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Gold at Fire Sale Prices

Monetary Digest, August 1999

The Bank of England’s announcement of its plans to sell 415 tons of gold over next few years helped plunge the price of gold to 20-year lows. The day before the news release, gold traded as high as $290.00; however, two months later on July 6, BoE realized only $261.20 an ounce for the first 25 tons auctioned. Four more bimonthly 25-ton auctions will be held through March 2000, which will complete the first phase of sales totaling 125 tons. As for the remaining 290 tons, BoE has only said that they will be sold over the next few years.

The BoE said the sale was to “restructure” its reserve portfolio and that the proceeds will be invested 40% in dollars, 40% in the new euro, and 20% in yen. The anti-gold crowd praised the decision, saying that BoE would soon be earning interest on money that had previously been invested in a “sterile” asset. Not commented on, however, was that yen investments pay next to nothing as the Bank of Japan has driven interest rates nearly to zero in efforts to stimulate Japan’s devastated economy. Additionally, no one seemed to notice that the new euro has been sinking since its inception. BoE will get interest on euro bonds, but when time comes to sell, it may incur losses.

The drop in gold’s price defeated the stated purpose of the sale. World Gold Council’s Haruko Fukuda said, “At this price, the people of Britain are being short-changed by a staggering $600 million. Any interest earned over the next two years will be dwarfed by the scale of the losses already incurred on the value of gold in the reserves. It will take 3.5 years at current dollar bond rates of 5% to recoup this loss.”

The Brits can easily endure a $600 million economic loss from lower gold prices. But, for many gold producing countries, the losses are real and devastating. South Africa, once the world’s largest gold producer, is now a Third World country but accounts for 18.5% of global production. At today’s gold prices, however, some 40% of South Africa’s production is unprofitable, and 80,000 jobs are threatened.

In the HIPC (Heavily Indebted Poor Countries) group, which consists of 33 African nations and eight elsewhere, gold exports amounted to $1.3 billion 1997, equivalent to 2.4% of their total merchandise exports; if Nigeria, predominantly an oil exporter, is excluded, the proportion rises to 3.3%. And, the importance of gold exports to these countries is set to rise. It is estimated that for 13 HIPC countries gold will account for at least 5% of exports next year. Ironically, the IMF has proposed the sale of ten million ounces of gold with the proceeds going to provide debt relief to the HIPC countries.

The IMF proposed gold sale was widely discussed before the BoE announcement and, undoubtedly, has been responsible to some degree for low gold prices. Strong opposition has surfaced, however, because of fears that IMF sales will hurt the very nations they are suppose to help. Ghana, speaking for many HIPC nations, has urged the IMF to drop the idea. Many observers doubt that the 85% majority vote in the IMF would support the sales.

Furthermore, the U.S. can singlehandedly block the sale. Although Clinton has publicly endorsed the sale, Congress has the final say, and powerful opposition is growing. Rep. Jim Saxton, vice chairman of the Joint Economic Committee, supports a Republican bill to kill IMF gold sales altogether. Powerful Senate Foreign Relations Chairman Jesse Helms also has voiced opposition.

Even if the IMF sales are stopped, the gold market may suffer another blow in March 2000 when the Swiss plan to start regular sales that will dispose of 41.8 million ounces over several years. Yet, the Swiss sale is not a given as several hurdles have to be cleared.

First, Swiss Parliament has to adopt legislation regarding disposition of the proceeds. The present plan calls for proceeds from 16 million ounces to fund the Solidarity Foundation, the purpose of which has been defined as “being to combat violence and suffering on an international level.”

When the Swiss people approved on April 18 the new constitution that officially severed the Swiss franc’s link to gold and permits the sale of 41.8 million ounces, the uses of the proceeds were not revealed. In fact, the true intent of the Solidarity Foundation was deliberately left vague. Now, opposition has risen, and another referendum will be forced if 50,000 voters’ signatures can be mustered.

To some observers, the BoE’s restructuring its portfolio seems wise; to others, the IMF’s goal of helping HIPC nations is admirable. But, the Swiss people voting to sell 16 million ounces of gold “to combat violence and suffering on an international level” does not make any sense. The Swiss have never been foolish with money. Why now? Maybe because the propaganda prior to the April 18 referendum contained lies.

If the Swiss reconsider, gold could skyrocket. However, even if the Swiss sales begin, gold could still rise. All the news about gold is not negative — although one could think that from reading establishment publications, viewing its television shows, and listening to its radio programs.

