-- Posted Thursday, 22 May 2003 | Digg This Article
The Daily Reckoning
Amelia Island, Florida
Thursday, 22 May 2003
---------------------
*** Gold up again...will Americans ever start buying? How?
*** Stocks up...bonds down slightly...the dollar steady...
*** On Cumberland Island...
--- advertisement ---
The Secret to Common Sense Profits of $20,302 in 42 Days
Safe trading doesn't have to be boring - and it can lead you to triple-digit profits. Let the best - and most reluctant - trader we know show you how to consistently make home-run profits without abandoning common sense.
Join today, and you could triple the value of your portfolio in the next 12 weeks:
The Secret to Common Sense Profits
---------------------
The price of gold jumped up another $5.70 yesterday, bringing June contracts to $372. In 1999, for reference, the price of an ounce of gold was as low as $254. Investors have made nearly 50% on their money over the last 4 years.
Still, we can't remember the last time someone called at home, during dinner, and asked if he could make a few recommendations for gold investments. We've heard a lot of absurd pitches from Wall Street's cold callers, but none suggested he could make us rich in gold.
So far, only gold bugs have gotten excited. Most people think buying gold is as strange and subversive as reading the Constitution. They think investments are supposed to make them rich and they can't imagine how an inert metal could do that. It has no 'can do' corporate managers with their mugs on the cover of BusinessWeek...and no CFO to rig the numbers. It has no new technology...in fact, it has no product at all. There is nothing to talk about, nothing new to admire...and no one to persuade you what a wonderful investment it is.
Half of American households are said to own stocks. How many own gold? How many would even know how to buy the stuff? As Eric describes below, you can't call your broker and tell him to get you some gold. He wouldn't know what to do. And the experience of going into a coin shop, for most people, is like going into a massage parlor. You don't want to do it in your home town; someone might see you.
George Soros says he's buying gold, as well as non-dollar currencies. Asked why, he remarked that he is only doing what U.S. Treasury Secretary Snow seemed to suggest. Soros is known as the "man who broke the bank of England." That was 10 years ago, when he bet heavily against the pound, despite assurances from the British government that the pound was secure. Now it is the dollar that Soros is selling...and U.S. officials who try to soothe the markets.
And now it is the dollar that falls.
At the same time - as if to confound economists - the developed world inches towards deflation. Inflation rates, broadly speaking, have been coming down for the last 20 years. Japan, 10 years ahead of the rest of the world, has seen its consumer prices fall 7% since 1995.
How can it be that the dollar falls in value on international currency exchanges, while it seems to be gathering strength at home?
Stay tuned...
-----------
Eric Fry, reporting from the Deep South...
- Down here on the Georgia-Florida border, Wall Street seems like a very distant place. The Nasdaq ain't nuthin' compared to NASCAR. And Greenspan ain't nobody compared to Gordon. (That's Jeff Gordon, the stock car racer). Down here, life is a bit slower, except on the race track...so it's a little tricky keeping tabs on the action up north where the Yankees are scurrying around buying and selling stocks...
- But rumor has it that the Dow Jones Industrial Average added 25 points yesterday to 8,516, while the Nasdaq slipped 1 point to 1,490. However, the hottest action of the day was taking place over in the gold market. So pour yourself an iced tea and set yourself down on the front porch while we chat a bit about gold...
- Over the last two years, Gold has gained about $100 an ounce, which isn't too shabby. Even so, the yellow metal has failed to mount the sort of epic, millennial bull market that many long-suffering gold bulls anticipate. It has not breached the $400-level, much less the $1,000- level.
- Truth be told, most gold bulls, while wealthier than they were two years ago, are a little befuddled that they aren't wealthier still. After all, soaring commodity prices and skyrocketing energy prices, in combination with an imploding U.S. dollar, could have - perhaps should have - produced a gold price north of $400 per ounce. But that hasn't happened...yet.
