2012 Gold Investment Guide
2012 Gold Investment Guide
2012 Gold Investment Guide
Gold: What It Is, How to Invest It, Where It Comes From, and What You Can Do With It Today
PREFACE
Be warned though, not every single gold investment vehicle is right for you, and thats why I dedicated a whole chapter, chapter eight, to highlight to you the different gold investment vehicles that you can utilize. If you really want to capitalize on this market then I strongly urge you to jump forward to chapter eight and chapter ten right now. After reading just these two chapters, you will realize exactly what Im talking about, and understand exactly where golds going and which investment vehicle is right for you. Im not saying that the rest of the book isnt worth reading. In fact, if anything, Im saying the complete opposite because I believe as an investor you need to equip yourself with all the knowledge, resources and tools that you need to be successful. Knowing the history of gold lets us better understand the future of this precious metal investment. I hope you will enjoy this book as much as I have enjoyed putting it together for you. Take what is printed between these two covers, learn it and then use it to create wealth in 2012! Good luck.
This is a sample chapter from my 84 page ebook 2012 Gold Investment Guide I hope you have enjoyed it. You can download the full version completely free, by visiting our website and filling out the Free registration form. http://www.emc-intl.com/ebook/register.html
DISCLAIMER: Past performance is not indicative of future results. Trading in the commodities markets carries a high degree of risk and may not be financially suitable for all the public. There could never be any guarantees of future gains. This book does not constitute a solicitation or offer of any kind. You must consult your financial advisor before engaging in any type of operation.
Contents
1.0 The Ornate History of Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.1 Beginnings of the Gold Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.2 The Early Gold Coin Ideals and Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.3 The Bank Note and Silver Currency Crisis of 17501870 . . . . . . . . . . . . . . . . . . . . 13 1.4 England and the Gold Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.5 United States and the Gold Market in the Early Days . . . . . . . . . . . . . . . . . . . . . . . 14 1.6 The Gold Rush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.7 International Gold Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.8 Japan and the Gold Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.0 The Gold Exchange Standard (18701914) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.1 Impact of World War I (19141925) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.2 The Gold Bullion Standard and the Decline of the Gold Standard (19251931) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.3 Depression and World War II (19321946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.0 The History of Gold as a Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.1 Hard and Soft Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.2 Examples of Hard Currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.3 Hard and Soft Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.4 Fiat Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.5 The history of fiduciary money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.0 Gold Reserves and Banks Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.1 The Largest Gold Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.2 Who Owns Most of the Worlds Gold, and Whats it Worth? . . . . . . . . . . . . . . . . . . 31
5.0 Gold mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.1 History of Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.2 Placer mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.3 Panning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.4 Sluicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.5 Dredging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.6 Cradle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.7 Hard Rock Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.8 Byproduct Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.9 Gold Ore Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.10 Cyanide process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.11 Business Side of Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.12 Adverse Effects of Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 6.0 What Influences Gold Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 6.1 Gold supply and demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 6.2 Other Gold Uses in Everyday Fashions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.3 Peak Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.4 Additional Factors Influencing Gold Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.5 Gold is a Hedge Against Financial Stress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.6 Investors are Pleased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 6.7 Margin or Short Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6.8 Jewelry Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 6.9 Gold is Very Portable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.10 Central Banks and Their Interest in Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.0 Investment Strategies for Gold Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.1 Financial Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.2 Leverage and Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.3 Popular Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.4 Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.5 Fundamental Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.5 Gold Versus Stocks When it Comes to Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.6 Technical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 8.0 Investment Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.1 Bars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.2 Bullion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 8.3 Scrap Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 8.4 Coins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 8.5 Exchange-Traded Products (ETPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.7 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.8 Gold Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.9 Derivatives, CFDs, and Spread Betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.10 Gold Options and Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.11 Junior Gold Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.12 Mining Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 9.0 Gold Price Trends over the Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.1 Another Option for More People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 9.2 The Different Financial Uses for Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.3 One Spike in Several Decades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.4 Gold Price Movements in 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 9.5 Was 2011 a One Off Year? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.0 Gold Price Predictions for 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.1 European Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 10.2 Are the Banks a Good Option? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 10.3 What Else you Need to Know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 10.4 The $2000 Barrier May Fall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 10.5 Long Term Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 10.6 Bad News Isnt Always Bad News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 10.7 A Property Price Rise Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 10.8 Sell in a Rush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10
The proximity of the rivers and the ingenuity of the Mesopotamians meant they could carry goods in boats to markets downstream. After inventing the wheel, they were also able to carry goods in wagons, which gave them even more flexibility in bringing crops to buyers. Today, we use money to track the value of our purchases, and our modern accounting methods rely on assignment of a price to everything that is bought and sold. Mesopotamians had no such structure, as individuals had always been responsible for producing the goods they needed on their own. Any trade was small scale, a direct agreement between the producer and the person trading, which meant complex arrangements had to be made with a variety of products. As the ancient economies grew, the barter system they had been using became difficult to manage. Contact between traders was indirect, and the quantity of items being bought and sold was far greater than at any other time in history. Scribes recorded business transactions on clay tablets, but the Mesopotamians needed to simplify the trades in order to grow their business. It was at this moment in time that gold gained the critical importance it still maintains today. A system of weighted gold ingots was developed to measure the value of goods being traded. While the general population did not use gold ingots the way we use money today, businesses relied on the ingots to account for items that entered into the market. Rulers and temples liked this new accounting method, as they were better able to mandate taxes.
