The Gold Report

The Gold Report – Stuart Goldsmith www.stuartgoldsmith.com

The Gold Report
By

Stuart Goldsmith
Dateline: October 2011

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The Gold Report – Stuart Goldsmith www.stuartgoldsmith.com

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NOTE
Please do not worry about this report being ‘old’. It is a download so I keep it right bang up to date. The advice you are reading is almost certainly less than a week old (if you downloaded it recently, of course!).

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Hello. Several years ago I wrote a very prophetic edition of the Stuart Goldsmith Newsletter in which I urged my readers to buy gold. I usually try to practice what I preach and so I took a spoonful of my own advice at that time and piled into gold.

As a result, over the last few years I have made £369,567.00 pure profit by doing absolutely no work at all!
I did this by making a simple investment decision and sticking to my guns. I made the investment... I sat back and watched... Gold did diddly-squat for two years and so I effectively lost money (the interest I could have had if I had invested the money elsewhere.) I’d like to say I snapped my fingers in the face of fate and calmly waited, sure in the knowledge that I was right. In fact, I got a little jittery. No investment decision is a sure-fire thing. All anyone can do is to carry out some due diligence, come up with a strategy and then play it for real. So I checked my facts and checked the fundamentals. They were all screaming out ‘buy gold’ so I sucked up my pantyhose and bought more. Quite a lot more, as it happened! Then I waited a bit longer... The graph on the next page tells you the story. Gold started to rise and has continued to rise ever since, obviously with a few corrections from time to time. Some of the corrections can even be quite dramatic! The result is the very nice profit I mentioned above. Naturally I wish I had bought even more of the glittering stuff. But there you go. Now I hope you realise I’m not writing this urgent report to boast to you about how well I’ve done! Good for me, but what has my success got to do with you?

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Simple. I believe we are just at the START of a huge ramp-up in gold prices which could see gold at anything between $3,000 and $5,000 an ounce or even higher.

At the very least I expect gold to double over the next two years.
I hope you appreciate that if I told you about an investment which was sure to double in two years, you would sell your house, car, liquidate everything you own and pile into that investment, right? I mean you'd be crazy not to. The only thing that would stop you going ‘all in’ would be your fear that the advice was wrong and that you could lose a significant portion of your investment. That’s perfectly understandable. After all, even I did not ‘bet the farm’ on gold. Far from it. In fact I put about 2% of my total wealth into gold at that point. How timid is that??? You are not alone in being fearful. But in this report I hope to convince you that gold is a very safe bet (you will not, for example, ever lose ALL of your money, unlike many other investments) and it also has fantastic upside potential.

The take home advice in this report is to BUY GOLD – as much of the shining stuff as you can get your grubby hands on. As much as you dare to invest.

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And... you need to do it ASAP because things are getting increasingly ugly out there.

You could wake up any day to another massive bank collapse and currency inflation which would wipe out almost everything you own.
So having told you to buy gold, the rest of this report is aimed at convincing you. Oh, and I hope I hardly need to say there is nothing in this for me. No amount of gold you (or anyone else who reads this) buy will affect the price by a hundredth of a cent, so I’m not in the share-ramping business!

What The Hell do I Know?
But you probably shouldn’t listen to me. I am not an IFA (i.e. I am not a broke person in a cheap suit advising you on your investments). I have no investmentrelated qualifications (thank God). I am not an economist. I’m telling you this because I believe it's something you should urgently do. Take my advice with a pinch of salt... or seriously. It’s up to you. Get a second opinion from some broke people if it pleases you.

My only qualification is having made many millions following my instincts and playing with serious money.
On that latter point, here is something really, really important. You can’t make serious money playing with pennies. If you buy £500 in gold after reading this report, and it doubles, do you care? I doubt it very much. You’re not ‘in the game’ if you do that. In fact, I wouldn’t bother with such a low stake because the winnings are insignificant. And worse, it persuades you that you are ‘doing something’ about getting rich or at least protecting your assets, when in fact you are not. You are playing at it or dabbling.

Get Serious!
To make real money you need some balls (for the men) or true feminine grit (for the ladies). Everyone who has made a decent wedge of the folding stuff will tell you the same – there was a time when their ass was on the line and they were sweating. You don’t want to be betting the farm of course, but you do need to be betting with real money in any of your investments. Property, shares, gold, silver – whatever it is there’s no point in having a few quid in the pot. I put way over a hundred and fifty grand on the table in my first gold play. I’m not so rich that it wouldn’t have hurt me if I had lost that – it would.

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The take home here is this: if it doesn’t hurt you to lose the money, it won’t excite you to win.
Compare with putting 10p on a horse which comes in at 14-1. Hoorah! Whatever will you spend your £1.40 on?! You don’t care if the horse wins, or loses. Now consider putting £5,000 on that same horse. Ouch! It hurts if you lose that amount, but if you win, that £70,000 in winnings is very tasty, thanks very much. So don’t fiddle around with gold – it’s not worth the hassle. You need a serious (to you) chunk of change in the game Okay let’s get started on convincing you...

What is Money?
This stuff you loosely call 'money'. Just what is it, exactly? Where did it come from? Is it serving our current purposes, or could we lose the lot overnight? Money is really a way of exchanging units of labour. If I live with my family in an isolated region far from other humans, then we will have to make our own shoes, plough our own fields, fix the roof, grind the corn, tote that barge and lift that bale - all on our ownsome. No flicking through Yellow Pages and hiring 'Barge -U- Tote Ltd' or 'Lift-a-Bale & Co' to do the job for us. We wouldn't need money. This is the way it was for thousands of years. But it is inefficient for me to do all of these jobs myself. For a start, I'll be complete rubbish at some of them, and it'll take me far longer to make (say) a pair of shoes than my fairy-fingered friend in the next village. He can knock out a pair in half an hour - it takes me all day to get the bleedin' cow gum to be the right consistency to stick the soles on. God, I hate that job! People soon wised-up to the fact that living in splendid isolation sucked. It became obvious that if a few of the guys got together, then they could watch your sheep whilst you caught a bit of shut-eye, and heck, you could watch their sheep whilst they grabbed some zees.

