New Book - SILVER: What You Need to Know to Get Started

Get my latest book on Silver - what you need to know to get started @ MPH and Times Bookstore; or contact me directly. RM39.90 only ea.

About the Author

Chris Gan

has many years of experience in investments, having worked as an investment analyst early on in his career, a corporate consultant and has also lectured finance and investments at two established universities. He was a regular columnist for the Edge’s Personal Money magazine from 2000 to 2004, educating the investing public on investment techniques. Chris has written numerous articles on unit trusts and investing, which have been published extensively in professional journals and other publications. In addition, he is the author of three books, one of which “Getting Started in Investment: A Smart Guide” has now sold more than 10,000 copies. He is also regular speaker and trainer for professional bodies. Chris has a keen interest in silver and gold, both as an investor and as a researcher.

An Innovative Accumulation Program– Utilizing Silver

There is now a growing interest in silver is as a store of value; due to this popularity governments around the world have started to mint silver coins again. This interest is in part driven by the uncertainty surrounding fiat currencies globally. The Silver Accumulation Account is an account where the investor agrees to put aside a certain amount of currency in silver each month. Silver accumulated in this account can later be sold back, for cash or withdrawn as physical metals.

 

What is dollar cost averaging

Dollar cost averaging is an important approach where a certain amount of money is put aside on a regular basis, usually monthly into an existing account. In this case, the money is set aside to purchase a set amount of silver coins for example, 50 or 100 grams. This approach takes advantage of the only certainty in the commodities market – the prices will fluctuate, up and down over time.

By buying a fixed amount of silver e.g. 50 grams at a set interval, you are buffering the ups and downs of the silver market. Your fixed amount of silver per month will cost more when the prices are high, and cost less when the prices are low. That means, by committing to purchasing a fixed amount in weight, the average price paid can be lower than the average market price of silver.

 

Start a regular savings plan

A regular savings plan is a disciplined approach to take advantage of the benefit of dollar cost averaging and to make above average long term returns. With this plan, a regular amount of money is set aside to purchase a fixed amount of silver coins.

 

Illustrative Example

Assume that an individual in 1990 decided to put aside some money every month, to purchase 50grams of silver, regularly for the next 20 years.

The price at which he purchases the silver will be silver spot price plus a 30% premium (for physical). So, each year, he will have 600 grams of silver (or approximately 19.2oz) in his vault / storage: over the next 20 years he would have accumulated 12,000 grams of silver (or 384oz). We have assumed that the silver purchased on a monthly basis is made at the average spot price (plus premium) to facilitate the illustration. Below is the calculation of the gains and annual compounded rate (assuming that he decided to dispose of his accumulated silver today at current spot price of c. $21.00/oz).

Silver Prices (1990-2009)
Year	Average (Spot) $	Physical/oz $	50g/mth $	cost /yr	g/yr	Oz/yr
2009	14.66	19.06	30.49	365.91	600.00	19.2
2008	15.02	19.53	31.24	374.90	600.00	19.2
2007	13.39	17.41	27.85	334.21	600.00	19.2
2006	11.57	15.04	24.07	288.79	600.00	19.2
2005	7.22	9.39	15.02	180.21	600.00	19.2
2004	6.65	8.65	13.83	165.98	600.00	19.2
2003	4.85	6.31	10.09	121.06	600.00	19.2
2002	4.60	5.98	9.57	114.82	600.00	19.2
2001	4.37	5.68	9.09	109.08	600.00	19.2
2000	4.95	6.44	10.30	123.55	600.00	19.2
1999	5.22	6.78	10.85	130.25	600.00	19.2
1998	5.54	7.21	11.53	138.38	600.00	19.2
1997	4.90	6.37	10.19	122.23	600.00	19.2
1996	5.20	6.76	10.81	129.78	600.00	19.2
1995	5.20	6.76	10.81	129.72	600.00	19.2
1994	5.29	6.87	10.99	131.92	600.00	19.2
1993	4.31	5.61	8.97	107.65	600.00	19.2
1992	3.95	5.13	8.21	98.50	600.00	19.2
1991	4.06	5.27	8.44	101.25	600.00	19.2
1990	4.83	6.28	10.05	120.60	600.00	19.2
			Total	$3,388.79	12000.00	384
Premium to spot	30%
(assumption)			Value today	$8,064.00	Price/oz	$21.00
			Gain	$4,675.21	138.0%
			ACR=	4.43%	over 20 yrs
Source: The Silver Institute, London fix

 

The total cost of accumulating 12,000 grams of silver coins: ($3,388.79) while the current value of the silver (@$21.00/oz) would be $8,064.00, giving a gain of $4,675.21 (or 138% over 20 years). Hence, the annual compounded rate of return (ACR) is 4.43% p.a. which is very commendable given the ups and downs we have experienced in the global financial markets over this period.