- If the collapsing dollar can't put the goad to gold prices, what can? The answer, perhaps, is "access". A forthcoming NYSE-traded gold certificate will provide Americans with easy access to the gold market for the first time ever...No storage fees, no insurance, no muss, no fuss. At the same time, the Chinese government has announced plans to allow domestic individual investors to start trading spot gold on the Shanghai Gold Exchange sometime later this year. Both of these events could produce a surge of demand for physical gold.
- Here in the states, many notable gold bulls believe that American investors do not lack the will to buy gold, merely the way...or, at least, a convenient way. But soon they will...The Equity Gold Trust filed Tuesday with the Securities and Exchange Commission to issue a gold-backed security representing a tenth of an ounce of gold. The Equity Gold Trust will trade on the New York Stock Exchange like an ordinary stock.
- "The World Gold Council's Equity Gold Trust marks the second commodity-linked security to grace the floors of a stock exchange," says Thom Calandra of CBS Marketwatch. "The first, Gold Bullion Ltd.'s Australia-traded security is already meeting brisk demand for so-called 'paper gold.' The down-under gold fund...started with five 400-hundred ounce bars when it debuted earlier this spring. As of mid- May, the Gold Bullion trust shows 150 bars, or about 61,000 ounces worth $21.3 million in U.S. dollars."
- Based on the Aussie's experience, Andy Smith of Mitsui Global Precious Metals estimates the U.S.-traded vehicle could create fresh annual demand exceeding 6 million ounces. That's a lot of gold. (For perspective, Newmont Mining produces a little less than 8 million ounces per year).
- "The real question," says Calandra, "for those looking to the day when Equity Gold Trust begins trading on the NYSE under the ticker symbol GLD, is this: Can the creation of a product convince investors to go where they have not gone before? The answer is yes. The QQQs, which are the physical embodiment of Americans' lingering fascination with technology stocks, attract $2.5 billion of turnover on a mediocre day. Not bad for an asset class whose net asset value has declined 75 percent since its year 2000 peak.
- "More than one gold mining executive has told me," Calanadra winds up, "that they see the price of gold rising in the short term to $600 an ounce after the launch of the NYSE-traded ETF."
- A gold bull can dream, can't he?
-------------
Back on Amelia Island...
*** We went over to Cumberland Island for dinner last night. The boat trip to the island took us by a paper plant with an odd smell...and then up the Amelia River to the island where a Carnegie family house, Greyfields, has been converted into an inn. The setting was reminiscent of a grotesque southern novel. The plantation-style house had been built near the end of the 19th century. It was elegant, but simple...with the smell of old smoke in the woodwork and the stain of bourbon on the floor. On the porch, rocking chairs looked out over a park of ancient oaks with crooked branches. The old trees were covered with Spanish moss, and looked sturdy enough to hang a dozen fat democrats from each limb.
*** After dinner, we sat down on the porch with our New York correspondent. Each participant at this private conference had been asked to come with one long recommendation and one short. Earlier in the day, Eric had recommended the shares of a Swedish mutual fund, of all things, called Vostok Nafta. The fund has a large percentage of its assets in the shares of Russian energy company, Gasprom, which gives investors a way to buy it without paying a premium for the ADR shares traded in New York. In fact, Vostok Nafta often trades at a premium itself, but presently, the premium is near zero, making it an excellent time to buy. Gazprom itself is probably the world's cheapest energy company, trading at only 6 to 7 times earnings.
"Eric, what are you thinking about?" began the conversation.
"I'm not thinkin'; I'm just rockin'" ended it.
--- advertisement ---
How To Turn US$10,000 into US$2.2 Million
Even if you only have a little bit of money left to invest, you could make a fortune in the next two years. And you can regularly make astonishing profits in a matter of days. But don't just take our word for it...
"As a new subscriber on 4/17/03, I followed your advice and bought AMR at US$4.95, sold this a.m. at US$6.95 for a US$20K profit in 7 trading days. Thank you, thank you, thank you. I can't wait for your next stock recommendation." --P.P.
Click for details: Turn $10,000 into $2.2 Million
---------------------
-- Posted Thursday, 22 May 2003 | Digg This Article