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Everyone was happy. Then, after endless tedious centuries of mutual baa-lamb watching... (cue theme tune from 2001...) we had a brain-wave... I could mend your walls (I'm brill' with a hammer, me. I'm a real man) whilst you could ponce around doing all that poofy shoemaking and sewing stuff (because you are, let's face it, a great big girl's blouse - no offence). That way, we're both doing what we like doing, and are also being far more efficient. This means that between us, we work fewer hours than we would if we lived apart. Great! The idea spread quickly, and soon people specialised in their chosen professions of butcher, baker and candlestick maker. But still we didn't really need money (although it probably existed even back then in some form). People lived in tight, small communities which were really extended families. And just as you would not charge your son for fixing his bike, so they did not compare hours. They didn't say: ‘Hey! I spent fourteen hours on time and a half fixing your barn and you only spent a lousy eleven ploughing my field’. Everyone just mucked-in. I'm talking thousands of years ago, of course. Time went by. Sheep were born. Sheep died. Lambs gambolled, lambs kicked the habit. Gradually societies got larger. Too large. Some people discovered The Pharaoh Principle the knack of exploiting people by pretending that you have a direct line to God or that you are God. They were called Pharaohs. Some people discovered the 'Lazy Bastard' principle, and that ancient term is still used today. People started to grumble. They started keeping time-sheets and comparing the number of luncheon vouchers each had. So... spontaneously, money was invented. Money was a token representing a number of hours of labour, and from that day (about five thousand years ago) right throughout recorded history, until about fifty years ago, money had to fulfil five main functions:

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The Five Functions of Money
1. It had to be a good store of value. A five-hour token shouldn't gradually become worth (say) three hours. After all, you put the five hours in, you deserve to get the five hours paid back to you. Furthermore, your five hour token shouldn't rot away, or corrode, or break. For this reason (and a few others) cabbages make lousy money. 2. It had to be freely exchangeable. If I give you my five hour token, you must be prepared to accept it, and do five hours work for me. I don't mean you have to, but you must at least recognise it as a valid token. 3. It must be freely transportable. No point in having fifty foot oak logs as your basic currency, sub-divided into one hundred six-inch-thick wagon wheels, which you couldn't spend anyway because (as Douglas Adams would say) the shops in those days didn't take fiddling small change. 4. I think it should offer privacy. Nobody has the right to examine your affairs, to come barging in and demand to see how much wealth you have, to confiscate it, steal it or render it worthless. 5. Finally, it must be hard to forge. In practice, this means it must be rare or hard to make/copy. Those cute ancestors of ours soon realised that if stones were used for currency, you didn't actually have to work the five hours. You could squander your time spearing a few bison, swimming in the lake and taking in the sunset before tooling-off home and scooping a pocket full of money from the gravel drive right outside your hut... The cads! As if anyone would. These were, and still should be the essential characteristics of money. The rest is history. They tried a few things, cowrie shells (too much wave noise), beads (too round - kept rolling under floorboards, getting stuck up small children's noses etc.) copper coins with Nero's head on (anyone with a hammer and a bit of nonce could knock out a dozen before tea time). Until... finally they hit on... gold. Let's see if this 'gold' stuff fits the bill...

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Does Gold Tick the Boxes?
So, is gold a good store of value. Yes. It doesn't rot, wear out, make silly sea noises or roll around in an irritating fashion. It tends to hold its value, or increase in value, although it can also go down on occasions. Is it freely exchangeable? Yes. Try getting a waiter in Botswana to take your lousy English ten pound note and he'll spit in your face. But gold can be exchanged in almost any country on the earth. It is still a universal currency. Is it transportable? Yes. A Krugerrand is about the size of a 50p piece (but a lot heavier) and is worth about £1100 at the time of writing. It is highly transportable. A slight downside is that there are no small denomination coins. £250 or so (in value) is about the smallest common coin (say a sovereign). Is it safe from forgery? Yes. Gold is...well,...gold, really. About all you can do is clip bits off the edges and pretend the coin is still full weight. You then save up your clippings and make yourself a free gold coin six months down the line. Waddya mean "What sort of lousy cheapskate would do this?" - why do you think they invented milling around the edges of coins...? Well, gold seems to tick all the boxes for me, I don’t know about you. For contrast, let's have a look at the bits of worthless paper and cheap copper junk we laughingly call money nowadays...

Fiat Currency
The pounds in your pocket are called ‘fiat money,’ which is defined as: • any money declared by a government to be legal tender • state-issued money that is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard • money without intrinsic value

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'Money' now consists of pieces of paper (e.g. £10 notes), backed by... well... by nothing at all. They used to be backed by gold and silver, and this was a sensible arrangement. I’m sure you also know that President Richard Nixon took the U.S. off the gold standard August 15, 1971 due to there being more fiat money in circulation than the U.S. had gold reserves to cover.
“I am afraid the ordinary citizen will not like to be told that banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hands the destiny of the people.”
Reginald McKenna, Past Chairman, Midlands Bank

