the dealer, would you sell your gold coins at a loss. Maybe, as the dealer, you would try to switch your customers onto some other overpriced item such as rare numismatic coins, commemorative coins or maybe something else. Don’t ring any contact numbers found on the advertisements as they will simply have your own telephone number.

Beware of phone scams. Would you really buy gold or silver bullion coins or other types of coins from a salesman over the phone. Just like everything else in this world, don’t be pressured into buying gold or silver over the phone, no matter how much of a bargain it seems. In May 2001, the New York attorney general indicted six New York residents and five corporations that were running a rare coin scam to the tune of $25 million. These six people who jointly owned the five corporations created a high-pressure telephone boiler room operation and marketing rare numismatic coins nationwide. Customers would succumb to the huge pressure and buy these rare numismatic coins, and obviously the salespeople would lie about the rarity and condition of the coins! Customers were given telephone numbers of a number of different companies to verify and get independent appraisals of the coins, but of course these companies were not in competition as they all shared the same owners

Commemorative coins. The National collector’s Mint, Inc, began a TV and magazine ad campaign for the 2004 Freedom Tower Silver Dollar legal authorized government issue Silver Dollar. At least that was the claim along with a ” U.S. territorial minting” from the Commonwealth of the Northern Mariana Islands. The claim was also made that the coins were made of pure silver from silver bars recovered from ground zero.
There was an immediate response from the US Mint “The Freedom Tower Silver dollar is not a genuine United States Mint coin or medal”. The Commonwealth of the Northern Mariana Islands, a U.S. Insular possession, does not have the authority to coin its own money.
The New York attorney general obtained a court order to halt the sale is of the Freedom Tower Silver Dollar. It was shown that the coins were not made of pure or solid silver, but rather an inexpensive metal alloy plated with approximately 1/10000 of an inch of silver and an approximate value of 1.4 cents.
The National Collector’s Mint had to pay $369,510 in civil penalties, and offer to anyone who purchased the coins a refund, this amounted to $2.2 million.

Counterfeits. Approximately 99% of all counterfeit coins are numismatic coins and not bullion coins. To counterfeit a bullion coin one would have to counterfeit the metal content i.e. substitute a far less expensive metal for the precious metal. This would make counterfeiting a bullion coin incredibly difficult if not almost impossible when one looks at the colour, density, and sound (ring) of the specific metal they are trying to duplicate.
Numismatic coins are far easier to replicate. The specific design, age, rarity and condition are the qualities where the coin derives its value. Therefore they can be made of the same metal as the original coin making it far easier to duplicate the original feel, look and sound.
There are a couple of ways in which a coin can become counterfeit. A large number of counterfeit numismatic coins start out as legally minted reproduction coins which are first sold as replicas. After the original purchaser resells the coin claiming it to be an original it then becomes a counterfeit. Other kinds can be manufactured with the express purpose of being passed off as a genuine numismatic coin. At present a large number of these counterfeits are coming out of Asia.

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Another in the long list of scams to look out for. When one buys a certified and slabbed coin, be wary, it’s possible you are being scammed.

The scammer will take a real high quality collectable coin and send it to a grading service. When the coin comes back, the scammer simply removes the coin from their supposedly tamperproof slab, and replaces it with either a real coin but of a far lower grade or a counterfeit coin. The scammer can buy his own slabs direct from the manufacturer and can insert they want.
This is a tremendous advantage for the scammer that sells you a slabbed counterfeit coin because you can’t feel it, weigh it or hear the ring of the metal.

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So you want to buy some bullion, fine what sort of bullion do you want? Is it a short-term investment, we’d be holding the bullion for the long-term, are you looking to give it as a gift, are you looking to start a collection, is it gold or silver that you’re after? These are just some of the questions to bear in mind before you buy your first piece of real bullion.

Here I will attempt to describe the physical types of gold and silver bullion that you can buy and store at home. It is important to also think about security around the house whilst storing the bullion. You may want to inform your insurance company and be safeguarded against break-ins but this will put your premiums up. On the other hand  you may not want to inform the insurance company at all, maybe the less people who know you are storing bullion the better. How good is your hiding place?