The June Monetary Digest noted that a Chinese economist has called for the Bank of China to put its gold holdings in line with “other world powers.” China’s reserves are approaching $200 billion, larger than the U.S.’s reserves and second only to Japan. Presently, Germany and France have approximately 30% of their reserves in gold. (England now has 17% in gold but will have only 7% after the sell-off. The U.S. has nearly 54% — if you believe there are 261 million ounces at Fort Knox.) If China were to match Germany and France, it would mean a $60 billion investment in gold. At $300 gold (an easy number to work with), that is 200 million ounces. The gold producers and hedge funds that have sold forward gold (gone short) better hope that never happens. However, look at another possibility.

Worldwide, gold makes up about 16% of official reserves. If the ChiComs were to move from their current position of less than 3% of their reserves in gold to 16%, that would call for the purchase of about 100 million ounces. No one could fault them for that — as if the Chinese care what the world’s financial community thinks. And, there is still another Chinese factor.

The World Gold Council thinks that the Chinese people hold the potential to become major gold consumers in the next few years. Now, however, the ChiComs have restrictions on public ownership of gold. The WGC is working with the Chinese government to liberalize its gold policies, to deregulate distribution channels to permit joint-venture gold retailing. The likelihood of such a development is good because presently such retailing is allowed for platinum, diamonds, and other gems.

Similar deregulation in India earlier this decade boosted gold consumption there from 403 tons in 1993 to 737 tons by 1997. Over the past five years, China’s gold consumption has averaged 200 tons (6.43 million ounces). With liberalization, China’s gold market easily could climb to 15-20 million ounces annually. Not only does China have more people than India, it is economically stronger, and its people are culturally attracted to gold.

Two other Asian factors will increase demand for gold. First, the bulk of the damage on the gold market from the Asian financial crisis took place in late 1997 and early 1998. Total Asian demand in the first quarter of 1998 dropped 46% from the first quarter of 1997, but demand during the second and third quarters of 1998 slid only 5% from the year-earlier period. Now, Asian gold demand is approaching pre-crisis levels.

Second, circumstances are ripe for renewed Japanese gold buying. Between October 1998 and April 1999, Japanese bought some 60 tons because of economic worries, failed banks, and fragile pension systems. Now, the Japanese people are moving away from traditional bank deposits because, starting April 2001, government guarantees on deposits will cover only ten million yen, equivalent to about $80,000. For decades, the government has backed up all deposits in totality. Already, Japan’s banks are seeing a gradual reduction of time deposits larger than ten million yen.

Additionally, the Japanese have close to 100 trillion in yen invested in ten-year post office savings deposits that will fall due in the next two years. Most of these deposits are earning nearly 10%, but any deposits rolled over will pay a mere 1%. It is expected that some of that 100 trillion in yen will be invested in gold.

Finally, the amounts of gold from the BoE sale and the potential IMF and Swiss sales must be put in perspective. The Brits will sell another 100 tons through March 2000. That sounds like a huge amount of gold, but it is less than 4% of what the gold market will demand over the next twelve months. If the IMF ends up selling ten million ounces over, say two years, that will increase annual supply by less than 5%. Swiss sales would be more significant, but the Swiss would probably handle any sales more wisely than have the British.

If the Swiss follow the pattern set by the U.S. and IMF when together they sold 42.1 million ounces between 1975 and 1980, Swiss sales will be spread over five years and will equal about 8% of annual demand. The gold market is about twice the size it was in the late 1970s. Even if BoE, IMF, and Swiss sales run concurrently, supplies will fall short of demand.

Presently, new production and scrap recovery fall about 20 million ounces short of meeting demand. The difference has been made up primarily by forward sales, which now may total four years’ production. Some analysts say five.

Central bank sales, despite the hoopla, have not added a significant amount of gold to supplies. Since 1990, central bank gold holdings have declined 68.8 million ounces, for an average of 7.65 million ounces a year. On the other hand, if producers have sold forward four years production, they have added some 250 million ounces to the market. Those 250 million ounces were borrowed from central banks, artificially increasing supply.

But, the central banks expect that gold to be replaced. It cannot be returned for it has been sold and consumed. It must be replaced from either production or gold purchased from sellers. Either way, the producers that have sold short want low gold prices, which is contrary to what one would think.

All of which begs the question, “Who benefits from low gold prices?” Obviously, the jewelry industry, but it is not capable of influencing how much gold comes to the market. Other major beneficiaries would be the gold producers that have sold forward and their partners, the big bullion houses, which have close ties with central banks, especially with the Bank of England.