As silver prices continue its upward trend, the returns from this accumulation account will continue to improve.

**

Chris Gan

1 Oct 2010

The Strategic Role of Gold in Diversification

What is your motivation for buying gold? Is it for appreciation or for diversification? Most people who buy gold today tend to be attracted by the fact that gold in US dollar terms has gone from trading around $400/oz in 1997 to $1250/oz today, an increase of more than three times. In other words, appreciation is the main focus. But some are now concerned whether gold price is “too high”? Again, price is all relative. But, there is another reason to buy gold and that is to diversify your wealth.

As many investors know, gold is a “safe-haven” asset that can actually increase in value during stock market crisis and times of uncertainty. In an environment of fear, high oil/ energy prices gold seems to be a natural destination for investors. Gold as a quasi currency, given its quoted in US dollars and primarily bought by non-dollar domiciled individuals like those in India and China, tend to appreciate when US dollar falls. But apart from being a safe place to store your wealth like a kind of insurance, are there any other benefits of including gold in your portfolio, together with stocks, bonds, properties and others?

As we show in this article, gold has value as a diversifying asset, and that we should include a percentage of it in our portfolio. Empirical evidence suggests that up to 4-5% of portfolio weight should be gold as it adds diversifying power across the risk spectrum. One of the reasons for this is that gold as an unbiased, representative commodity exhibits very low or negative correlation with other major assets like stocks. There is further evidence to support including gold in your portfolio and that this would be useful for investors with low to medium risk appetites.

The appropriate allocation to gold is dependant on risk level of the portfolio:
• For low risk portfolios: 1-2% of portfolio weightage is significant and useful component,
• For a balanced portfolio (i.e. medium risk), an allocation of 2-4% depending on assumptions would be sensible,
• For high risk portfolio, it is harder to make the case for gold’s inclusion as it is not the asset with the highest long term expected returns. But, including gold may provide stability in poor markets and economic climates which can enhance the compound return of an aggressive strategic portfolio.

In summary, whether you are in a low, medium or high risk category, research has shown that it is important to have some gold in your portfolio as a valuable diversifying asset.

What is diversification?
It is another way of saying” don’t put all your eggs in one basket”. And in terms of your wealth, it means: don’t put all of your money in the same place. Hence, it’s not advisable to have all your money all tied up in stocks and nothing else. In the event of a severe market downturn like in the financial crisis of 2008, all your wealth could be wiped out. Similarly it is not wise to hold all your money in a current or savings account, as the real returns would be dismal and not likely to beat the inflation rate.

Generally, it is argued that the returns from financial assets like stocks, bonds and others display random volatility. That is, the ups and downs are unpredictable, and do not display any particular trends. One of the factors that affect the returns on investments is risk. Therefore, it is important that portfolio risks be reduced through diversification. In Modern Portfolio Theory (MPT), research papers by Markowitz, Modigliani & Miller say that: it is possible to reduce portfolio risk without giving up returns. This is done by broadly diversifying into different asset classes, which are less than perfectly correlated with each other. We can diversify across asset classes, sectors, regions or countries, and styles in order to achieve this diversification.

Diversification, in short, is about getting higher returns per unit of risk taken; this is done by building a well diversified or efficient portfolio.

For an exposition of the mechanics of this, refer to Appendix (“efficient portfolio”).

What is asset allocation?
This is the process of deciding how to distribute your wealth among the different asset classes. There are many different assets that can be included in your portfolio. As you accumulate your wealth thorough savings and investing, you may want to allocate some to certain asset classes; overall the portfolio of assets should help you achieve your financial goals, be it to retire well or to fund your kid’s education.