If you buy gold bullion in the shape of gold bars or coins, you will have a smaller physical quantity to hide as opposed to purchasing silver bullion, which, depending on the amount you buy may prove a problem hiding it around your home.

Many of the mints around the world produce a range of gold and silver bars and coins that suit all types of investors.

Below half typical gold and silver bullion bar and coin sizes

Gold bars

1 g, 2.5 g, 5 g, 10 g, 20 g, 50 g, 100 g
1/2 ounce, 1 ounce, 2 1/2 ounce, 5 ounce, 10 ounce, 20 ounce, 1 kg bar, 50 ounce

Gold coins
1/20 ounce, 1/10 ounce, 1/4 ounce, 1/2 ounce, 1 ounce, 2 ounce, 10 ounce, 1 kg coin

Silver bars
10 ounce, 20 ounce, 1Kg bar, 50 ounce, 100 ounce, 250 ounce 16Kg blocks

Silver coins
1/20 ounce, 1/10 ounce, 1/4 ounce, 1/2 ounce, 1 ounce, 2 ounce, 10 ounce, 1Kg coin

The quality that you should look for when purchasing gold bars is 99.99% pure. The information contained on the bar  should have the manufacturer’s name, the precise weight, its purity  and the bar’s serial number.

Gold bullion sold in the form of bars are the cheapest form of gold to buy. They attract the lowest premium from the manufacturer as there is the least amount of work done to produce the gold.

Gold bullion bars have no legal tender status. The bars are highly liquid and easily traded worldwide due to the reputation of the refiners that stand in behind the authenticity and quality of the bars. When making your purchase bearing mind how long you want to keep the bullion for and how we want to sell it again. He may have the intention to keep it and therefore by one or two large bullion bars, the trouble comes when you need to sell it only want to sell a portion of it. Obviously you can’t split the large gold bar. Therefore the answer may be to purchase a number of smaller bars instead, that way you can still hold some bullion and then sell some.

The larger bullion bars and do not necessarily contain the exact amount of bullion for the size of the bar (e.g.  1000-ounce silver bars or 400-ounce gold bars) whereas the smaller bullion bars and Collins are designed specifically to contain an exact weight of the metal. These larger bars vary to keep production costs down and to keep the associated premiums down to a minimum. The weights of the bars and the metal purities maintained within acceptable international ranges. For example, the 400 ounce  gold bar may weigh 404.25 troy ounces and a pure gold content of 99.66%. By multiplying the bars fineness together with the bars grossed weight, the investor can calculate the exact amount of pure gold contained within the bar, in this case 402.875 troy ounces.

Bullion coins attract a higher premium due to their manufacturing process. They are designed to contain an exact amount of precious metal for their purity and weight, and they are guaranteed by their respective governments  that produce them. The bullion coins are legal tender in their country of origin, but who wants a part with a 1 ounce gold coin for $100. The bullion coins aren’t readily bought and sold all over by investors through large worldwide networks of precious metal retailers, dealers, wholesalers, banks and brokerage firms and of course online auction houses. This makes bullion coins and excellent choice for investors and some will be looking for the ideal gifts.

If you wish to purchase gold and silver bullion as a small investor, then there are plenty of places in which to source your products. If you want to take delivery and store the bullion in your home then I suggest you look for the reputable dealers online within your own country. Compare the prices between two or three dealers/mints to find the best deal on the day, typically they will vary by a few dollars here and there. Read and understand their terms and conditions along with the contract that you enter when purchasing their bullion. Add on the delivery costs and any extra insurance, identification may also need to be provided. This identification process is typical for purchasing bullion bars.

For the smaller coin shops and retailers, they may not need this sort of identification and will not necessarily go through these procedures just by a coin or to.