When the London Bullion Market Association put out a brochure in 1996, Eddie George, the BoE’s governor, wrote in the preface: “The Bank of England’s links with the bullion market have always been very close, and indeed, the origins of the emergence of London as the pre-eminent gold trading centre can be traced back to around the time of the Bank of England’s foundation some 300 years ago.” Now, those are ties that bind. It is not a stretch to think that the bullion houses could have influenced the BoE to sell just as the gold market was shrugging off the news of the possible IMF and Swiss sales.

Even if it circumstantial, evidence is strong that a concerted effort to depress the price of gold has been underway for years. The Gold Anti-Trust Action Committee (GATA) alleges manipulation and has retained a Philadelphia law firm to consider legal action. GATA says, according to one report, that it has evidence that the “price and supply of gold are being controlled by a cartel of Wall Street investment houses and bullion banks with the possible encouragement of the Federal Reserve and the U.S. Treasury.” Such an allegation may sound extreme, but the Securities and Exchange Commission has pursued Wall Street firms for manipulating stock prices involving billions of dollars.

Whatever the validity of such charges, the supply/demand fundamentals clearly are favorable to gold. The demand for gold exceeds production and scrap recovery by nearly 20 million ounces. Gold is selling below the cost of production, which is approximately $280. China, now an economic powerhouse, holds the potential to send the price higher, by either converting some of its reserves from dollars to gold or permitting its people to buy gold — or both. And, Asia is rebounding, renewing its appetite for gold.

Additionally, a declining — or even stalling — stock market will send investors into gold — and silver and platinum — in search of values. In fact, this is already happening. First time gold investors are entering the market every day.

Now is not the time to be scared out of gold by misleading negative news, contrived reports, and unfounded misconceptions. Gold’s fundamentals are solid, the best they have been in decades. Investors should take advantage to current low prices — a gift from the Bank of England.

American Gold Eagles remain the best way for individuals to invest in gold. They come in four sizes: 1-,1/2-, 1/4, and 1/10-oz ounce. Call Certified Mint at 1-800-528-1380 for price quotes.

Silver: The Brightest of the Precious Metals

Not only is silver the most light reflective of any metal, its future remains the brightest. Growing industrial demand, a natural limit on new production, and dwindling above ground supplies have converged to create a shortage that will lead to significantly higher silver prices in the near future.

The two major annual silver studies1, CPM Group’s Silver Survey 1999 and the Silver Institute’s World Silver Survey 1999, have been released. Although the statistics presented in the two studies vary somewhat, both support the thesis that the price of silver can be expected to rise. The CPM Group survey offers estimates for 1999 while The Silver Institute survey deals only with historical statistics. Serious silver investors should consider ordering one or both of the reports. However, The Silver Institute survey is confusing in that some of its numbers simply do not add up.

Additionally, the CPM survey covers topics that the Silver Institute report fails to mention. For example, CPM reveals that investment banks use their clients’ silver to back their own futures sales. Such practices are damaging to the clients because the futures sales put downward pressure on the clients’ investments. Interestingly, shortly after the Buffet purchase was made known, Buffet said that he did not plan to lend his silver for short sales, noting that such practices were contrary to the purpose of investing in silver. Investment banks, however, have no qualms about using their clients’ silver for their own short-term benefit.

Also revealed is that many banks sell short five to ten times the silver they hold. There are two things wrong with this practice. First, the banks are collateralizing their short sales with someone else’s silver, although, undoubtedly, the clients signed papers permitting the practice (but also undoubtedly without understanding the results!)

Second, the investment banks are employing the old goldsmiths’ practice of issuing more paper than there is metal to back it up. This practice can be dangerous if buyers of the futures contracts seek to take delivery. This is especially so now due to the massive deficit, dwindling stockpiles, and the prospects for more purchases by large investors.

Last year, when Warren Buffett began taking delivery of his 130 million-ounce purchase, some of these banks suffered losses as they did not have enough silver to make good their futures sales. Most futures contracts are settled for “paper,” which means checks are written to cover the losses, and positions are rolled forward to future months. However, when a buyer wants delivery (instead of rolling his position forward),the sellers have to come up with the silver. With the Buffett purchase, the sellers that got stuck with the delivery notices had to come up with physical silver, and that pushed the price of silver above $7.