In essence, asset allocation or how you allocate your wealth is the key to long term portfolio performance. Approximately 90% of success depends on asset allocation, only 10% on security selection . In order words, only 10% of the success of your portfolio’s performance is dependant upon how well you select the security whether it is picking right stocks or flipping houses. The rest is about what type of assets you allocate wealth to, and the big question is: Does gold have a strategic role in portfolio diversification? The answer is yes.

Strategic role of gold in diversification
It is well known that gold is a valuable tactical asset. It is highly susceptible to geopolitical factors: during times of relative stability, it is useful to keep a small allocation of physical gold in your portfolio. During times of prosperity in the stock market, the yellow metal may not perform as well as non-physical investments such as stocks, and generally may under-perform. But during periods of extreme pessimism, and financial crisis, gold tend to do extremely well: for example during 2008, gold broke $850/oz as the sub-prime crisis unfolded and it promptly marched past $1000/oz. In 1980’s gold rose to its heady heights on combination of inflationary fears, the oil price and Russians invading Afghanistan. Silver was even more rampant – hitting its high of $49/oz in nominal terms during this period.

With the exception of commodities, gold is not a substitute for other assets. As such it may pay to replace the allocation to commodities (empirical evidence^ suggests up to 4-5% of portfolio weight ) with gold as it adds diversifying power across the risk spectrum. One of the reasons for this is that gold as an unbiased, representative commodity exhibits very low or negative correlation with other major assets like stocks. In other words, if the Dow Jones Industrial Index (DJIA) were to take a spectacular tumble, the likelihood of gold doing the same is relatively low. More likely than not, gold price may even move up as uncertainty/shock in the stock markets, may drive up the fear index, hence, some significant money could flow into gold holdings instead.

In the report “Gold as a Strategic Asset for UK Investors” by Rozanna Wozniak, World Gold Council, 2008, suggests that over the long run, gold competes on the basis of its diversification qualities rather than returns. And that “a strategic allocation to gold is nevertheless optimal and this allocation is statistically significant for low to medium risk investors”. In other words, there is evidence to support including gold in your portfolio and that this would be useful for investors with low to medium risk appetites.

The appropriate allocation to gold is dependant on risk level of the portfolio:
• Empirical findings by NFA show that a small allocation to gold, in order of 1-2% is significant and useful component of a low risk portfolio,
• While gold is sensible in a balanced portfolio (i.e. medium risk) in the order of 2-4% depending on assumptions.
• For high risk portfolio, the report finds that its harder to make the case for gold’s inclusion as its not the asset with the highest long term expected returns, However, they found that gold may provide stability in poor markets and economic climates which can enhance the compound return of aggressive strategic portfolio.

In short, it is important to hold some gold in your portfolio – whether you are in a low, medium or high risk category, as the value of gold as a diversifying asset is well documented.
**
“When we have gold we are in fear, when we have none we are in danger”
- English proverb.

Chris Gan
21 Sept 2010

Appendix

The aim of diversification is to build an efficient portfolio
– Assume normal distribution & using expected return, standard deviation, and covariance to develop this,
– By combining different assets with different return/risks.
By shifting the efficient frontier i.e. from B to A – we get the same risk but with higher returns. Key: Is to add less than perfectly correlated assets to portfolio. Diversification is the only “free lunch” in finance (same price but more value).

^Gold as Strategic Asset, New Frontiers Advisors LLC, World Gold Council, Sept 2006

Commentary: Double Dip Recession: a Boon for Gold

The view that the global economy is heading for a double dip recession is fast gathering momentum. Nouriel Roubini, the professional economist credited with predicting the subprime crisis in 2008 is one of the main proponents of this view. He says that we are in for a rough ride, as the impact of massive fiscal and monetary stimulus by governments especially in developed countries, since the 2008/09 recession wanes. And, this will likely be a boon for gold, which is not only regarded as a hedge against inflation, but more so as a hedge against uncertainties and volatility.

Threat of double dip recession hangs over investors

Despite the equity markets rallying this week on the back of renewed optimism of a global economic recovery as seven out of 91 European banks passed their “stress test”, the threat of a double dip recession still hangs over most investors, like Domicile’s sword.

Gold is up 8.6 percent this year and set a record $1,265.30 an ounce on 21 June as investors sought to protect their wealth against the European debt crisis and on concern that the global economy may slow. However, demand remains strong as physical demand came in strongly as gold hovered around the $1200 per ounce levels.