Money backed by gold (or silver) was a really good idea. Rather than staggering out of Lloyds with a sack of gold to give to the plumber (he said it was a major problem...) and later that same day, the grinning plumber staggering back into Lloyds to deposit the same sack, they came up with a neat trick. Leave the sack where it is (in the safe at Lloyds) and issue a bit of paper (a claim), signed by the bank, to say that you were due one sack. Now give the plumber the piece of paper and not the sack itself. He could then go and claim the sack, or (more importantly) use the same piece of paper (the banknote) to pay, his analyst (guilt is a terrible thing). Get the idea? But all the time, the piece of paper (which after all, in itself is worthless) was backed by real, tangible money in the sack at the bank. The notes used to say: “I promise to pay the bearer upon demand, the sum of £5” (say) - this was actually five pounds worth of silver, but the principle is the same. You could walk into a bank, hand over the note, and receive five pounds of silver. The wording is still the same on a note (take a look at one) but is now meaningless as the paper is only backed by more paper, nothing 'real'. So, is modern money a good store of value? No. The £10 note which you get paid for (say) an hour of labour will 'leak' value at the rate of about 30 seconds a month. So if you put your money under the mattress it will be worth half the amount (at best) in ten years. Put another way, you work about 2000 hours a year and receive some tokens in exchange. Over ten years, these tokens 'leak' your
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precious time - over one thousand hours will be lost over ten years. If you wait another ten years, a further five hundred hours will disappear. Finally, they will become worthless.

The Peril of High Inflation
I believe that the UK is about to enter a period of very high inflation and that means the erosion of your savings (actually it is government theft of your savings) is about to accelerate. This is one of the prime reasons to get into gold right now. An interesting question which I'm sure is on your lips is: “Where does the 'stolen time' go to then?” I won't go into the detail of the answer now, but stated simply, your time is stolen by the state to squander as they see fit. This is in addition to the thefts associated with punitive taxation. The 'leak' is caused by inflation. Inflation is caused by governments 'printing' money which they don't have. We have just printed hundreds of billions of funny money – this will (indeed must) eventually filter through into higher inflation. If hyper inflation occurs, you will lose the lot (your entire life's efforts, stolen by the government). If there is a banking collapse again, you could lose every penny. The banks will not even be open and you will be lucky to eventually get 10p on the £1. If you have money sitting in a bank, it can be frozen, confiscated and seized on the whim of any one of half a dozen 'authorised' government agencies and the list is growing. As I write, the shares of Lloyds Bank are worth 33p. Down from £6 four years ago. Yes folks, the great Lloyds Bank is apparently worth one twentieth of what it was worth four years ago. Bet you didn’t see that coming? (Neither did I, by the way).

By putting money in a bank you are, in fact, betting on the honesty and integrity of bankers and governments.
Is modern money freely exchangeable? Well, within your own country it is, but not outside. If you want to take your chips off the table and leave, you have a problem. Not a big problem, but heck, you shouldn't have any problem at all if money was doing its stuff, right? Is it freely transportable. Again, sort of. It depends on the mood of the government. If they want exchange controls, they will impose them, which means that your money is frozen in one small area of the globe. This is not free transportation. Today you have to declare if you are taking more than £10,000
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cash out of the country. Why? Some specious ‘anti money-laundering’ tosh. Also, even those worthless bits of paper (banknotes) are becoming hard to use. Try buying a car with £20,000.00 in notes and you will find detectives waiting to interview you when you collect it. Yes, you've guessed it, car sales people are now expected to report any 'suspicious' transactions on penalty of a five year prison sentence... A friend recently tried to take £10,000 in cash from a major High Street bank. He found this difficult. The bank had to scratch around for money from all the tills and in the end he had to come back the following day for the balance. So is it free from forgery? Hardly. In 2010, Bank of England figures revealed 566,000 counterfeit notes in the UK. Of these, 95% were twenty pound notes. That figure has come down a bit since as new printing processes are making it harder to copy a note. The most common fraud is of one pound coins. There are some 30-40 million in circulation, so about 2.8% of the total are fakes. If you think bits of paper are worthless and easily forged, what value do you give to a few bytes on a 100 terabyte hard drive sitting at Lloyds/Barclays or wherever? That, nowadays, is all that represents your 'bank balance'. Does it offer privacy? I don't think I even need to answer this. Governments seem to believe they have the right to examine your income, savings and bank accounts at will. All staff at banks must, by law, tip-off the government to any ‘suspicious’ activity on your account. It is an offence if they tell you that they are spilling the beans. So modern money barely scrapes by on one and a half out of five. Gold scores four and a half out of five. The 'half' is missing because gold can go down in value as well as rise in value. This makes it less than perfect as a store of value. Still, it's not bad. Now, seriously, with the current highly perilous state of the Euro and the British economy, with banks teetering on the very edge of another major collapse, smart people are heavily investing in 'real' money. That is, physical gold, silver and
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maybe even property, with only a smallish stake in the stock-market (at present, because of the potential for huge losses) and little in the banks and building societies. On this latter point, if you have conventional savings you are effectively paying the bank to ‘look after’ (!) your money. The interest rates are derisory and inflation is rising. £20,000 in a savings account is currently guaranteed to lose you money in real terms. Maybe that would be okay if the banks offered safety. But incredibly, almost unbelievably, they will not even guarantee to return your initial investment with them! What does that say about the banks’ belief in themselves? They cannot even guarantee that they will not steal the bulk of your money. Staggering, really.

Gold – the Ultimate Safe Haven
“The government can print endless money, but they cannot increase the supply of gold. Anything the government cannot replicate by decree, I want to own.”
Michael Pento, Chief Economist, Delta Global Advisors Inc.

Right. Enough of the banter. Let’s get serious. I presume you are interested in keeping and increasing your wealth? In short, getting more money? The first thing to realise is that it’s not looking good for fiat currency – that is the pounds in your pocket and in your accounts. With the coming inflation spike and continued questionable banking practices, most people ‘in the know’ are predicting double digit inflation for the UK in the near future. Your first lesson is that gold does not have to ‘make money’ in real terms (although it is great if it does) – it’s main function is to protect your money. Look at it this way, gold might double in the next two years but that might be accompanied by a halving in the value of money (so gold is still ‘worth’ the same as it was). If you had not been in gold however, you would have lost half of your money. The U.S. dollar has been losing value since they abandoned the gold standard. But the situation now is probably worse than it’s ever been in my lifetime. The

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pundits I respect are predicting it might collapse. And this could happen faster and sooner than you might guess. The graph below tells its own sorry story.

