Gold Update


Gold Update

Jyske Global Asset Management (JGAM) held a non-schedule Investment Committee meeting Thursday 3 September, where we they  decided to reduce their exposure in Gold.

They had purchased gold as a safe-haven position back in March 2009, but believe  with the present market conditions it is time to reduce the allocation in the commodity and take a 9% profit.

After the reduction they will have an approximate 5% allocation in all the managed portfolios. This means they are still overweight in the asset class… but less than they have been.

Gold remains worth investing in long term because most major governments have deficits in their budget.  This forces them to borrow or print money that is not backed by productivity.  When this happens over extended, the purchasing power of  money that is created in this way, loses purchasing power.

Any form of exchange must possess five qualities to be considered real money that will store value and purchasing power. The five values of money are to be durable, divisible, portable, desirable and rare.

When a government creates a currency with no production to back it, the currency becomes less rare and its purchasing power falls.

Gold is one long term way to combat the risk of a falling currency.

Gold is real money because it has all five qualities of real money.

Make no mistake… when it is rare… paper money is better money than gold… because it is more divisible and portable.   Electronic money available in a credit card is even better… the most portable and divisible of all… IF THE CURRENCY MAINTAINS ITS RARITY.

Regretfully for the dollar, euro, yen and many other major currencies, this rarity  has not the case…  so gold still has a place in our portfolios.  Gold as a commodity fits the five standards best of all and for thousands of years has been used as a form of money.

In a moment we’ll look at what might happen to the price of gold in the months ahead.

First because many readers have asked about bringing gold into Ecuador, I checked with out attorney Andres Cordova in Quito.  Here is his reply: Dear Gary:  After reviewing applicable legislation, we’ve found that there is no restriction on the introduction of gold or coins to Ecuador.

The introduction of such, however, does carry a tariff that is to be charged in accordance to weight or monetary amount. Furthermore, there’d need to be a customs filing in which the gold presentation is to be declared, such as ingots, jewelry, dust, etc. Furthermore, an explanation of where does such gold / coins come from needs to be consigned in such form. If gold is brought with traveler, then such must be specified in the customs form that each passenger gets before landing in Ecuador.

Gold and coins would pay a tariff of 0.5% and 12% VAT.  However, if we could know exactly what the person intends on bringing to Ecuador we can better review applicable taxes and tariffs. Best regards,  Andres

For those that want physical gold in Ecuador, there is gold mining in Ecuador and are gold dealers. I do not know any  personally.  But there are many places with signs that they buy gold.  I am researching this and will post a password protected message for our Ecuador Living subscribers.  You can subscribe to Ecuador Living so you’ll receive this report when it is published.

There are three other ways to hold gold other than in bullion and coins. These alternatives are less expensive than bullion and avoid the hassle and dangers of carrying heavy, valuable precious metals on your person and across borders.  Plus they avoid this Ecuador tax.  We’ll review these options after we examine what might happen to gold’s price in the days ahead.

This article is from the Asset Strategies Alert:

When gold breached the $1,000/oz mark in February of 2008, the mass media were full of reports of unprecedented coin demand and long wait times for bullion buyers. You couldn’t open the paper without seeing a piece about the gold rush.

Although the press has now set gold aside for hotter stories, I can tell you demand for gold coins continues at unprecedented levels worldwide, and production is still struggling to keep up. Take a look at these recent reports:

Sales of the Austrian Philharmonic gold coin soared 544% in the first two months of 2009 (vs. the same period the year before), with production at the country’s mint running quadruple its usual volume.

The demand for Krugerrands is at its highest level since 1986. The South African refinery recently doubled production of blank gold coins to 20,000 ounces per week.

China, now the fastest-growing market for gold, saw 2008 sales (measured in dollars) rise by 50% over the year before – and total sales in January 2009 were one billion yuan (US$146 million), 30% more than all of last year.

The U.S. Mint sold 193,500 one-ounce gold Eagles in the first seven weeks of 2009 – equaling the number shipped in all of 2007 and about matching the first half of 2008.
Russia’s Sberbank says it has “never seen such strong demand for investment coins.”

Swiss banks just reported they are running out of secure storage space for gold bullion held by investors and institutions in their vaults.