11
Before long, the ease of using gold coins for trade began to spread to other parts of the world, and other countries quickly adopted the idea for their own economies. Greek city states became the next to transition almost entirely to a coin-based system, made easy when their ruler, Philip II, acquired gold and silver mines from which to obtain a precious metal supply. When his son, the man known as Alexander the Great today, took over rule of the empire he added Persia to the areas under Greek control. As the Persians had a massive gold treasure they collected from areas in Northern Afghanistan, Alexander then had control of an additional 22 tons (approximately 700,000 troy ounces) of gold. Both rulers primarily relied on gold coin for military use, as they paid soldiers and obtained military supplies with the easily transported metal. It was in Greece that the tradition of stamping lions and bulls on the face of coins transitioned into the stamping of heads of kings. Romans, too, saw the benefits of using gold coins to pay their armies, and they also elected to mint their currency with an engraving of the emperors head on the front. Early Roman gold coins were called aureus, and they weighed 7.3 grams or .23 troy ounces. A pound was made up of 45 aurei. It was the Romans that minted large numbers of coins, which made them accessible for traders to use around the world. By some estimates, there were hundreds of millions of coins minted in Rome between 200 AD and 400 AD. To give an idea of the value of the currency, a single aureus could by 28.57 gallons (400 liters) of inexpensive wine, or 200 pounds (91 kilos) of flour. Over time, there evolved a need for single coins with less value, so the solidus was introduced. This smaller coin weighed only 4.4 grams or .14 troy ounces. When the Roman Empire fell just after 400 AD, the widespread minting and use of gold coins was interrupted for nearly a thousand years. While there were some coins being minted in Constantinople by the Byzantine emperors (known as the bezant or nomisma), the pervasive use that seen in Ancient Rome was no longer the standard. It wasnt until Venice rose as a major economic power that its beautiful ducats, made of both silver and gold, started the spread in Europe of coin as currency again. Resumption of minting began in a limited manner, because the discovery of new gold supplies was not nearly as common as it had once been. In some economies, silver was the precious metal of choice for coinage, and Venice coins dated for the year 1081 only contained 6 carats of gold. African nations rich in gold mines tended not to export the precious metal to European countries. Instead, they created their own coins after 700 AD. The dinars were minted in Baghdad, Tripoli, and Damascus, and they were adorned with Arabic script in beautiful calligraphy. Because the coins were used for trade in the Islamic Empire that was growing steadily, they had to respect Islamic law that did not permit people to be depicted. Nations on the European peninsula started to trade regularly, and in large quantities. With African nations beginning in the year 1200, gold and silver coins were brought into the forefront of national economies once again. The merchants needed stores with which to track their goods, and coins provided a simple and convenient way to do so. Sicily had a mint by 1231, and Genoa and Florence followed in 1252. By 1284, Venice opened its own mint, cementing its place in the world as the primary market for gold. For the next
12
500 years, Venetian ducats weighing .114 troy ounces (3.55 grams) gained popularity that first met, and then surpassed the common use of Roman aurei. Possession of gold was a symbol of status, separating the rich and powerful from the common folk. Before long, every major country was producing unique gold and silver coins, including Britain, Spain, France, and Portugal. Many suggest that travels to the New World were motivated by this gold fever, as the monarchs pursued new sources of the precious metal. Shortly after the Americas were discovered, shipments of gold began traveling their way back to the nations that sponsored the journeys, and minting with American gold became common over the course of the 1500s. Brazilian gold was the primary metal used in British coins by the 1690s, putting Britain on an unofficial gold standard of currency.
13
of these maintained the gold standard as each was backed 100% by gold holdings. This formalized Britains adoption of the gold standard.
1.5 United States and the Gold Market in the Early Days
Across the Atlantic ocean, the United States unofficially selected a silver standard in 1785. This became official in 1792 with the Mint and Coinage Act. Though intended as a silver standard, the US did not, in fact, require that each dollar be backed by silver holdings. Instead, a ratio of gold to dollars was established, creating, in effect, a bi-metallic standard. Both gold and silver coins were legal tender throughout the country, but by 1806, President Jefferson determined that the minting of both metals was unsustainable. The country was deeply in debt as a result of the Revolutionary War, so all silver government coins were removed from circulation and only gold were used in an attempt to alleviate the problem. The US needed to be able to trade with England, which was only working with gold. Speculators began risking everything to find gold deposits, sparking the famed California Gold Rush in 1849. The 1857 suspension of all silver payments by US banks set off a ripple effect that dramatically shook international financial markets.
14
15
This is a sample chapter from my 84 page ebook 2012 Gold Investment Guide I hope you have enjoyed it. You can download the full version completely free, by visiting our website and filling out the Free registration form. http://www.emc-intl.com/ebook/register.html
16