You can also buy your gold and silver bullion bars and coins at an online auction house. The modern minted coins are easily researched and identifiable. Research gets a bit more tricky than the older the coins. The same can be said for the bullion bars. The most recent and up-to-date refiners/mints are easily re-searchable, but do your homework on any unfamiliar bullion bars or coins. Do your research on the supplier of the coins, only buy from a seller with a high score and 99% feedback!

Unless you are making a date specific collection on the coins and really need a specific coin when it comes up at auction, don’t get carried away with an online auction. A 1 ounce gold bullion coin from 2002  has the same amount of gold as a coin from the year 2009, it’s just a bullion coin! (These are not numismatic coins)

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A senior Westpac economist has told a conference two days ago, that the once magical $1000 per ounce price of gold, considered once to be unachievable, in future will be regarded more as the” bottom out” floor price in the immediate years ahead. Huw MacKay a senior Westpac International Economist told the paydirt 2010 Australian Gold conference, the price of gold has stepped up year on year by around $100 per ounce above any predictions for the past five years or more.

McKay has attributed the pressure on the gold price due to 2 main factors, there has been a change in demand for jewelry from around 66% of the world gold consumption in the year 2007 two currently around 40%. At the same time as this, there’s been an expansion in exchange traded products which has risen from around 7% of total gold consumption in the year 2007 to nearly 20% now. This dramatic movement trend is here to stay says McKay.

The lure of gold has never been stronger due to the uncertainty of the world equity markets and financing. Gold demand has shifted towards the investor with strong fundamental trends coming together to increase the investors appetite for all things they can touch, hold, see and store. Gold and silver bullion certainly meets the criteria. ” investors try to get into something that holds value”.

The global gold equity market has seen a huge growth in exchange traded fund holdings, nearly 600 tonnes of gold going into ETF holdings in the year 2009, greater insurance against the global economic uncertainty was sought by investors by boosting the physical stock of gold.

ETF holdings have increased to nearly 45,000,000 ounces or around 75% of the annual mine production globally for the entire industry. The preference for gold in 2009 was twice that in what has been seen for the year 2007/2008.

On Wednesday U.S. gold edged higher, with no clear reason as to why but was definitely helped by the Fed’s announcement to keep interest rates near to Zero and the Labor Department announced that wholesale inflation had declined in February by nope .6% this was double the amount that analysts were forecasting.

Click here for the best ways to purchase Gold & Silver Bullion including Gold & Silver Coins

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Bullion coin sales have remained static this past week, with numbers sitting at around 1.17 5 million. In comparison the previous week saw numbers shifted 750,000 higher and by 1.2 5 million up to then.
Tuesday saw the Gold and Silver price surge and should the rally extend, the sale of bullion coins should be much better in the following week.

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On Friday we saw gold prices fall and is now 3.6% off its recent high. Gold is trading around $1101.70 according to the April futures contract. The Greek crisis has eased somewhat and China does not look set to buy IMF gold!

YI Gant China’s foreign exchange regulator, last week told a press conference that ” currently a few factors limit our ability to increase foreign exchange investment in gold.”

Analysts took that statement to mean China would not be a buyer of  191.3 metric tons of gold that the International monetary fund announced it would sell on 17 February. Speculators reckon that the price of gold might be in for a full if China was not a major buyer of gold on international markets.

Last year China purchased 454.1 tonnes of gold on its domestic market. China did not buy from the international market, but all its bought it’s own produced gold. In the last three years it’s been the world’s largest producer. According to the China Gold Association, it produced over 300 tonnes for the first time ever in 2009.

China is rushing to produce as much gold as quick as possible. The number of gold mines producing in China has fallen from 1200 in 2002 to 700 in 2009. This shows us that last year’s domestic Gold consumption has exceeded the mine supply.

David Einhorn a fund manager, once commented, ” if you believe monetary and fiscal policy across the world are sensible, sell gold and buy Treasuries. If you believe monetary and fiscal policy around the world are bad, sell Treasuries and buy gold.”