CPM Group put the industrial demand in 1998 at 822.2 million ounces and new production plus scrap at 624 million ounces for an “industrial” deficit of 198.2 million ounces in 1998. Add in government sales of six million ounces, and supplies hitting the market totaled 630 million ounces, reducing the deficit to 192.2 million ounces. However, throw in the 25 million ounces turned into coins, and the overall deficit climbed to 217.2 million ounces. This is a huge shortage that cannot be bridged simply by opening new silver mines.

Approximately 75% of new silver production comes as a by-product of gold, lead, zinc, and copper mines. The amount of silver coming out of the ground from these operations is determined by the prices for the primary metals, not the price of silver. Silver could triple in price to $15, and the silver obtained from such operations could drop due to lower demand for the primary metals.

Future silver production can be fairly accurately forecast. Before a decision is made to open a mine, the operators have a quite good idea of the deposit’s composition, how much ore will be produced, and when mining will begin. In Mexico several mines will commence operations over the next few years. One zinc mine will begin producing about two million ounces of silver annually in 2000, and another will begin yielding a comparable amount the following year. Additionally, an old pure silver mine in Mexico is being reworked and is expected to contribute 4.5 million ounces annually. The Silver Institute’s survey projects over the next five years that new silver production will bring some 86 million ounces annually to the market. That is an annual growth rate of slightly more than 3%.

Although CPM calculated last year’s overall deficit at 217.2 million ounces, it projects 1999’s shortfall to decline to 177 million ounces. CPM speculates that higher silver prices could draw out additional mine production and secondary silver, while demand growth is projected to taper to 1.3%, amounting to 832.8 million ounces. However, CPM’s 1998 Silver Survey forecast a similar decline in the deficit for 1998, citing the same reasons. However, a 1998’s deficit turned out to push 200 million ounces.

Even if the shortfall declines to 177 million ounces a year, it would still be a huge drain on existing stockpiles. According to CPM, as of December 1998, the world’s commodities exchanges’ warehouses, private depositories, and vaults of commercial users held some 359.8 million ounces of silver. Government vaults safeguarded another 161.5 million ounces. Those numbers are relatively easy to ascertain. However, “unreported stocks,” which consists of 100-oz silver bars, 1-oz silver rounds, circulated 90% silver coins, etc. held by investors, are at best “guesstimates.” Regardless, CPM estimates unreported stocks at 412 million ounces, putting above ground silver supplies at 933.3 million ounces.

Although 933.3 million ounces is an enormous quantity of silver, in the world silver market it is not. In 1990, above ground silver supplies stood somewhere around 1.8 billion ounces. In nine years, the production deficit cut supplies in half. During this time, the deficit averaged 140 million ounces, a rate that will consume the remaining 933.3 million ounces in less than seven years. Over the last five years, the deficit averaged 194 million ounces, a rate that will consume 933.3 million ounces in less than five years. The other significant factor for those years was the price of silver, which averaged $4.81 per ounce.

Low prices do not encourage cost savings; therefore, since 1990 nearly one billion ounces of silver were turned into mirror backings, applied to computer keyboards, used to make electrical contacts, spread across silver halide photographs, etc. Industrial uses consume more than 800 million ounces annually; however, less than 200 million ounces are reclaimed each year. This means that each year over 600 million ounces are used in applications that cannot be reclaimed or will be years before they can be reclaimed.

Additionally, low prices for this decade have not encouraged exploration for silver. Besides, primary silver deposits are relatively rare, and most primary silver deposits are located near the surface, meaning that the easy ones have already been discovered. Therefore, pure silver mines cannot be rushed into production even when silver’s price rises.

Enjoying low silver prices for the last nine years, silver users have not emphasized conservation; consequently, consumption grew tremendously. It should be pointed out, however, that high silver prices in the 1980s resulted in efficiency cuts. In fact, five of the years for that decade saw industrial silver consumption decline. Therefore, because of efforts in the 80s, many industries are about as efficient as they can be in their silver consumption.

The stage is set for higher silver prices. Even without adverse political developments, financial turmoil, or Y2K problems, the industrial demand for silver will push silver prices higher over the next few years, perhaps over the next twelve months. In fact, the graph clearly shows that silver has separated from gold. In early 1993, the price of silver hit $3.50 and gold $325. Now, silver is solidly above $5.00, and gold recently touched $257. Additionally, no huge stockpiles overhang the silver market.

Most investors want price predictions, so here it is: CMI sees $8 as easily attainable. At $8, many investors will unload, causing any rise to stall. However, if the price rise comes with a severe stock market downturn or other calamitous event, silver could slice through $8, even $10, in a matter of months.