And in case you think it is just those careless crazy Americans, thing again!

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If the inflation spike happens, as I expect it to, it will impoverish most of the middle class and lead to a drastic decline in most people’s standard of living – unless you are prepared. Given the speed at which we are printing money, inflation is all but inevitable. If you don’t prepare for it immediately, you may wake up one day and realize the value of your savings account has been reduced to almost nothing while your income is insufficient to meet your needs. Any money you have saved will be almost worthless. There will still be the same number of pounds, of course, it’s just that they won’t have much purchasing power. It’s happened in the past. The total value of German mortgages in 1913 was about £7 billion. By 1923, due to 800 billion percent inflation, these were only worth 1 penny! Bank notes were so worthless that people used them to light their fires with. It’s happening right now in countries like Zimbabwe who have just introduced two new bank notes – in $20 billion and $50 billion denominations! The new $50 billion note will buy you two loaves of bread! You can protect yourself now and profit in the future by investing shrewdly in the way I am disclosing to you. I firmly believe that part of your investments should include precious metals and investments related to precious metals.
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Why Gold?
Let’s face it, these aren’t the best of times for world economies. And the financial markets are still on shaky ground. Although at the time of writing the DOW and FTSE have regained some of their losses, few believe it is ‘business as usual’ in stocks and many expect another crash. The mortgage industry is beset by record foreclosures brought on by the subprime fallout. If that isn’t enough, a double-dip recession is breathing down our necks and may hit at any time.

Quite simply, if you expect precious metals to rise in the years ahead (as I do), this could be the most important thing you have ever read.
But before I show you exactly how this works and how you could benefit... it’s important for you to understand the rock-solid trend it is based on. Gold is priced in US dollars, traditionally, so I will continue to use that currency.

$3,000 an Ounce? $4,000 an Ounce? Higher?
So how high could gold climb? A recent Barron’s article speculated that the price could hit $8,000 an ounce! The last major bull market took gold from $35 in 1970 to $850 an ounce – a rise of 2,400%. If gold follows a similar trajectory in this bull market, it would rise from a low of $252 in 1999 to more than $6,125 an ounce. But even this scenario could be conservative when you consider the trillions of freshly printed paper dollars that will be chasing the tiny gold market in the coming years. Please realise that we are in a very, very different world economic situation right now. If faith in fiat currencies wobbles, people will panic and make a desperate dash for something of value. The obvious candidates are gold and silver. Gold is no longer an investment lifeline – your future could depend on it. The clock is ticking on a gold-buying mania that could send prices into a blistering spike. Prices have risen significantly, but don’t think you are ‘too late’.
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Far from it. The ‘mania’ stage is just about to get underway and it is that which could send the price of gold into the stratosphere. Thankfully, there is still time to prepare (and get positioned for astronomical profits!). Let’s first consider why gold is rising...

A Gold Rush of Unprecedented Proportions
There are many reasons why investors buy gold. But there is one significant reason why the price is going up...

The scorching demand is outpacing the supply even though producers are rushing to ramp up their production.
And experts believe the situation will become more acute in the years to come. This will lead to panic buying – and prices that many would consider unimaginable today. According to the Financial Times, ‘Investors in gold are demanding unprecedented amounts of bullion bars and coins and moving them into private vaults.’ It’s almost as if they know something... Although the refineries are running at full capacity and scurrying around to extract ever more unworkable supplies from their tired mines, dealers around the world have had to turn away customers. Commenting on the situation, Jeremy Charles of the London Bullion Market Association said: ‘I have never seen a market like this in my 33-year career. The gold refineries cannot produce enough bars.’ But demand is only half the equation. Here is the real kicker...

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Peak Gold Has Arrived... All the Easy Ounces Are Gone
High prices are the ultimate incentive for producers so you won’t be surprised to learn that in 2010 and early 2011 they have struggled to increase production as much as possible – but it’s getting ever harder for them. Why? This chart tells its own story...

It shows a near tripling of production costs in under 6 years! And that points directly to the remaining supplies getting harder to access. The days of cherry-sized nuggets glimmering near the surface of California streams are long gone. The world’s richest deposits are becoming depleted. And in spite of $18 billion spent on exploration in the last five years, new discoveries are smaller and of lower quality. The world is not running out of gold. But we are running out of gold that is easy to find and cheap to extract. China is now the world’s top gold producing country. But that’s only because the production of other countries has fallen so rapidly. Even China’s output has fallen since 2005 although they’re trying to ramp that up again now. The story of dwindling reserves and ever increasing mining costs is the same elsewhere. According to Dewald van Rensburg of Minimgmx News, South Africa has far less gold in reserve than government and the Chamber of Mines believe.
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South Africa is believed to hold the world’s largest reserves at 36,000 tons, but local miners do not claim these reserves are economically workable. Dr Chris Harnady writing in the South African Journal of Science calls these figures ‘hopelessly exaggerated’. He calculates that less than 3,000 tonnes are mineable and believes that output will fall to less than 100 tonnes annually within a decade. He sums up this production problem succinctly: ‘Gold has reached an ignoble end.’

There is a huge worldwide supply deficit... and it’s only getting worse.
Here are the most recent production cost figures...