In the United States, the Fed’s Quantitative Easing program is set to end this month. the U.S. central bank, over the last year, has spent over $1.25 trillion buying mortgage-backed securities. The outcome of this has kept the 10 year US interest rates low and mortgage credit constantly flowing to the American housing market.
Investors have already been crowding into the short end of the U.S. Treasury market. Treasury notes that at maturity is of three years or less are good, near cash, and highly liquid alternative to making any risks elsewhere. Therefore we see lower short-term US interest rates, this is driven partly by the market and partly by the Fed.

When the Fed ends its Quantitative Easing program at the end of this month market forces are expected to exert themselves on the bond market. You will see a steeper yield curve. U.S. bonds will be priced by investors based on the soundness of the U.S. fiscal and monetary policy. This should see gold attract more speculators, big speculators like George Soros have positioned themselves already for this move.

The crisis of the insolvency of the welfare state is looming close. This crisis will follow the bailout of Greece by the European finances ministers, which may see the gold price driven lower, but once the Greece crisis is over the gold price should rise again.

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Bullion coins are another way to invest in bullion. These coins can be purchased in a variety of sizes from 1/20 of an ounce all the way up to a kilo coin, at the time of writing this article, a 1/20 of an ounce gold bullion coin would cost US$87 and a kilo gold bullion coin would cost US$36,762.

In contrast a 1 kilo gold bar would cost US$36,175. The difference, or the premium that you are paying for your gold or silver bullion coins is in the manufacture of the coins, there is far more work involved in producing the die for the coins than merely stamping a bullion bar. Bullion dealers, coin shops and anywhere else that you purchase the bullion coins will always charge this premium.

Most serious investors do not bother with coins, be it gold or silver coins or the more fanciful numismatic coins, bullion investors want to purchase their gold and silver at the cheapest possible price and paying a premium to have a coin manufactured is not a requirement.

Bullion ‘investing’ is a little bit different from ‘collecting’, there is obviously nothing wrong with ‘collecting’ gold and silver if you are after the aesthetic look. Bullion coins are a great way to start collecting, giving them as a gift would be ideal for somebody that has everything, after all, who would not want to receive a gold coin. Giving a silver bullion coin for around US$28 is a great way to get kids interested in saving and investing. Giving a silver bullion coin to a new born child dated in the year of their birth, to my mind this makes a great gift.

Numismatic coins are getting away from bullion investing.  When buying a numismatic coin you are paying a premium for the metal content, dealer profit and the numismatic collectability. Coins of this nature are for the serious collectors who know what they are looking for and know the real value of the numismatic coin. The dealer or the seller will load the profit margin according to what they think they can get away with.

Be very careful if you want to ‘invest’ in numismatic coins, only purchase them if you like them and want to collect them, as an investment I would not bother, at some point in the future you may want to turn your investment back to cash. There are many variables that will affect the price that you will receive for your ‘valuable collectors piece’ such as state of the economy, price of the bullion, the value at which the purchaser thinks the coin is worth and so on.

If you had the choice between an uncirculated 100 year old gold coin and a brand-new uncirculated gold coin for the same price, always go for the 100-year-old coin. In today’s market, many coins mints are manufacturing thousands upon thousands of brand-new collectables that are not worth the title of ‘collectable’. There is a reason why the uncirculated hundred-year old coin would be worth collecting, that’s because there’s hardly any of them around! If you bought a brand-new uncirculated coin, in 100 years presumably they would still be thousands of these coins still in the hands of collectors or their ancestors! The hundred-year-old uncirculated collectable coin was a mistake, it has slipped through the net and should have been in circulation when first minted, but for whatever reason somebody put it to one side and it has been forgotten about. In these circumstances, for uncirculated coins this is where the true value lies.

There are gold and silver coins going back 300 years, 400 years and more that are worth more than their weight in gold. For example, a gold sovereign from the reign of Queen Elizabeth I in fine condition is worth US$8360 and in very fine condition is worth US$22,800.  A silver Groat of King Henry IV in very fine condition can fetch as much as US$10,300. These coins that are going back into history obviously become rarer as time goes by. These coins really are collectable pieces. Coins going back to the Roman period and beyond are often found on the open market, one needs to research and understand exactly what these coins of antiquity are worth. This is no longer ‘bullion’ investing, but can be regarded as investing in rare and ancient coins. I for one would love to be the owner of a King Edward III Gold Double- Florin from the year 1344, it is worth today US$342,000. But don’t forget the value of the ancient coins are only what somebody is prepared to give you for them!