I have worked with Michael Checkan at  Asset Strategies International, Inc. for many decades and any time I think of gold I think of them.

Michael’s firm offers one of the the three gold alternatives… Precious Metals Certificate Programs.

Precious metals can be purchased and stored on your behalf through the Perth Mint Certificate Program.  This program offers storage for gold, silver, and platinum at The Perth Mint in Western Australia. This is the only government guaranteed precious metals program in the world… fully backed by the government of Western Australia, and has operated continuously from the same location for over 100 years.

This is an easy way and low cost way to hold metals overseas.  You can learn more about these certificates from Asset Strategies with a toll-free call 1-800-831-0007 or 301-881-8600 or visit their website www.assetstrategies.com.

See an interview with Thomas Fischer of Jyske Global Asset Management and Rich Checkan of Asset Strategies here.

Jyske Global Asset Management (JGAM) agrees that gold is a good asset now.  All of JGAM’s portfolios  were overweight in gold last time I reviewed them.   The low risk portfolio had about 5% in gold…. medium risk about 9% and the high risk portfolios were holding about 15% gold.

Now as mentioned above JGAM has scaled back to a 5% gold position in the portfolios.

However JGAM does not invest in physical gold or even undivided bullion. They invest in another gold alternative, the ETFS Physical Gold shares.  This is a share traded mainly on the London Stock Exchange  (code PHAU) but also trades on Deutsche Borse (Xetra), NYSE-Euronext, and Borsa Italiana.

The ETFS Physical Gold share provides an easy, simple, cost-efficient and secure way to access the precious metals market.  This share provides a return equivalent to movements in the gold spot price less fees because the shares are backed by physical allocated metal held by the Custodian (HSBC Bank USA N.A.).  All the gold held are good delivery bars.

This is a very practical way to own gold because you can buy the shares direct from any stock broker.   The shares are  transferable or sold in the market.  These shares trade on the stock markets just like an equity and the pricing and tracking operate similar to an Exchange Traded Fund except the share tracks the price of physical gold, not a portfolio of equities.

Here is the five year simulated price of these shares from the fund’s fact sheet.

gold-chart

Other ETfs that invest in physcial gold are SPDR Gold Shares (GLD) listed on the New York Stock Exchange  in November of 2004, and traded on NYSE Arca since December 13, 2007, as well as  Singapore Stock Exchange, Tokyo Stock Exchange and the Stock Exchange of Hong Kong.

Here is a chart of the SPDR five year performance.

gold-shares

Another ETF that invests in gold is iShares Comex Trust (IAU) do

Gold Mine ETFs

The third alternative to gold bullion and coins is to buy shares of gold mining companies.

The easiest way to do this is with a old mining ETF like Market Vectors Gold Miners Fund (Code GDX) Rather than investing in physical gold, like the funds mentioned above GDX invests in gold mining shares.  This type of fund  is not a “pure” investment in gold.

The fund aims to track the AMEX Gold Miners Index and normally holds about 80% of its assets in gold mine shares and gold mine ADRS .

There are three factors beyond the price of gold that affect mining shares. The first is the cost of  mining gold.  When gold prices are low… this is bad for mines because they have fixed costs. When gold prices are high, gold mines tend to do even better for the same reason.  So gold mining shares (and the ETF GDX) often rise more as gold prices rise.

Yet gold mining share prices can sink faster when gold prices drop.  You can see how this fact affected the shares of GDX when gold prices sank in 2008 compared with the physical gold ETFs.

gold-mine-etf

In 2009 however, this feature helped GDX beat the physical gold ETFs IAU and GLD.  During the period when GDX  rose 13.08%,  GLD and IAU have jumped 5.47% and 5.48%.

Jyske Bank Private Bank and Jyske Global Asset Management can buy many gold ETFs, gold mine shares and ADRS for their advisory clients.

For more details contact Thomas Fischer (US investors) at fischer@jgam.com

or Rene Mathys (Non US investors) at mathys@jbpb.dk

Deficit spending by the major governments around the world have reduced the integrity of the world’s currency system. All currency’s risk losing purchasing power.  Gold long term is one way to combat this risk.

Gary

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