U.S and advanced economies may experience subpar growth

It is argued that developed countries such as U.S and U.K which have been artificially propped up by government stimulus since 2008 / 2009 will face some strong headwinds as the positive impact wanes. And it could well fall back into a deep recession or what is known as a double dip sooner rather than later. This is analogous to like having a heavy dosage of painkillers when your body was under attack as a result of illness, suddenly wears off.

The huge budget deficits and public debt which economies like the U.S have chalked up from its stimulus plans, will lead to a massive deleveraging in the public sector. The Obama administration rolled out close to $1.6 trillion of different sorts of fiscal initiatives, adding to the country’s public debt which has ballooned to a staggering $13 trillion. The private sector which is also highly geared especially in the housing and credit sectors has not even started to be weaned off its high dose of easy debt. All this will likely to lead to households having little left for consumption and investments. Hence, growth in the advanced countries will be anaemic and below its long-term trend.

Countries which have spent too much and “lived beyond their means” like U.S, U.K and Greece with the urgent need to delever will spend less, consume less, and import less moving forward. This will have a massive negative impact on Asia, as its exports will not rebound as strongly as expected as a result. As such emerging economies will also suffer lower growth rates, as its exports will remain weak.

Emerging countries like China may not be able to compensate

Other the other hand, countries with high savings (and high statutory reserves) like: China, Germany and Japan will not be able to compensate for the deleveraging in developed countries by spending more. These countries are already constrained by their own domestic economic and social issues, and have spent massively in their first round of stimulus post the 2008 crisis.

Hence, the recovery of global economies in terms of aggregate demand will remain weak, and overall, lower growth can be expected.

Already 2Q 2010 data is showing signs of a slow down. This will only accelerate in second half of 2010 as the effects of fiscal and monetary stimulus subsides. Incentives like ‘clunkers- -for-cash’ and others would have been used up, while the labour market will continue to be weak as unemployment in the U.S remains high at c. 9%.

Developed countries could be looking at a U-shaped recovery or at worst, prolonged L-shaped recession.

Summary of outlook

Although slower growth in U.S, China, Japan and Eurozone may not necessary lead to a massive global contraction, but it does puts it in a vulnerable position to being tipped back into a full-fledged recession.

Potential shocks which could lead to double dip recession

Eurozone sovereign debt could worsen; a severe asset price correction could lead to increased global risk aversion, volatility and financial contagion. Roubini argues that this vicious cycle of asset price correction, weaker growth could lead to further price declines, and as a result, the global economies could fall into further recession. So, those proponents of a V-shaped recovery would appear to have been misguided. Asia especially China which is seen as the saviour to the rest of the developed world may not be able to “pull the rabbit out of the hat” this time. We could well be running out of options: for the countries already massively indebted and pump-primed their economies with stimulus, additional quantitative easing or printing more money may make no difference. The sick man is already so pumped with painkillers, antibiotics, and other medication, that giving him a stronger dose may not help but may instead make him even worse.

A Boon for Gold

By year end, gold will post its eleventh year of straight gain, adding 8.6% year-to date. With the global economy facing the prospect of falling back into a prolonged recession, investors are likely to seek refuge in this precious metal, and hence this could create potential upside for the metal.

Volatility as measured by the VIX is increasing, and gold, which continues to be preferred as a refuge for economic uncertainty, is also riding the uptrend (see chart below).

A poll of analysts and traders by Reuters showed that they expect gold price to rise next year by another 7% to a median of $1228 per ounce. This was up from $1150 per ounce when polled in January 2010. Gold hit a high of $1264.90 per ounce during the height of the European debt crisis.

The resurfacing concerns over recessionary conditions should keep investment demand strong for gold which is a good hedge against market volatility and vulnerability for investors. ETFs like SPDR Gold which have seen hefty inflows in April and May 2010, stabilised in June 2010. The gold market will continue to derive its strength from investment demand as investors seek to protect their capital against further economic pitfalls, and near zero interest rates in U.S (as Feds keep rates steady).

Although the US dollar has recovered somewhat from its bottom (vs. other major currencies), gold prices have also bucked the trend. Gold prices are also higher now despite the US dollar’s appreciation. the decoupling effect suggest that investors are still concerned about the overall health of the economy, and seeking safe-heaven in gold.