When the sellers who sold short to Warren Buffett scrambled to come up with the silver to deliver, silver climbed above $7. During that climb, investors unloaded huge amounts of silver. The next move up, however, should make it to $8 before investors again turn sellers. Those sellers will be investors who have long endured low silver prices. Recent silver investors are probably looking for double digit silver prices. Yet, adverse economic developments could reverse all investor sentiment, causing all silver investors to hold regardless how high the price climbs.

Finally, it should be noted that private investors fed the production deficit over the last nine years. No huge government sales bombed silver. Silver was driven down by individual investors who jumped ship one by one. Additionally, today millions of young, well-heeled investors could not care less about silver. Frankly, they have had no reason to because stocks made them huge profits. However, Warren Buffett’s 130 million-ounce purchase caused many to take notice. A sinking stock market, or even one that fails to go higher, could send stock investors looking for undervalued investments. Silver — and gold — certainly meets that criteria.

For investment purposes, CMI recommends 100-oz bars; for Y2K protection, investors should choose between circulated 90% silver pre-1965 U.S. coins and 1-ounce silver rounds, with a slight edge going to the 1-ounce silver rounds.?

Y2K Fears Subside Or have they?

A year ago, Y2K fears abounded as concerned people planned and prepared for the worst on January 1, 2000. Nowadays, however, Y2K seems to be a non-issue. What happened? Have all the world’s computers been made compliant? Probably not. It is more likely that most people have fallen victim to a massive propaganda campaign designed to alleviate fears about Y2K.

Who has not seen headlines declaring “Nuclear arms are Y2K compatible” or “Y2K test a complete success.” And, who has not received letters or brochures from his bank declaring that it “will be ready” for January 1, 2000?

If Y2K turns out to be less of a problem than some anticipate, then all is well. Some people will own generators they do not need; others will have enough food for the rest of 2000; some will wonder what they were thinking when they built that bomb shelter in the backyard. These people will have gone to unnecessary time, effort, and expense. So, how much preparation is enough? Each individual has to answer that for himself.

If, on the other hand, Y2K creates serious problems, i.e., electrical outages, bank closures, food shortages, about 260 million Americans are not going to be ready. Then, who do they blame, the government, the news media, themselves? Many concerned Americans have had their fears set aside by bank clerks. Here, Gary North is right. “Your local banker doesn’t have a clue about how the bank payments system works.”

Deciding how much preparedness for a calamity that may not happen is difficult. Yet, making absolutely no preparation borders on stupidity. Those making no plans are putting their lives — and the lives of their loved ones –in the hands of the government. Not a smart move.

Interestingly, a year ago, reports were everywhere about various government agencies being behind in solving Y2K problems. The outlook was dismal. Now, every agency claims that it will be ready. And, the business community makes the same claims. Yet, in mid-July Clinton signed into law a bill that will limit lawsuits related to Y2K computer problems. Supposedly, the law gives suppliers 90 days to repair Y2K-related problems before a lawsuit can be filed.

So, have Y2K fears gone away? Maybe not. On June 2, a Gallup poll funded by bank regulatory agencies revealed that 20% of those surveyed believe that the banks will close in January. Another 47% expect bank runs before year end. The poll was taken in February, and if it has any validity, it will take very little to trigger a banking panic. There had better be no hiccups before then.

U.S. Economy on Track

The U.S. economy continues to chug along like the little train that could. More accurately, it is the big train that has now been credited with having averted a worldwide recession. And, how did we do that? Well, first our engineer, Alan Greenspan, knew just how much fuel to stoke the fires with so as not to cause the train to go too fast. This, of course, as everyone knows, has resulted in a robust economy and the greatest stock market in the history of the world.

In all fairness, American consumers helped Greenspan in forestalling a world recession by buying everything Asia produced. Of course, that pushed our balance of trade deficit through the roof. But, we’re told that is good. It just proves what a strong economy we have — and how magnanimous we are, helping out the Japanese and the ChiComs. Besides, consuming is much more enjoyable than producing. So, you can say we are taking advantage of those poor, hard-working Asians. They make the products; we consume them.

Of course, in the end such economic activity brings on dire consequences, like the Japanese and ChiComs owning between them more than $400 billion in U.S. treasuries, on which American taxpayers pay interest. Hey, but this is petty. After all, we’ve gotten along great with the Japanese for the last fifty years. And, the ChiComs, our new friends, aren’t we obligated to help them out by buying their second-rate products? They must be our friends, considering how many have visited the White House and have participated in our electoral process by generously donating to Bill Clinton’s 1996 reelection campaign.