Five Inescapable Reasons Why the Rising Price of Gold is a Trend You Can Bank on
Because times are so uncertain right now, I want you to understand why a rising long-term gold price is one of the safest trends you can possibly bank on. I just showed you that gold production has been falling throughout this bull market. Here is why that trend is almost certain to continue. A ‘world-class’ gold discovery is considered to be a deposit greater than five million ounces. Currently, the gold industry mines about 80 million ounces of gold every year. That means we deplete the equivalent of 16 world-class discoveries every year.

Gold Reserves Are NOT Being Replaced
But get this... in the last 15 years, there have been very few world-class discoveries. Although discoveries of new gold deposits continue to be made, they
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are predominantly in the 0.5 to 2.0 million ounce region. It takes years for a large mine to begin producing. Production is falling and the mining industry is not coming close to replacing its reserves. And even if we did begin to discover one huge deposit after another (unlikely), it takes years for a large mine to begin producing. Not to mention environmental pressure that is putting the brakes on mine development. (Goldmines are nasty, highly polluting places and nobody wants them anywhere near them.) London-based metals consultancy GFMS confirms that despite surging gold prices, the production bottleneck is here to stay: ‘The financial crisis will undoubtedly have negative implications in coming years as the funding gap in project and exploration expenditure begins to filter through.’ The bottom line is that gold production will remain heavily constrained for years to come. Combine that with steadily rising demand and you have an equation for soaring gold prices!

Central Banks Are Now Gold Buyers
We could soon see demand seriously outstripping supply. This is incredibly bullish for gold. But until now, this supply gap has been filled by central banks selling and ‘leasing’ gold into the market. The banking elite have used official gold sales and leasing operations to artificially keep rising gold prices in check. But the banks are running out of gold to dump on the market. In fact, many central banks have stated that they intend to increase gold reserves and are adding to their supplies aggressively. Russia added 135 tonnes of gold to its reserves in the first eleven months of last year (2010), including 9 tonnes in December, to become the world's eighth largest bullion holder, the World Gold Council said recently. According to Harvard Professor Jeffrey Frankel, the world’s central banks are gradually reversing their policy of selling their gold stocks – and are now buying.

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The People’s Bank of China, the Reserve Bank of India and other central banks in Asia have all now bought gold. Jeffrey Christian, managing director of CPM Group, told the Denver Gold Forum recently ‘What we are seeing is that central banks are making the transition from large net sellers to large net buyers. You will see a net buying of 6 (million) to 10 million ounces per year by central banks, and that is an extremely conservative projection.’ Christian believes that European central banks will now stop further gold sales. Meanwhile central banks in emerging countries are now diversifying into gold due to volatility in the dollar. The Director of China’s Central Bank recently stated: ‘An increase in our country’s gold reserves is necessary.’
‘Central banks, holding about 18% of all gold ever mined, are expanding their holdings for the first time in a generation as investors in exchange-traded funds amass bullion as an alternative to currencies.’ Nicholas Larkin, Bloomberg.com

Nick Moore, an analyst at Royal Bank of Scotland, told Bloomberg. ‘There's clearly been a renaissance of gold in central bankers' minds, it's not just been central banks taking on gold, but a general shift for physical gold in the investment sector.’ But it is not just countries that are stepping up their buying...

Worldwide Investment Demand is Surging
There is a massive worldwide migration to gold and the trend has only begun. It is no longer just the ‘gold bugs’ who are chasing the yellow metal. Every day, more and more pension funds and advisors to wealthy investors are recommending a double-digit percentage allocation to gold and gold stocks. Axel Merk, Chairman of Merk Mutual Funds, recently wrote, ‘Gold is moving toward the mainstream. It is also becoming part of the asset allocation of larger fund managers having a portion in gold.’

What used to be a trading vehicle has now become a core holding for many hedge funds and institutional investors.
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Most notably, Paulson & Company has made several huge investments in gold. Paulson spent $1.3 billion to acquire a stake in the gold mining company AngloGold Ashanti.

Institutional investors are not just dipping their toes in the water... they are making HUGE bets on gold.
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Bloomberg reports that Jean-Marie Eveillard has stashed $1 billion in gold in a vault near Times Square as insurance against ‘extreme outcomes’ like a market collapse or unintended consequences of the U.S. plan to avert one. In June 2010 he said ‘as soon as gold passed $1000 an ounce I looked at myself and others and said “If you’re going to be a holder of gold above $1000 an ounce, a holder or a buyer for that matter, you have to believe that there is more to gold than simply a hedge against inflation or a way to play the decline of the US dollar. You have to look at it as a substitute currency. You have to look at it saying that of all currencies, not just the US dollar, all currencies, the dollar, the Euro, the Yen, the Swiss Franc – are suspect.”’ Eton Park – with more than $6 billion under management – also lists the gold ETF (Exchange Traded Fund) as the fund’s heaviest position. They bought 6.58 million shares of SPDR Gold Shares, an ETF that tracks the price of bullion, in the second quarter of 2010. The investment was valued at $800.3 million recently making it the hedge fund’s biggest holding. George Soros, who made $1 billion betting against the British pound in 1992, called gold the ‘ultimate asset bubble’ at the World Economic Forum’s January meeting in Davos, Switzerland, when the price of gold was at $1,087.10 an ounce. His fund held $664.8 million in gold-backed exchange-traded funds as of Sept. 30th 2010. SPDR Gold Trust (just one of the many ETFs) now holds 1,299 metric tons of gold valued at about $57 billion, more than the Swiss central bank. Investors include the University of Notre Dame, the Texas teachers’ pension fund and a who’s who of hedge fund titans and money managers such as John Paulson’s Paulson & Co., and Laurence Fink’s BlackRock Inc.

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A total of 165,000 tonnes of gold have been mined in human history. This is roughly equivalent to 5.3 billion troy ounces or, in terms of volume, about 8500 m3, or a cube 20.4 m on a side.
This is just a slice of the huge money flowing into gold. And don’t forget, gold is a tiny market compared to the greater financial universe.