Gold vs USD

Over the longer term as long as global growth remains uncertain, with the possibility of countries like U.S slipping back into a prolonged recession, the demand for gold should remain strong.

**

Is Gold Really Expensive?

Perhaps the most common argument right now against investing in gold is that it is too expensive. The price of gold per troy ounce in US dollar terms have hit one high after another, and now hovers around US$1200/oz. And as such, one may be tempted to think that it’s now too expensive to invest in gold. But can you afford to wait, and hope that the price will fall?

The argument of whether it’s expensive or not is a problematic one: price is relative. It depends on what you compare it to.

In currency terms:
• From 1995 to 1998, gold declined 25% in USD terms but, it gained 7% in terms of Japanese Yen, and 20% in South Africa Rand. So, did gold price declined or did it increased in value during this period? It depends on the relative currency, right?

To say that gold is expensive in US dollar terms is to say that the dollar is too cheap. Hence, what we should be taking about is not really the price of gold, but the value of gold. It is a question of valuation, and in order to do so, we need to have some benchmarks to determine whether gold is expensive, cheap of fairly valued.

As famed investor Warren Buffett says: “Price is what you pay, and value is what you get”. If the value is less than the price, then buy; otherwise it is time to sell. Although he was referring to stocks, the same principle can be used to value other assets including gold.

Let’s take a look at how gold prices compare to price of some common asset classes; this would give an indication of whether it’s over-or-undervalued.

1) Gold vs. a basket of currency
Gold is a special metal which is part commodity and part money. And, as money, it’s used as a store of value. But has it been a true store of value? This is an important question for those considering investing in bullion. This is more so since gold prices can fluctuate widely over time. One way of gauging gold as store of value is to compare it against a basket of currencies over time.

Against a broad basket of 29 currencies, gold prices remained more or less constant throughout 1990s. During this period the US dollar appreciated as a result of large investments into the country hence, gold expressed in dollar terms fell. But if we take out the impact of the US dollar, we see that gold as storage of value and a safe haven remain intact; the easiest way to demonstrate this is to compare gold prices in terms of currencies that are subject to financial turmoil like the Indonesian rupiah or Mexican pesos. Investors who had gold in their portfolio were substantially better off.

Example: Mexicans saw gold prices rise by 100% during 3 months during the 1995 crisis. Indonesians saw their prices rise 300% during the 7 months during 1998 Asian financial crisis, as their local currencies lost tremendous value.

But, just because paper currencies have devalued against gold does not tell us anything about whether gold is expensive or whether paper money will lose more value in the future.

So, we will need to compare gold against other tangible assets.

2) Gold vs. crude oil
This is one of the most popular but relevant comparison. However, it does have its flaws as the global supply of oil as we know is diminishing through consumption while the supply of gold is not (as it is never really consumed). Since the dawn of time till now, there’s approximately 166,000 tonnes of gold above ground

(Gold Council estimates).

But, comparing gold prices against oil is still interesting and gives some insights to its long term value:
• The amount of gold needed to buy per barrel oil has been relatively stable over time.
• Since 1900, average gold price / barrel of oil was 0.05 ounces. This is like the long term average.

Currently, the current price is about 0.06 ounces which suggest that gold is slightly cheaper when expressed in terms of oil (or oil is expensive expressed in gold). Not surprising given we know that oil prices is determined by supply which is diminishing through massive consumption in last few years with the emergence of China and India as new super economic powers.

3) Gold vs. house prices
In some countries like Vietnam, you could literally walk in and buy a house, and in exchange pay in gold (based on weight). So, we can also work out the purchasing power of gold in terms of exchange value for property.

Below is the price of an average single family home in US and UK expressed in term of an ounce of gold. There is no noticeable upward trend in the house price index expressed in gold and also the current price would suggest that house prices are already cheap compared to gold (recall that house prices fell drastically from the peak as a result of the sub-prime crisis).

4) Gold vs. Stocks
The Dow Jones Industrial Index (DJIA) is the oldest stock index introduced in 1886 and is very similar to gold in that dividends are not included in its computation (gold also doesn’t pay dividends). It represents a good benchmark to gold for investments.