Now, though, it appears that consumerous Americanas may be over extended. You see, we have a negative savings rate in the United States. Americans spend more than they earn. How do they do that? With multiple credit cards and by borrowing from companies such as Di-Tech, which will lend 125% of the purchase price of a house. Right now, you’re probably thinking back to how you had to save and scrape to come up with a 10%, even a 20%, down payment to buy your house. Forget those days, you Neanderthal. Alan Greenspan is driving this train, and he knows just how much money with which to fuel the economy to get us to utopia.

Di-tech can make such easy loans because Greenspan has been loose with money for years. In the early 90s, he had to keep our embryonic economic recovery going; that took money. In 1997, he had to stave off a global recession following the Asian crisis; print a little more money. Then, he had to see to it that the collapse of Long Term Credit Management did not destroy the bond and the derivatives markets. Still more money.

All the time he warned against inflation (rising prices) while everybody else’s heads spun, looking for signs of inflation. As the train’s engineer, Greenspan gets to look farther down the track than the passengers. Besides, they are busy consuming. Besides, Greenspan’s smarter than the average Joe. (Note his wisdom regarding gold.)

During Congressional hearings in May, Greenspan was asked if the U.S. should keep its gold. He answered, “This issue was debated in the U.S. in 1976, and the conclusion was that we should hold our gold. And, the reason is that gold still represents the ultimate form of payment in the world. It is interesting that Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody.”

The fact is we have inflation. It is just that it has not shown up in areas we are used to looking, primarily commodities prices. That is because of overproduction in many commodities. The inflation Greenspan sees is in the financial sector.

All those extra dollars had to go somewhere. So, they went to the stock market, to real estate, to credit card companies, to Di-Tech. No one cares about inflation when it is in stocks and real estate. In fact, it is not even called inflation. It’s called a bull market, a healthy real estate market. It’s called a consumer-driven economy.

But, a consumer-driven economy is very fragile. It is based on consumer confidence, which can be destroyed easily, a declining stock market, rising interest rates, any adverse development. Maybe even moderate Y2K problems. Frankly, this train could be derailed easily; there is just no way of knowing what will do it.



  • Trade old U.S. gold coins for gold bullion coins. Although not discussed in this issue, trading old U.S. gold coins for bullion coins, preferably Gold Eagles, remains a good move. The basis for this recommendation has been covered in prior issues of Monetary Digest. If you would like a back issue that covers this subject, call CMI.
  • Trade silver dollars for 1-oz .999 fine silver rounds or 100-oz .999 fine silver bars. The premiums on silver dollars have declined significantly, but silver dollars should be traded.

New Investments:

We rank the metals investment potentials as follows:

  1. Silver
  2. Gold
  3. Platinum


Although silver holds better upside potential than either gold or platinum, its bulk and weight present problems for some investors. However, if you can handle silver, it should be your first choice. This Monetary Digest clearly defines silver’s prospects. Industrial demand has exceeded production each of the last ten years and now the production deficit threatens a critical shortage. Only higher prices can bring enough silver to the market to meet future demand.

  • One-ounce .999 fine silver rounds for Y2K purposes.
  • One-hundred ounce .999 fine silver bars for investment purposes.
  • Pre-’65 circulated 90% U.S. silver coins. The premium has come off these coins—as the last two issues of Monetary Digest predicted. They are now reasonably priced, both for Y2K protection and investment. However, 1-oz silver rounds hold a slight edge.


Despite silver having been used more as money than has gold, gold remains the ultimate safety haven to many people, such as Alan Greenspan. It is compact, making it easy to store and conceal great wealth. It is universally recognized and can be converted to cash easier than stocks. With gold, you have money under all circumstances. Today’s low prices make gold truly a bargain.

  • American Gold Eagles. Because of Royal Canadian Mint price increases, Maple Leafs cost more than Gold Eagles. There is no reason to pay the higher prices, unless you simply prefer pure gold.

Avoid the European coins of odd weights that do not even have their gold contents stamped on them. Besides, European coins carry higher premiums than comparable fractional-ounce Gold Eagles.


Platinum is carrying a premium of nearly $100 over gold, or approximately 38%. Although the price of platinum could shoot higher for many reasons, conservative investors should try to buy platinum when it trades within $40 of gold, or less than 15%.

Like silver, platinum is essential to many products we take for granted. By some estimates, platinum is used in the production of 20% of today’s products. Fuel cell developments should increase tremendously the demand for platinum.