“The Real Price of Gold”

The price of gold slipped slightly last week, which is in stark contrast to what the so-called “experts” said to expect long term.  Analysts at Morgan Stanley and UBS said Wednesday they expect gold prices to trade higher in 2009, benefiting from some safe-haven buying as well as long-term concerns about inflation.

One expert said that he expected gold to see $900 per ounce this year and $1000 by 2010.   That’s exciting, if you’ve already bought extensively.  It’s a little frightening, if you’re sitting on the sidelines.  And for all of us, it’s confusing, isn’t it?

While all of this is going on, the venerable National Geographic Magazine has a cover story on gold in this month’s issue.  It’s titled “The Real Price of Gold.”

I’ve always thought that the National Geographic writers tell a good story; this one doesn’t miss the mark.  It begins with the story of a Peruvian man who risks life and health to work in a gold mine high in the mountainous area of his homeland.  He works for free for 30 days of the month and in return, on the 31st day of that month, he’s “paid” by being allowed to mine all the rock and ore that he can carry out in four hours.

The work is back-breaking.  Other miners have died of cave-ins, toxic gases, and poorly controlled explosions.  But this miner continues, sure in the idea that someday, his luck will change and the mountain will give him some of her treasure.

The article is fascinating reading about the metal that has fascinated man since time began.   Wars have been fought, lives taken, and religions built around items made from gold.  Think about it: gold is not vital to our survival.  It’s only value is whatever value we attach to it.

Gold has a unique place in man’s life, down through the ages.  Pharaohs liked being buried in it, modern man uses it to symbolize commitment and to make replacement teeth.  But throughout, we have defined wealth and status using gold.  We have used it to adorn our bodies and our homes.  We have made it the standard to be attained.

The article is interesting.  It’s something that every person who is interested in gold as jewelry or as an investment should read.  And let me leave you with one thought that I gleaned from its pages.

“Gold has always had this kind of magic,” says Peter L. Bernstein, author of The Power of Gold. “But it’s never been clear if we have gold—or gold has us.”

Platinum and Gold: When Metals Collide

Although platinum is 30 times rarer than gold, the two metals’ prices collided throughout the day and finally closed with gold at $822 per ounce and platinum at $823! Today’s $1 spread was nothing short of historical for precious metals; the last time platinum and gold met at such close quarters  was 1996!

Platinum has plummeted 65% for the year; gold has dropped 21%–making platinum next year’s bargain.

Metals had already seen a decline due to decreased consumer demand as a result of the economic downturn.  Adding to the ailment, platinum prices dropped further after the U.S. senate rejected a “bail out” for automakers today–deepening platinum’s fall from grace because of decreased demand for platinum in automobiles who use platinum for catalytic converters.

(Bloomberg) — According to London based metals refiner, John Matthey Plc, automakers make up about half of the world’s platinum and palladium demand. In 2006, North American automakers used 905,000 ounces of platinum.

According to Derek Engelbrecht of Impala Platinum Holdings, “the agony will continue in 2010″, if platinum miners in South Africa, who account for almost 80% of the world’s platinum supply, do not cut production. Without it platinum will, at best, stay at equilibrium or continue to decline.

2009-2010 will be the year of platinum jewelry as a direct result of decreased platinum jewelry prices. Perhaps now is the time to trade in your gold coins and buy that high-end platinum and 18k gold wedding band!

Snapshot: Gold Mining in the Philippines

The interesting thing about the internet these days is that we can see the inter-play of gold prices and the international economic climate.  We can read about laid-off retail workers in England, nervous buyers in Israel and the Mideast, and frightened consumers around the United States.

But we can also see a bright spot, like the gold market.  The gold market is steadying fears around the globe as well.  The reason?  Historically, gold has been the benchmark of wealth and luxury across centuries, including in stressful economic times like we’re seeing.  And because of the internet, we can peak into the history and current thinking in far away countries, for instance in the Philippines.

During the Great Depression that hurt the United States from the late 1920s to the early 1940s, a gold boom was underway in the Philippines, where Americans established the country’s first mining enterprises, according to a top Philex Mining Corp. official.

This bit of history has given Filipino miners hope that they can ride out a prolonged recession when it hits its hardest there in 2009.

It is only gold that offers a measure of hope for the industry next year, when the looming recession is expected to take its toll on the economy, said Louie Sarmiento, who is president of the Philippine Mine Safety and Environment Association.

“The gold mining activities will continue on account of the good price of gold, and there are projections they will be maintained, if not [escalate] next year,” he said.

According to the Jose Ernesto Villaluna, President of Philex Mining Corp., the sector takes comfort and refuge in the parallels between 2008 and the gold rush of the 1930s, when the US began experiencing the pangs of the 1929 depression.

“If you look at the Great Depression in the [1930s], the common denominator was gold,” Villaluna said. “[President Franklin Delano] Roosevelt upped the price of gold from $19 to $35 an ounce and that was when all the gold mines boomed.

He was referring to the enactment of a US Gold Standard, which defined the value of the currency of many countries against a specific volume of gold quantities.  That was retracted when the American government introduced a gold reserve law making it illegal for people to own gold.

This law pushed gold prices from $20.67 per ounce to $35 per ounce at the time.  Now it’s over $800 per ounce.

At the same time in world history, the gold industry experienced a boom, even in the Philippines growing from 89 mine claims applied for in 1905, to 544 mine stakes in 1906.

Gold has always been a store of wealth in times of uncertainty.  It will be the stable place to be during whatever lies ahead.  Gold continues to fulfill its role as an asset for uncertain times and demand is strong.  It’s an investment you can be certain of, even as we continue to watch the markets in turmoil.

Mining Companies Prepare for Long “Winter”

Goldminers and the companies they work for are “hunkering down” for a long and difficult winter, but not the one we normally think of. North American mining companies are preparing to ride out the winter of a global economic slowdown; looking to rein in spending and perhaps delay some projects and exploration.

They have come along way since the picture to the right (circa 1874) was taken.  But gold prices fell last week and are expected to fall even further in the face of a strengthening dollar and Euro. The world’s largest gold producers, Barrick Gold Corp. and Newmont Mining Corp., are wrestling with volatile commodities prices, fluctuating oil prices, inflation and the frozen American credit markets. Analysts are predicting they will lower production in the year ahead, but the impact will be even greater overseas, where most of the world’s gold mines are to be found.

“With the way commodity prices have come off in the face of a slowing global economy, what the miners are doing is starting to evaluate all their ongoing projects,” Argus Research analyst Bill Selesky said Friday. “It’s all because of the credit crunch.”

2008 started off as good year for the miners. Denver-based Newmont reported a fivefold jump in its first-quarter net income and Barrick swung to a profit.

But as the global economy began to falter, gold fell. The price is down to around $720 an ounce this month. At the same time product costs, like fuel and machinery, spiked. Gold is competing with the dollar as a safe haven for capital, but it may be losing ground.

“Gold supporters, in our opinion, are losing some faith,” JPMorgan analyst John Bridges wrote in a research note.

UBS on Friday revised its 2009 forecast for gold to $700 an ounce from $825 an ounce. Still the miners believe gold will hold its value compared to other commodities.

Barrick’s founder, Peter Munk says “The decrease in value over the past four or five months in gold is a fraction of what all the base metals, oil, sulfur, wheat, soybean, lead, nickel has gone through, which again, indicates the tremendous monetary value of gold as a means of creating high-level liquidity in terms of panic.”