In 1900, the ratio of gold to DJIA was 2 i.e. it takes 2 ounces of gold to buy the whole DJIA. It remained at below 5 ounces for next 25 years, and shot up to 15 during the bull of 1920s. After the crash, it went down to 3 ounces of gold. By 1950s the ratio was rising and back up to 25 in 1965. In 1970s, it fell sharply and by 1980s when the US economy recession started, it fell to almost one. During the tech bubble of 2000, the ratio was as high as 35 ounces for the entire index.

The current value is around 8 ounces. As the long term average is around 5 ounces, gold is still not overvalued compared to US equities.

5) Gold cover ratio
This is perhaps the most interesting comparison. It is often said that gold is part commodity and part money. But nobody really believes that gold is a commodity like copper which trades at $6,900 per tonne. A tonne of gold would cost $38.5mil so it’s difficult to imagine that gold would be regarded for only its physical properties.

“Gold would never have attained its position as supreme monarch of monetary systems without its unique attributes, yet the demand for gold became so insatiable because it was used as money”

If we regard gold price as continuum ranging from commodity at low-end to full fledged money at the high end, we can work out how much gold will be needed to “cover” the amount of money in the system. Post the 2008 sub-prime crisis, the US Federal reserves has embarked on quantitative easing to ensure that financial system did not crash, and would resume its growth path. What it means is simply, they have printed a lot of money (not bucket loads, but in the trillions).

To cover 100% of all banknotes and coins circulating in U.S: then gold prices should be at $3000/oz. If we included monetary substitutes like cheque accounts; gold prices would need to be around $6,000/oz to cover all the money. If it’s M2 (which includes everything - savings, deposits, and others), the price would jump to a whopping $30,000/oz! And, from the production chart below, it is evident that there is no way that the supply of gold from mines can support this. So in terms of basic supply demand, prices would have to go up.

Summary and conclusion
Valuation of gold is tricky business. No independent measure can tell exactly whether it is cheap or expensive, but the comparisons illustrated here provide some guidance.
Looking at the gold cover ratio, it shows that gold is not at extremely high price level. In comparison to stocks, and oil, gold appears to be inexpensive or at least fairly valued. Gold prices below $1200 per ounce provide attractive entry levels: our 12 months forecast stands at $1500 per ounce. And, any increase in risk from the current sovereign debt crisis in Europe, could propel the gold prices even higher.

**

Chris Gan
14 July 2010

Some Interesting Facts about GOLD

Gold - Here are some “Did you know” which I have collated from various sources. I hope you find them interesting.