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$10,000 an Ounce? It Could Happen!
If just 1% of the money that is in stocks and bonds migrated to gold, the metal could easily soar past $10,000 an ounce. And if you invest in gold at the current price you could double, triple or quadruple your money!

China is Diversifying Out of Dollars
If China is worried about their holdings of US dollars, shouldn’t you be worried about your holding of near-worthless fiat currency? Hardly a day goes by that China does not announce an investment in hard assets or express concern about their dollar holdings. The Chinese Premier, Wen Jinbao, didn’t beat around the bush in a recent speech when he said: ‘We have lent a huge amount of money to the US. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.’ Mr. Johnson, a former Chief Economist for the International Monetary Fund, estimated that China holds about $1 trillion in US currency. And in the days leading up to the Group of 20 Summit, Chinese officials were talking openly about a new reserve currency that would remove ‘the inherent deficiencies caused by using credit-based national currencies.’ Hmmm... which “national currency” do you think they were talking about? With nearly a trillion dollars of “funny money” in hand, China is treading carefully. The last thing they want to do is spook the market and see those dollar holdings halve in real value. But make no mistake. They know the dollar is doomed. And they are taking steps to seek protection. The last thing the Federal Reserve would do is encourage you to own gold. But that is exactly what the Chinese central bank is doing – urging the Chinese citizens to start buying and saving gold. If the Chinese people and government were to achieve the same per capita gold backing as the US, it would require 1.2 billion ounces... 10 years of world global mining production!
‘Chinese demand for gold has been growing at an average of 13% per annum over the past five years and it now has to import gold to meet national demand, despite being the largest producer of gold in the world.’
Source: Goldcore

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India Wants More, More, More
India is experiencing an 80% growth in gold investment following a loosening of trade and market restrictions. With economic growth running at an annual rate of 9% and plenty of foreign capital entering the country, India can finally afford to gorge at the gold trough. As India develops an increasingly prosperous middle class, investors are purchasing gold. India is now the world’s biggest gold consuming nation. India’s demand for gold skyrocketed by 94% last year from 365 tonnes in the first half of 2010 as against 188.4 tonnes in the same period in 2009.

Hyperinflationary Dollars Chasing a Shrinking Gold Supply
Gold is an exceedingly small market when compared with the mountain of other financial assets. In dollar terms, the worldwide demand for gold in 2010 was around $40 billion. Now compare that to the tens of trillions of freshly printed dollars and other currencies that are making their way into the market. In the UK we have just printed a further 75 billion pounds of funny money in an attempt to jump-start the economy.

More fiat money is being produced. Less gold is coming out of the ground. Go figure!
It would take only a tiny fraction of this money to start chasing gold for the price to soar to the stratosphere. The policies we are pursuing to overcome the financial crisis are like throwing petrol on a blazing fire. We are trying to solve a debt crisis with even more debt! If you think we have seen shortages of precious metals already... just wait until investors worldwide rush to the only certain store of wealth – GOLD!
‘The desire of gold is not for gold. It is for the means of freedom and benefit.’
Ralph Waldo Emerson

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A Monetary Meltdown
When some of the richest and most knowledgeable moneymen think the dollar is doomed, it’s best we sit up and listen:

• Warren Buffett advises us to ‘build an ark’ to protect against the fallout from the plunging US dollar. • Paul Volcker, the former head of the Federal Reserve Board, gives a ‘75% chance of an economic crisis in the next five years,’ and... • Professor Kenneth Rogoff, a former head researcher at the International Monetary Fund, warns of a potential 40%+ drop in the greenback’s value.
I’m talking dollars here because, let’s face it, whatever happens to the USA is likely to happen to Europe since we are following a near identical trajectory. Also gold is priced in dollars. If dollars lose their real purchasing value, gold soars. So how can we protect our assets and stay diversified in this type of environment? One major part of your strategy is to invest in gold, as I have said. This is what many consider the ultimate ‘crisis commodity,’ and for very good reason. Gold is the only commodity that has consistently outperformed other investments during periods of world tension. Since the end of World War II, the five years when US inflation was at its highest (1946, 1974, 1975, 1979, and 1980) saw an average real return on stocks – as measured by the Dow – of minus 12.33%. Meanwhile, the average real return on gold was 130.4%! But gold doesn’t have to be just a hedge against inflation. We have moved into a new era, one that looks to be very favourable for gold, and this is going to play a major role in generating healthy returns for you.

All Aboard – Gold is Leaving the Station
According to Robert McEwen, CEO, US Gold Corporation:

‘Gold prices may reach $2,000 an ounce in 2011 on demand for an alternative to currencies. You have much, more money than there is gold, and as people see their currencies falling relative to gold, they’re going to be saying “Maybe I should have some of this.”’ 26

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That was a good prediction for 2010 as gold touched $1900. It has now fallen back a bit, but that is exactly as expected. And Adam Hamilton of Zeal Intelligence says:
‘If our current gold rally truly unfolds into a Great Gold Rally, $1,000 gold is merely the first stage. A gold bubble could easily launch gold above $5,000 per ounce. The actual top of a new gold bubble at the final pinnacle of another Great Gold Rally could touch $6,000+ per ounce!’

Holding fiat currency in savings has not been a good idea for several years now. Foreign investors are slowly realizing this and are actively looking for investments that are appreciating, not depreciating. Gold fits the bill.

The Golden Bull
I believe that a major gold bull market will start any time soon. We’ll see it in the gold stocks first and then, a few months later, with physical gold. With today’s strong economic indications for higher gold prices, you can expect a 10year bull market to unfold, or one that lasts until 2021. And I’m not alone in this thought. John Hathaway, Portfolio Manager for the Tocqueville Gold Fund, says:
‘Gold is in a bull market trend, and there are a lot of reasons for that, and we will see higher prices. Investors should worry less about whether this particular moment is a good or bad entry point and ponder the implications of sailing through uncharted waters without a lifeboat.’

