Has
gold regained its Glitter?
Since September 1st,
gold prices have increased
about ten dollars an
ounce. That's not a huge
move, but it's enough
to drive up the
price of gold shares
and especially call options
on gold.
Gold
is the world's oldest
currency and the
only financial asset
not backed up by
someone else's liability.
It's that characteristic
of gold that makes
us recommend to you
to accumulate physical
gold on a long-term
basis. And that recommendation
has paid off; since
November 1999, prices
have climbed nearly
40% in U.S. dollar
terms. Gold shares
have done even better;
the widely followed
'Gold Bugs Index'
is up 183% in the
same period.
However, gold price
movements are notoriously
choppy. In fact,
in the
last year, gold prices
have ranged from
$372 to $430 per
ounce.
While
this choppiness has
given us the opportunity
to add to permanent
gold holdings at
lower prices, it's
also given traders
opportunity to make
even larger profits,
and in short periods
of time.
Three
weeks ago, a well
known finanical advisor
recommended to readers
of his newsletter
that they buy gold
calls; options that
are a bet that gold
prices will crease.
Since then the value
of these options
has soared including
59% in the first
week after his recommendation.
Why
did he recommend
gold options in September?
Here are the reasons:
1.
The weakening dollar
makes gold a more
attractive investment
for foreign purchasers,
because gold is priced
in terms of dollars
on
the global market,
therefore if the
dollar declines,
the price these foreign
purchasers pay declines,
helping to boost
demand.
2.
If Fed Chairman Greenspan's
comments earlier
this month are taken
to heart, the US
economy is regaining
traction and the
threat of inflation
is real, despite
the fact that it
can't be seen yet
in the official statistics.
Though many people
hoard gold as an
investment, gold
is also an industrial
metal. A stronger
economy should see
an increase in the
demand for gold,
as gold is used in
a variety of industrial
purposes including
electronics, chemical
processes, as well
as jewelry. The 'hoarding'
or investment demand
for gold may also
get a boost from
Chairman Greenspan's
comments as well.
3.
Finally, gold tends
to rally during September.
Jewelry fabrication
is
the crucial cornerstone
of demand for the
yellow metal. Most
jewelry stores report
their largest sales
of jewelry during
the Christmas season.
Anticipating orders
from retail jewelers,
jewelry fabricators
begin buying bullion
in September, to
prepare for the holiday.
This surge in demand
has supported prices
in the past.
In
14 of the last 15
years, December gold
futures have rallied
from the 5th trading
day of September
through to the last
trading day of September.
Options
aren't for everyone.
And they shouldn't
take the place of
a long
term gold accumulation
plan. But in the
hands of a master,
they can provide
a valuable boost
to the performance
of your portfolio.
If
you would like more
information regarding
asset protection,
trusts, family limited
partnerships or the
subject of this article
please call or email
our office.
