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July 23, 2010
Alert 56-2
HOW GOLD PROTECTS YOU.
AND OTHER QUESTIONS.
Once again we turn to Kevin Drost, ASI’s own Answer Man, to respond to reader questions. If you have one for him, please click on his email address at the end of today’s column.
Could you please explain to me how gold protects your purchasing power against a falling dollar? Shirley K., South Hampton, New York
We are asked this question quite often these days. Let me give you an example of how gold works. In 1973 oil sold for less than $3 a barrel. That same year, gold was $42 an ounce. (Yes, it’s hard to believe how low those prices were just four decades ago, isn’t it?)
In other words, you could buy 14 barrels of oil for an ounce of gold. Compare that with today’s prices. Oil sells for $76 a barrel and gold is around $1200 an ounce. Which means that today, that same ounce of gold will purchase almost 16 barrels of oil. If you had kept your wealth in dollars instead of gold, that same $42 would buy you about half a barrel. To put it another way, gold was 30 times better than the dollar at protecting your wealth.
The same thing is true for almost anything you purchase. In Roman times, a high quality toga (the suit of that era) cost an ounce of gold. Today you can get a superb men’s suit for $1200 -- the value of that same ounce of gold. As the dollar continues to weaken, the value of gold will continue to rise. Gold will protect your purchasing power in the future, just as it has for thousands of years.
My stockbroker recently told me he believes gold has topped out and soon prices will fall. Any rebuttal to his claims? Simon K., Boise, Idaho
Perhaps we share stockbrokers; mine tells me the same thing. Of course, mine also told me that when gold was at $300, $400, $500, $600, and just recently when gold hit a record high of $1250. You have to admire his consistency, if nothing else.
Here at ASI, we like to look at the fundamentals. Gold’s fundamentals are very positive. Gold production worldwide is about 2,500 tonnes a year, while demand for gold is currently averaging 4,000 tonnes. Combine this with increased demand in emerging countries such as China, India and the Middle East, plus other fundamentals, and you can see why we believe the price of gold will continue to rise.
Another factor affecting the price of gold is the value of dollar. Quantitative easing and out-of-control deficits, combined with two wars, a massive new healthcare program, rising unemployment, and a shrinking economy, strongly suggest that the dollar will continue to lose value. One way to measure that decline is the increasing price of gold.
Until the fundamentals change, we will continue to be bullish on gold. The fact remains: gold has increased in value 300% over the last ten years, while most traditional investments (stocks, bonds, real estate) have stayed flat or are actually down.
One last thing: For a lot of reasons, inflation has yet to rear its ugly head in this cycle. When it does, we expect to see the price of gold (and silver and platinum) rise substantially. To quote a popular song, “You ain’t seen nothin’ yet.”
Of course there will be some ups and downs along the way. But the long-term trend for gold is for higher highs and higher lows. That spells a bull market, Mr. K.
Don’t listen to your broker about gold. I still need mine, however. He is our ringer when we play golf.
I was very saddened to hear of the passing of Glen Kirsch, one of the founders of ASI. Over the years I had come to rely on his knowledge and insight, always asking his opinion before making a major investment. He never steered me wrong.
I am a wealthy woman in large part due to his guidance. I will miss his intellect, his judgment, and his wonderful sense of humor. Without him, what will happen at ASI? Susan B., New York, New York
Many people have echoed similar sentiments about Glen. His ability to take the complex and make it simple was his trademark. Even more impressive was his willingness to listen. We used to say Glen had “forgotten more than we will ever know” -- except that he never forgot anything.
Glen’s passion for assisting his clients was legendary. I would often go to him for advice concerning a client’s question. He would give me a long dissertation about that particular client, their investments, their profession, their family, their education, their hobbies, and the list goes on. Anytime you went to Glen to ask about anyone or anything, you had best be prepared to hear the history. Short answers were definitely not his thing.
When clients called to ask Glen a question, he always took the time to listen, ask questions, and offer his advice. His passing has left a void that won’t be filled, because it can’t be. Glen was one of a kind. But even though Glen’s laughter is no longer heard in the office, his presence is everywhere. In his honor, we put an Austrian cowbell on a shelf in our suite. Every time a client places an order, we ring it in memory of our co-founder.
Thanks in large part to Glen and Michael Checkan, his business partner for over 40 years, we have a wonderful staff, great clients, and work we all believe in. So the future of ASI is very bright indeed. Glen set the bar very high; we are determined to maintain those standards, serve our clients to the best of our ability, and make that cowbell ring.
Operationally, ASI is just fine. Glen and Michael built a company that can carry on despite the loss of any individual. Emotionally, it is a different story. Only time will heal those wounds.
Kevin Drost
Manager, Preferred Customer Relations
Please let me know if we can assist you in any of your precious metals or foreign-currency needs. To send me an email, just click here. Or call me at 1-800-831-0007.
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