Others in the investment world see a trend with great longevity. J. J.Taylor of Taylor’s Gold and Technology Stocks advises:
‘This is a different gold bull market, and most bullish of all is the fact that it is still a stealth bull market. The voice of the global market is just starting to express a declining confidence in the dollar. I believe we are still in the very early stages of a major gold bull market. We have a long, long way to go toward $3,000 and beyond.’

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Holding Physical Gold
So how do you get into gold? The first and most obvious option is buying physical gold. If you don’t own gold, you might want to start buying some now. At a minimum, you should have enough physical gold to keep you afloat for two or three years. If you can’t afford that much, you should begin to buy what you can. Don’t stop until at least 10% of your savings are in precious metals.

What You Should Be Buying
I recommend sticking with the five most commonly traded gold bullion coins in the world: 1. South African Krugerrand Kruggerands were the most commonly traded coins in the last gold bull market and are still commonly traded today. 2. Canadian Maple Leaf The coin was first minted in 1979 and was an instant success. Like the Krugerrand, it contains a full troy ounce of gold. It actually has a face value of $50 (Canadian Dollars), which is far less, of course, than the value of the gold it contains. 3. Australian Kangaroo The ‘Roo,’ as it’s called, replaced Australia’s ‘Nugget’ coin. It, too, has 1 troy ounce of gold. 4. Chinese Panda The Panda was first introduced in 1982, and remains a popular choice for gold buyers – but be careful, as it also has numismatic (collector) value. The premium charged on Pandas by the Chinese mint is higher than that charged for Krugerrands, Eagles, or most other gold bullion coins. Although this may make Pandas slightly less attractive to investors interested purely in their gold content, it does not appear to have deterred collectors. 5. American Eagle This is the gold bullion coin favoured by USA buyers. It is the equivalent to the Kruggerand. When buying gold and silver coins, be sure to buy top quality
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coins that aren’t damaged in any way. Nicked or scratched coins won’t get you the full value when you go to sell them. And make sure that you are not paying a big premium for them – 5% or 6% is the absolute limit, in my opinion. I must mention eBay. Amazingly you can buy gold coins on eBay pretty much any day of the week and the price is almost always exactly the ‘spot’ gold price for the day as it is a very efficient market. I have both bought and sold gold coins on eBay without any problem, but obviously apply the usual precautions, particularly as this is quite a high ticker purchase.

What, Exactly is Gold Bullion?
Let’s look at gold bullion in a little more detail. First, I’ll explain what gold bullion is and what it is not. Bullion is a standard of money (usually in the form of coins or bars) that uses a specific quantity of pure gold to determine its value. Bullion can usually be converted easily into the currency of other countries. In other words, gold bullion is a precious metal coin or bar whose market value is determined by its inherent precious metal content. The cost of a one-ounce gold bullion coin is usually closely linked to the spot (current) price of gold. The spot price of gold can be found on hundreds of financial websites, including Kitco.com, TheBullionDesk.com, and Bloomberg.com. The site I use the most is www.goldprice.org

The Gold Cycle
Gold markets follow a fairly predictable cycle. That’s right – predictable. An investor can make money in any gold cycle. However, it’s important to remember that there are several gold markets – and the markets for rare gold coins, numismatic coins, and bullion are similar but not identical. These gold products usually follow the general trend of spot gold, but there can be fluctuations within gold markets too. For example, the price of bullion can spike upward, while the price of gold coins can lag behind.

Gold Bullion – in a Class of its Own
Bullion coins have a universal exchange value in practically every country of the world.

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You’ll find that gold bullion is enthusiastically accepted by local merchants and businessmen in Mexico, Egypt, Dubai, Hong Kong, China, and Malaysia. The actual “street value” of gold bullion can be difficult to agree upon, especially if you’re in the middle of nowhere. But world gold bullion spot prices can be easily obtained from almost anywhere that has access to daily newspapers, mobile phones (or iPhones, iPads etc.), and the Internet. In most cases, if you present a rare or numismatic coin to a merchant or businessman there’s a good chance you will not receive anything like the true value of the coin. Gold bullion, on the other hand, is super liquid. Which means it’s easy to buy and sell quickly in almost any currency. Gold bullion is also a powerful tool for exchanges and trades. Numismatic rare coins can be quite valuable. But in terms of street value, they’ll never compare to the exchange value or liquidity of gold bullion. In severe market downturns, depressions, economic calamity, or social unrest, I prefer spendable and exchangeable gold bullion over ‘priceless’ Middle Eastern coins from the Roman Empire. The strategy is simple – bullion coins are universally accepted. Rare and numismatic coins are not, because they’re a specialized market. You can buy (or sell) gold bullion at fair market prices online in a matter of seconds. There’s even a thriving market in bullion coins on eBay, as I mentioned. Most dealers will charge a small premium of a few percent that will be added to the spot price if you are buying or subtracted from the spot price if you are selling.

What to Avoid
Don’t buy jewellery as an investment – it rarely is. You’ll pay many times the actual melt down value of gold for a piece of jewellery. Please also avoid the special memorial coins you see advertised on late night TV. These have sentimental value and some intrinsic value, but in most cases they are nickel-filled (because copper is currently too expensive) with a thin gold plating on top. They are not typically considered viable investments, and they’re next to
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impossible to sell in the open market for what you paid. Often, they are utterly worthless.