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Last month a few surprises were revealed in a report published by the World Gold Council as it released its latest supply and demand report on gold. The total demand for gold actually fell in 2009, that was down 11% year-on-year by volume. The dollar value remained roughly the same from 2008 mostly due to the higher average price per ounce of gold in 2009.

We see a demand for gold in many different places such as, bullion bars and coins,  jewelery, electronics, dentistry and some minor industrial uses. Some applications drive demand more than others and can vary from quarter to quarter.

So far this year there has been sluggish investment by the big exchange traded gold backed trusts, a report by the World Gold Council ‘ Gold Demand Trends’ shows us that investors in Gold ETF’s are not having a big impact on golds overall demand.

Gold demand

The purchase of physical gold, both gold bars and coins dropped off following the huge demand over the 2008/2009 fall and winter. ETF investing fell by 67% from Q4 of 2008 to Q4 of 2009, even bar hoarding dropped by 55% over the year and even coin sales were down 8% in the same period. Jewelery by contrast saw a slight increase in demand last year.

Areas such as China showed a small year-on-year growth to around 6% increase in demand for gold tonnage, which translates to approximately 19% value increase. Most of the markets didn’t fare as nearly as well, the demand in tonnes for gold jewelery dropping by 20% for the year end, in value terms it dropped 10%. The only sector that saw year-on-year increase in demand was the electronics sector.

Supply was up 11% according to the World Gold Council year-on-year in 2009, this was primarily caused by a spike in recycled gold that entered the market in the first quarter. This spike has exceeded historical norms over the year as a whole. The proliferation of cash for gold companies put 2009’s

Gold Demand

supply near all-time highs, but the central banks still remained net buyers of gold bullion worldwide

The supply from gold mining companies is expected to continue rising this year, major gold producing nations such as Australia,will be increasing production by somewhere around 10-11% in 2010. At the moment the gold supply meets the current demand and flexibility will come from scrap which is intently price sensitive. The Australian Bureau of Agricultural and Resource Economics (ABARE) makes the case that gold will average $1080 an ounce over 2010 and dropping down again to $900 on oversupply. This opinion is drastically different from HSBC’s point of view that gold could go as high as $5000 an ounce over the next five years.

So which one is it to be? It’s all a matter of opinion, the only real way that gold can reach $2000-$3000-$4000 or even more would be to see real demand across all sectors.

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There are a number of ways in which to invest in bullion but beware some ways it can carry more risk than others. I prefer to hold physical bullion that you can actually trade or swap for real tangible goods, and when the time is right convert into something else. Here I will try and explain a number of other ways in which you can invest in bullion.

Stocks and gold-mining shares. If you do your research into the myriad of gold mining companies around the world and are happy with your choices after thorough due diligence, then owning a gold mining stock may be for you. The ideal gold mining company would need a low production costs, large deposits, and a tolerant government, with these in place and the right purchase price, large amounts of money can be made with a little luck. There is an ever increasing problem due to costs, geology and politics for these mining companies, it’s no wonder bullion has outperformed them in recent years.

Exchange-traded funds, is a security that trades much like a stock, it is supposed to track the index price such as the Dow, or the (ETF’s) may be designed to track a commodity such as gold or silver. The ETF’s for gold and silver can be a great vehicle for trading but are less successful for investing. If you have a brokerage account already set up this makes the ETF’s a convenient option. ETF’s are not gold or silver, they are simply shares in a trust that is owned and run by the bank, which might be holding gold or silver.