1. Of the 92 natural elements in the earth’s crust, Gold ranks 58th in rarity.
2. Every state in the U.S. has some gold deposits.
3. In 1542, Francisco Pizarro took more gold from the Inca in a week than European miners produced in a year. The conquistadors brought so much gold from the New World to Europe that they increased supply by 500% and started the first gold-induced inflation. Other inflations caused by sudden gold supplies happened during the U.S. and Australian gold rushes in the 19th century.
4. When used in trade, gold coins wear out in about 18 years.
5. The word "gold" comes from the Old English word "geolu," meaning yellow.
6. There is more steel created per hour than there has been gold dug up throughout history.
7. Around 161,000 tons of gold have been mined by humans.
8. Gold can be found beneath the earth on all seven continents.
9. It is believed that around 80% of earth's gold is still buried underground.
10. There is an estimated total of 10 billion tons of gold in the world's oceans. That is 25 tons of gold for every cubic mile of seawater.
11. The world’s first gold vending machine was unveiled in May 2010. Located in an ultra-luxury hotel in Abu Dhabi, the vending machine itself is covered in 24-carat gold.
12. At the time of writing, the price of gold was $1,220.80 per ounce.
13. Most western economies' currencies were on the gold standard until 1961.
14. Switzerland was the last country whose currency was tied to gold. 40% of a Swiss Franc was backed by gold until Switzerland joined the IMF in 1999.
15. The gold held at Fort Knox is accounted for by the United States as an asset valued at $44.22 per ounce.
16. As of December 31, 1941 Fort Knox held 649.6 million ounces of gold.
17. Today, Fort Knox holds about 147.3 million ounces.
18. The size of a standard gold bar is 7" by 3 and 5/8" by 1 and 3/4"
19. Alchemists believe they can change ordinary materials, such as lead, into gold.
20. A carat was originally a unit of mass based on the carob seed used by ancient merchants.
21. The most expensive gold coin in the world is the 1933 Double Eagle, which was sold at Sotheby's in New York in 2002 for $7.59 million.
22. Elvis Presley owned three cars manufactured by Stutz Motor Company, in which every part that is normally chrome was converted to gold.
23. Former Tyco International CEO Dennis Kozlowski bought a gold-threaded shower curtain worth $6,000.
24. A noble metal, gold is prone neither to rust nor tarnish and does not form an oxide film on its surface when coming into contact with air.
25. There are 92 naturally occurring elements found in the earth's crust. Gold ranks 58th in rarity.
26. The chemical symbol for gold is Au, which is derived from the Latin word "aurum," which means "shining dawn."
27. Absolutely pure gold is so soft that it can be molded with the hands.
28. The melting point of gold is 2,063 degrees Fahrenheit.
29. Gold is a great conductor of electricity.
30. Gold is the most malleable and ductile pure metal known to man.
31. An ounce of gold can be beaten into a sheet covering 100 square feet.
32. In 1869, two Australians unearthed the world's largest nugget of gold, the "Welcome Stranger," which measured 10 by 25 inches before it was melted down.
33. The largest nugget still in existence is the "Hand of Faith," found in 1980 in Australia. It is currently on display at the Golden Nugget Casino in Las Vegas.
34. A gold nugget found in the earth can be three to four times as valuable as the gold it contains because of its rareness.
35. The heaviest modern gold bullion coin is the Australian Kangaroo, weighing in at 32.15 ounces.
36. Pure gold does not cause skin irritations.
37. Some sufferers of rheumatoid arthritis receive injections of liquid gold to relieve pain.
38. Olympic gold medals were pure gold until 1912.
39. An ounce of gold can be drawn into a wire 60 miles long.
40. Two thirds of the world's gold comes from South Africa.
41. India is the world's largest consumer of gold today.
42. South Asian jewelry is generally more pure than western jewelry, comprised of 22 carat gold rather than 14 carat.
43. Gold is the state mineral of California and Alaska.
44. 90% of the world's gold mining has been done since the discovery of gold at Sutter's Mill in California in 1848.
45. During the California gold rush, some speculators paid more for an ounce of water than they received for an ounce of gold.
46. South Dakota and Nevada produce more gold than any other states.
47. Scientists believe that gold can be found on Mars, Mercury, and Venus.
48. The visors of astronauts' helmets are coated in a very thin, transparent layer of gold (.000002 inches) that reduces glare and heat from sunlight.
49. The Aztec word for gold, "teocuitatl," was translated by Europeans as meaning "excrement of the gods."
50. According to the legend of El Dorado (the gilded one), an Andean chief who was covered in gold dust would make offerings of gold into a mountain lake.
51. Evidence suggests that around 5,000 B.C., gold and copper became the first metals to be discovered by man.
52. King Croesus of Lydia created the first pure gold coins in 540 B.C.
53. When Franklin Roosevelt raised the price of gold from $20.67 to $35 in 1934, the dollar immediately lost 40% of its value.
54. Henry VIII, Diocletian and Nero were infamous gold debasers, mixing other metals into gold coins and decreasing their value.

Sources: http://investinganswers.com/a/50-surprising-facts-you-never-knew-about-gold-1370, Ludwig Von Mises Institute

3 Reasons to Buy Silver Now

“The major monetary metal in history is silver, not gold”
Milton Friedman, Nobel Laureate in Economics

Gold is good but is silver better? We think so and in this article we explain why. Silver has been right there with gold as a currency. In fact silver has been around for centuries and has been used as money in different places, for longer periods of time of time compared to gold. Although these days, silver is generally regarded as more of a commodity, being widely used in industrial application such as photography, electric conductors and others, it is making a comeback as a precious metal that has great value potential. During the height of the global financial crisis in 2008/09, the amount of silver coins minted showed a massive resurgence indicating the flight to safety from paper currencies.

As an industrial metal, silver is well sought after for its unique characteristics:
• It is by far the best electrical conductor of all metals, precious or otherwise, often used for making of electric switches, conductors and others,
• It is strong, reliable and ductile, hence, a good ingredient in making batteries, medical appliances, and solar panels,
• Silver’s reflective nature and sensitivity to light makes it suitable for making quality jewelry and silverware. However, this sector accounts for only 1/3 of the silver industry. About 50% of its fabrication use comes from industrial demand while photography accounts for about 12% of total demand.