The American Gold Eagle Bullion Coin
Gold bullion is minted in countries around the world. But the standard of gold bullion coins is still the American Eagle, the official gold bullion coin of the United States. If you are a gold newbie, I strongly urge you to start out with a small collection of American Eagles. Kruggerands are also a good starting coin. Authorized under the Gold Bullion Coin Act of 1985, the Eagle was first released by the United States Mint in 1986. It is offered in various sizes: 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz denominations. The one-ounce gold American Eagle has a diameter of 32.7mm, a thickness of 2.87mm, a total weight of 1.0909 troy ounces. An odd weight, you may think, but that’s because the coin is not pure gold – that would make it too soft to use. Instead, it is 22 karat gold mixed with an alloy of silver and copper to help increase the stability and scratch-resistance of the coins.

How Much Gold Does a Coin Contain?
Most gold bullion coins (and certainly the American Gold Eagle) are guaranteed to contain the stated amount of actual pure 24 karat gold weight in troy ounces. (One troy ounce is equal to 31.10 grams, slightly more than a conventional ounce.) The bottom line is, if you melted a one ounce Eagle or a Kruggerand down and chucked out the alloys, you’d be left with exactly one troy ounce of pure, 24 karat gold. Remember, the market value of the coins is generally about equal to the spot market value of their gold content, not their face value. So their actual selling prices vary daily based on the current spot price of gold. The United States Mint also produces a “proof” version of the Eagle for coin collectors. A proof coin is a coin struck using a special, high-quality minting process. Modern proof coins often have a mirror-like appearance. The term “proof” always refers to a type of coin, or the way it was struck, and not to a coin’s grade or the amount of precious metal it contains. There are many ways to make money in the gold market. An investor can trade gold futures contracts, or invest in gold-backed CDs or even rare coins and numismatic markets. But investing in the gold market with bullion is a viable option and one of the safest and easiest to get into. Believe me, there’s nothing

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like the feeling of having a few tens of thousands of pounds in real, tangible gold hoarded away!

What About Mining Stocks?
Another way to hedge against inflation is to buy mining stocks. But you must be careful when doing this, so I’ll only mention it briefly. The mining business is problematic. It requires lots of expensive employees and capital equipment. Key employees jump from one company to another without notice – especially when the market is good. In addition, the mining industry now faces extensive environmental and other regulations. That generally means two things: inefficiency and extra costs. Like so many investment-related industries, the mining stock business is crowded with cheats. As Mark Twain said, ‘A goldmine is a hole in the ground with a liar standing next to it.’ And if all that were not enough, know this: Mining is a boom and bust industry, thanks to price swings and the unwillingness of banks to lend to small miners when commodity prices are low. These days, due to the scarcity of easily mined deposits, it costs almost as much to get the stuff out of the ground as its worth on the open market – so profits are slim. All these problems discourage smart investors from putting their money into mining companies. And that is why, during the 20-year bear market in metals (1980-1999) it was possible to buy mining companies very cheaply, based on their fundamental values. But all that changes when precious metals prices climb. Gold mining stocks move up first and fastest. But silver quickly follows gold. Platinum, copper, and palladium can shoot up too. Recently, the cost of mining stocks has been lagging the price of gold, and that means they are extremely attractive right now. This anomaly will not last with coming higher precious metal prices. Many people are saying now is a good time to snap up some mining stocks.

Precious Metals Pooled Accounts
You don’t have to bury gold in the backyard to profit from precious metals.
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Precious metals pooled accounts enable investors to own gold or silver without having to hold metals in a safety deposit box, burying it in the backyard, or stashing it in their home. The purchased metal is “pooled” with the metal of other investors, which enables everyone to save on storage or maintenance fees. Precious metals pooled accounts are subject to risk, including the possible loss of principal due to market price movement. So keep this in mind. Investing in precious metals pooled accounts is not suitable for everyone, but it is one way to own precious metals in times of uncertainty and as a hedge against inflation. Two companies that offer precious metals pooled accounts are EverBank and Kitco.

Buying Larger Amounts
One company I have used a lot for buying larger amounts of physical gold is:
http://www.goldinvestments.co.uk

They are based in The City.

In Summary
I don’t want to make this report too long and risk boring you. You’ve either got the message by now, or you haven’t. The bottom line is this. Major governments are running the printing presses flat out to produce worthless paper money with which to flood the economy. This can only be inflationary in the medium term. You don’t need to be an economist to get that. Add to that the extreme jitteriness of ordinary folk about governments, banks, economies and currencies. They probably have less faith now than at any time in the past. Mix in the fact that China and India are buying gold hand over fist. Toss in the decreasing output from the mines and you have a recipe which can only make one cake – a gold bubble. It is my belief that a gold bubble is imminent as the real feeding frenzy gets underway. That does not mean that you won’t see a correction downwards. Even as I am typing this, gold is nose-diving precipitously and has dropped $100 in the
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last day or so. That’s to be expected. Nothing goes straight up. Buy on these dips. Gold could even go as low as $1500, so don’t panic (in fact that’s a great buying opportunity). Finally. I am not telling you to do something I am not doing myself. I have put my money where my mouth is and currently have £650,000 invested in gold. That’s a big punt, I hope you agree. I could be totally wrong of course. Nothing is certain in the investment game. You need to do your own due diligence and make a decision for yourself whether to get into this or not. The only thing I would say is to repeat what I stated at the beginning of this report – don’t dabble or play. It’s not worth bothering with if you put a few hundred (or even a few thousand, probably) into gold as the gain will not excite you. In conclusion, gold is set to perform with or without major calamities coming our way. You stand to do exceedingly well with precious metal investments in the coming months and years. You can even hunker down for doomsday, if you want, secure in the knowledge that gold will always have good buying power when fiat currencies are crashing and burning. What I’ve provided here is enough to get you interested. I hope you’ve started thinking seriously about protecting yourself from inflation by investing in precious metals, especially gold.

All the best to you

Stuart Goldsmith www.stuartgoldsmith.com

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