Gold certificates and pool accounts. This cheap and easy way to invest as some pitfalls, customers think they are actually buying gold or silver, but they’re not, what they are buying is a promise to deliver the gold or silver in the future. These gold certificates remain  unallocated, the bullion remains on a balance sheet indefinitely and provides great risk to the investor if the provider should become insolvent. If there is no storage fee then there is no bullion, and if you should take delivery of the bullion that you supposedly own, you will be asked to pay a fabrication charge. This charge will bring the big/ask spread to what it should have been had you purchase gold or silver in the first place.

The problem with the pool accounts is that the company that run them don’t go out and buy real money, i.e. gold or silver, and store it for you. It’s the same as selling gold or silver short. When that day comes when you want to cash out, it’s possible that the price may have risen significantly, the company would then have to go to the market and buy the metal that the going price for stump up the difference in cash. Trouble arises when an existing investor wants out, the issuer uses new investor cash to cover the spread, sooner or later there will be more investors who will want out than there are investors joining as the gold or silver reaches a tipping point. I would not want to hold any certificates when this happens!

Above I have listed some common ways a small investor can get involved bullion investing.  There are more ways to invest that are best left to professionals and people with experience who know what they are doing. Among these are:

Gold Futures, These futures are contracts to deliver a specific commodity, at an agreed price, in an agreed quantity, at an agreed date in the future. You don’t have to pay in full just yet and the seller doesn’t have to deliver just yet either. The exchange usually takes place up to 3 months ahead on the settlement day.

Bullion purchased on a margin. Here, we can borrow money to increase our leverage when purchasing the bullion, say 5 to 1. (you borrow 80%). If the price rises it in our favour, your borrowings will start to be paid off and reduce, but if the price drops significantly, your broker will invite you to bring your position up to the minimum margin requirement (handing over more cash), or he will liquidate your position (foreclose).

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The price of gold has held steady recently dipping to $1130 per ounce as the news that the US dollar bounced on the US jobs data, and moving to a record high for UK and Euro investors.

As the Euro dropped half a cent it pushed the gold price in Euros above €835 per ounce. The reasons that many investors diversify the into gold is the fact that many financial portfolios are underweight in gold, many investors still worried about the excess government debt and are worried about the currency swings.

On Thursday in the United States, speaking separately, two senior central bankers said that interest rates will remain at 0% until ” highly sustainable growth” is seen by the Federal reserve. The Bank of England has put on hold its money-creation program, the UK economy would have been 2 -3% weaker without quantitative easing in 2009.

Australia’s bureau of agriculture and resource economics, forecast this week that the output of gold from the  second largest producer nation in the world, will see a rise of 11% this year to around 242 tonnes. Since 2004, the mine capacity investment has increased with the rise in the price of gold. Australian total mining exploration spending has dropped almost 10% as a consequence of sharp growth in coal and iron investments. This compares with a 42% drop in nonferrous budgets for exploration worldwide.

New exploration and development has been capped due to the marginal cost of production for gold which is quoted at $700. The production cost at the moment is now $1000 an ounce, but the project planning remains pessimistic says Bob Lyons at Smith & Williamson. In contrast the cost of extraction is somewhere near $550 an ounce, thus giving every incentive to find new or reopen old gold mines Such as Boddington remarks Natixis.

Possibility of exploration for vast untapped undersea deposits are being examining by gold prospectors, Anglogold.

The euro and the dollar, compared to gold have been weak, we are now  at $1139 per ounce,  compared to gold, all paper currencies will over time continue to depreciate.

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How much is your house worth? You probably have a good idea how much your house and a similar house in your neighborhood would cost. It has probably risen in value by around 100% in the last 10 years disregarding any major fullbacks or sharp increases, for this example we are just looking at an average increase over a number of years in this case 10.

But what would you buy with, obviously you would buy your house with cash, you certainly wouldn’t be able to buy your house with potatoes! The reason I mention this is we always buy things with cash, it may go on the credit card in the first place but eventually you will have to give some of your cash to purchase something.