Use of Silver

Source: The Silver Institute, 2009

Silver can be considered a genuine form of money. It is different from gold but it has the 6 aspects of money in the classical sense. It is divisible, durable, convenient, consistent, has utility value and cannot be created by government. As such it is a good store of value, often used in the past as a medium of exchange, and a profitable precious metal to have in your portfolio.

There are three good reasons to buy silver today.

1. It is cheap relative to gold
One of the ways to determine whether the price of silver is cheap or not, is to compare it to another precious metal, namely gold. In the past, gold and silver had been side by side as currencies in circulation. The exchange ratio was fixed at around 15: 1 i.e. 15 ounces of silver for one ounce of the yellow metal. In the 1980s’ it was around 17: 1 which is close to the long-term average. By end of 2007, the average was 54 times down from the all time high of 96 times. Today, the price of gold is at $1200/oz and the ratio is now around 65:1. We know that when gold prices in USD start to fall, the ratio of silver/gold tends to rise. That is, silver tend to fall even faster than gold as the monetary part of its demand evaporates. But the reverse is also true: as the price of gold starts to rise, the impact on silver will be more pronounced. Hence, silver will likely to outperform gold in a precious metals bull market.

If gold price goes from $1200/oz now to say, $2000/oz, which may happen in a short time, then the ratio of silver/gold may fall to say 30:1 which is still quite high. That means 30 ounces of silver for each ounce of gold – implying a silver price of roughly $60/oz which gives us an upside of a staggering 350%!

2. It is cheap relative to stocks
Another relative measure would be to compare the price of silver to stocks. The question asked would be: how many ounces of silver would buy you one share of the Dow Jones Industrial Average (DJIA)? Note: DJIA is the oldest stock indices available and dates back to the 1930s.

From the chart below, the ratio of DJIA to Silver from 1 Jan 1996 to 1 Aug 2010, we can observe that the ratio was as high as 2500 times in 2001. In other words, you needed 2500 ounces of silver to buy one share of the DJIA. The ratio in 1996 was almost 1000, and today, it stands around 500, with price of silver at around $19 per oz. In 1980s’ the ratio bottomed at only 18 times. So, we can observe that the current ratio is around 20% of its peak ratio, and it can be argued that the stock market is probably just in recovery phase, post the 2008/09 global financial crisis. The DJIA is likely to move up further in years to come, as the prospects of US companies’ earnings improve, implying that prices of silver will likely to increase: even to just maintain its current ratio of DJIA/silver of 500 times.

Silver is cheaper compared to stocks

Source: www.finance.yahoo.com, The Silver Institute

3. Silver prices to move up as demand exceeds supply
It is interesting to note, that price of silver today at around $19/oz is 65% below its 1980 average of $54.63/oz (in real terms, i.e. 2009 inflation adjusted). Thus, it provides an excellent entry point to precious metals versus gold.

Source: The Silver Institute, 2010 GFMS survey

Although in 2009, we see a slight surplus in terms of supply over demand, this situation is likely to reverse. The increase in demand would come from: 1) an increase in demand from investments, namely in exchange traded funds (ETFs) and private investors. And 2) an improvement in industrial demand for silver as the global economies hit by the 2008 financial crisis, resume its growth path in next few years.

i) Over last 10 years there has been a significant increase in the fabrication of coins and medals by 145%. The other sectors (namely, jewelry, and silverware, photography, and industrial) have all shown declines over the same period. Most of the increase in demand has been driven by the uncertainty in global financial markets, diverting much of the money previously in currencies, and financial assets into physical assets such as silver and gold.

Silver demand to be driven by investments/ETFs

ii) Meanwhile silver production from mines is expected to be limited. This source of new silver showed a growth of only 20% from 2000 to 2009 which is very insignificant. Supply from mines in 2009 grew only marginally by only 4% to 709m oz (and derived mainly from primary silver mining sources and from gold mining). Scrap supply continues to fall and supply from government sector also fell in 2009: they have very little stock left (estimated at 61m oz as at end 2009) hence limiting its supply to the market.

Supply of silver increasing only at moderate pace

Given this imbalance scenario, it appears that the price of silver will likely to move up as demand outstrips the limited supply coming on-stream in near future.

**
Chris Gan
29 August 2010