To get a true value of your house you have to stop measuring the value against the dollar but measure it was something that has got an inherent value such as gold. Let me explain, divide the price of your house by the up to date points of the Dow, then you will know how many shares of the Dow it would cost you to buy your house. Do the same with gold, divide the price of your house by the up-to-date gold price and you will know how many ounces of gold you would have too part with to purchase your house. You can do this with as many other commodities you like!

You will find that over many decades your house has not gone up in value but merely gone through minor ups and downs and remained relatively equal to the commodities that you are tested it against. If you have just measured it against currency over the same period, the price of the house would have risen  several thousand percent! That is inflation at work and the devaluation of all of our currency in our pockets.

When the public rushes from one asset class to another then we see the value shift, generally the public chases which ever asset class is the hottest. Within the short space of time that so-called hot asset becomes overvalued, and conversely the asset that is not hot becomes undervalued.

From the end of World War II, we have seen the value shift amongst the assets, early on it was real estate and stocks, up to the 80’s it was commodities and gold (no longer a currency) from the 80’s to the year 2000 it was again stocks and real estate, from the term of this century the hot asset class has become commodities and gold once more

At the time of writing this article, the Dow is worth 10,396 points, the price of gold is $1140 an ounce, so to buy one share of the Dow you would need to part with 9.119 ounces of gold.

Generally, we can say that the Dow is undervalued when it cost less than 4 ounces of gold, around 6 to 7 ounces of gold is valued fairly, and the Dow is overvalued when it costs more than 10 ounces of gold. We can see from the above calculation that the Dow could be almost certain to be overvalued in relation to gold and a revaluation and an upward shift in the price of gold is on the way.

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Silver bullion

Even though silver is up over 44% in the last 10 months, China is set to push the price even higher.

The Chinese government once banned the population from owning any precious metals but has now lifted this ban. The Chinese government has introduced silver bars as a way of investment and now the state run China Central television (CCTV) is running a campaign to encourage the population to invest in silver. There are a huge number of potential buyers of precious metals with disposable income ready to buy, with the average savings rate in China  between 30% and 40% this makes the potential especially significant.

China, India and South America have economies that are expanding fast, along with the existing Western world, the use of silver in industry across the globe is gaining momentum very quick, everything from solar cells, electronics, batteries, catalysts, electrical conductors, the list goes on and on. When the giant players on the world market start demanding silver for their industries the rise in the silver price is inevitable.

At the moment China’s industrial silver consumption accounts for around 70% of the global total, let’s not forget China’s middle classes with disposable income, had yet to come anywhere near its full spending potential.

Put yourself in the shoes of an increasingly richer middle-class Chinese family, disposable income  with a desire to spend and show your status. Huge industrial manufacturing output on the one hand with yet more savvy investors looking  convert their inflationary Fiat currency into bullion. It takes 59 ounces of silver to buy 1 ounce of gold at the moment but historically the ratio balances out at somewhere around 15/1 with a re-balancing long overdue. As gold is more then $1100 per ounce silver should already be priced in the region of $73 per ounce.

If you could afford silver in the form of bullion bars all well and good, if you can only afford to convert a small amounts of your inflationary Fiat currency into bullion then I suggest silver coins. 1 ounce silver coins, no matter which country you are in is a great investment and a good place to start.

Silver Bullion Coins

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$5,000 for an ounce of gold , could it be possible or could it just be pie in the sky!

For some analysts $,5000 for an ounce of gold maybe a Conservative estimate. If we look back at the price of gold back to the beginning of the last decade, gold was trading at $255 an ounce, by the end of 2009, gold was trading at $1,100 an ounce. Not many investors thought that that was remotely possible and highly unlikely but it did actually happen.
Each calendar year gold has posted a positive return since the year 2001, beating other commodities such as high-grade US corporate bonds, US Treasuries, oil and US stocks. By way of comparison if you invested $100 in the year 2001, US stocks would have returned $90, $190 in corporate bonds, $268 in oil, $357 in commodities but by far the biggest return for your hundred dollars would have been gold which would have returned a little more than $400.

Gold-uptrend-graph

Investors such as hedge funds and pension funds together with large institutional investors are buying large allocations of gold.
Last year from the second quarter to the third quarter saw a 15% increase in demand for gold according to the World Gold Council.
Asia with a huge population in excess of 2.5 billion with its affinity for gold is investing in a big way. China is now offering gold-linked checking accounts and is encouraging its population to buy gold and silver. At the moment India is the world’s largest consumer of gold but China will overtake them very soon. There is an increasing number of Chinese citizens that have a growing disposable income and are a major driver for the price of gold.

As we all know in times of crisis, people always turn to precious metals and in this case gold and silver. Many countries including Portugal, Italy, Greece & Spain (“PIGS”) are in a worsening fiscal dilemma. Together with the United Kingdom, the United States all these economies are struggling, Iceland is in far worse shape. These struggling countries have created a crisis of confidence for the Fiat currencies. Paper money is only backed by the faith of the issuer and as investors lose faith with the issuer, the value of the currency erodes. Investors naturally will turn to precious metals and gold is the ultimate store of value, this will be the one they turn to. Those investors that have physical gold and silver will have a far more greater purchasing power than those that don’t have any physical precious metals.

As the price of gold takes off, we will also see large investments in gold stocks. The gold explorers and producers should see returns somewhere in the region of 1000% as it becomes more economically viable to expand their mining efforts.

In January 2010, Robert R McEwen, chairman and chief executive officer of US Gold Corp, made a prediction that gold could more than quadruple and it would reach a $5,000 high, his prediction saw this rise by the year 2012. This is a looming “superspike” as some experts have labeled it.

Gold Bullion

One of  the world’s most successful hedge fund managers is John A. Paulson.   The billionaire Paulson,  is unhappy with his assets tied up in US dollars, the feeling now and has been for a few months is that gold is the best possible currency. Paulson announced last year that as of January 2010 is firm’s aim was to launch a dedicated gold fund. This fund will invest in gold stocks and gold derivatives in a bid to outperform the price of gold. $250 million of Paulson’s own money will be invested in this venture.

You might think that this adds up to a huge gamble but Paulson has a reputation and a track record for diligence and research. It’s impossible to ignore this move as he strives to make this happen.

During the rising house prices that saw unprecedented growth, Paulson bet the other way watching from the sidelines  and bet against the housing bubble. Whilst many of his customers make great profits, Paulson & Co still maintained his distance to the mass surge. Many thought that he was wrong.

Many investing gurus now agree with Paulson that gold will be the best investment in the world for the next two or three years.

In the last few months of 2009 gold sprinted in 30 days to a height of $1,218 from $1,050 and when you work the figures that is  a 16% gain. Between late October and early December gold made 14 record closes in just 17 days. Every year since 2001 gold has always gained and the run is far from over and some say it is just ” warming up”.

To find the best barometer for gold you just have to look at all the Fiat currencies. (see our currency or money page) the US dollar index comprises of British pounds, Canadian dollars, Japanese yen, euros, Swedish kronas, and Swiss francs. Gold’s high of 2008 has been easily surpassed compared to the basket of currencies. Two years ago 1 ounce of gold bought eight units of the US dollar index. Early 2008 saw a spike in which 1 ounce of gold bought 14 units, spiking recently at 16, but has dropped a little, back to 15 units. This upward trend will continue to do so for quite some time. Gold is rising against all major Fiat currencies.

It’s not just Hedge fund managers and billionaire investors that are buying gold, it’s all so governments around the world. In October 2009 India’s central bank purchased 200 tonnes of gold from the IMF this action has helped gold to reach its record heights. More countries are choosing to purchase physical gold than to rely on unbacked Fiat currencies.

We normally see the revaluation of gold and silver bullion in relation to the US dollar. Since 1980 gold has only risen 65% whilst inflation is up around 175% and stocks have gained an impressive 900%, so we can see there is a big adjustment still to come.

As more and more major investors pushed the price of gold upwards it begins to fall on the ears of smaller typical investors, as always in the market forces will see the price of gold spiral upward sharply and some analysts can see a doubling of today’s gold price if not far more.

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