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DEFINING THE MEANING OF OUR WORDS

I was on a call to my good friend and colleague, Howard Flaherty, discussing a deal that had been frustrated by constantly changing requirements and undefined boundaries.

We agreed that we are living in a time where, as a society, we have moved away from what Howard described as “absolute ethics” to shifting “situation ethics.” “Our words are so important”, he continued, “this change in society could never have happened without us first changing and re-defining the meaning of our words. In today’s world we have re-defined the meaning of old words and created new words, and then we have embraced these words and adapted them to suit our shifting ethics."

An interesting observation I thought, and one that doesn’t only apply to our business, asset allocation and investments, but to nearly every aspect of our lives.

Today, Howard looks at words from the standpoint of our asset allocation and investments.

A GAME YOU CAN’T WIN
Try playing a game where the rules are constantly changing to benefit your opponent. Moving goalposts, rules and boundaries re-defined; it seems like you can’t win. People trapped in games like this usually lose, and quit out of frustration.

When it comes to the area of wealth management, asset allocation and investment, it is common for the unsophisticated or casual participant to feel like the game is stacked against them. The question begs to be answered, "How can we ever expect to win?” 

In today’s world, when a person decides to partake in the investment and asset allocation game, the words that motivate and drive their judgement need to be fully and correctly clarified to insure the action taken produces the desired result, words like; value, quality, security and stability. Long-term success for this individual will be greatly enhanced by defining the true meaning of these important words, while failing to do so almost always guarantees a painful loss.

VALUE
All to often today, “value” is misunderstood. Too much emphasis is placed on items and things that contain little or no “intrinsic” value.

For thousands of years, precious metals (gold and silver) have acted as an unrivalled storehouse of intrinsic value. Historically, gold and silver were the underlying backing for transitory currencies such as paper notes. In fact, the value of a paper note formerly stated on its face that it represented real gold or silver, that was being held in a secure location somewhere as a “backing” to those paper notes. In the not-to-distant past, the intrinsic value of a dollar was backed by something real and substantial. This is no longer the case - the rules have been changed. We are told to trust first and "we'll explain the rules later.

All paper currencies, assets or investments today are backed only by the “faith” and “trust” in the issuing government or financial institution. We have started to discover in recent years however, that these paper currencies, assets and investments have no “intrinsic” value in themselves, and are only as good as the faithfulness and trustworthiness of the leaders of that government or financial institution.

Holding gold and silver still provides defined intrinsic value to the owner not found in other asset classes. The rules have not changed and the word ‘value’ still means something in today’s world. Knowing this gives you power.

QUALITY
Beware of those who would redefine “quality”. A rush of excited investors desiring a quick return should not determine the quality of an investment.

Few investors are either lucky or well-informed enough to always buy low and sell high. A good recent example is the collapse of numerous dot-com and high-tech companies. It illustrates how the excited investor may not accurately define quality or predict the future. Billions of dollars were lost overnight when the “quality” of the investment was tested by real market forces. In many cases, the investor lost everything. The true quality of an investment is sometimes best recognized when the fickle investor disappears and emotion has subsided.

Holding gold and silver is a quality investment, from a fundamental standpoint. Each year far more of the precious metals are consumed than are mined, primarily because of their usefulness in a technological world along with expanding jewellery demand globally each year. Eventually this supply to demand “gap” will push gold and silver to far higher prices.

Holding gold and silver offers the investor real and growing quality as an investment.

SECURITY AND STABILITY
Humans have, and always will, be attracted to the security and stability inherent with the precious metals.

Their security and stability can be defined, measured and verified. Historically, they have been the money of choice for people worldwide, and the number one storehouse of wealth. While this time-tested pattern has been challenged over the past half-century, today there is a resurgence of governments around the world wanting to move back toward the gold standard and people returning to using gold and silver as a storehouse of wealth.

CONCLUSION
Do not be fooled by those who would redefine words. When has gold or silver ever lost their value? When have the owner and investor of real gold and real silver ever seen their value disappear like the value of government's currencies or company's shares?

Are you seeking intrinsic value? Do you want to possess genuine quality? Is the security and stability of your wealth, assets and investments important to you? Well-defined asset allocation should always include some gold and silver holdings if the true meaning of these words is something appreciated, respected, and regarded as meaningful.

by Howard Flaherty
© copyright 2003

Howard Flaherty heads up the North American office of the Anglo Far-East Bullion Company, and is a contributor to the AFBC research team.NORTH AMERICA AFFILIATE OFFICE
EMAIL

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THE MARKET
Most notable in the precious metals markets recently has been the increasing silver price, which has continued up even in the face of (traditionally) bad silver news. Silver is now holding a steady and impressive 20% gain over a 4-month period, recently breaking above the significant $5.00 per oz level for the first time in several years.

The outlook for silver remains incredibly good. Anyone that has looked at the fundamentals (supply and demand) of the silver market, understands that it has a long-long-long way to go as we move forward. Silver is an exceedingly underestimated market, even amongst precious metals advocates. More next issue.

Gold has remained firm, despite so many analysts predicting a collapse in the price. This week, the old mining town of Kalgoorlie in outback Western Australia played host to it’s “Diggers and Dealers” mining conference. In my opinion, the thing that this year’s conference has continued to exhibit to the world is that the gold community remains deeply divided on several issues including the future price of gold, and the size of physical short positions.

GOLD PRICE
Newmont Mining Ltd president Pierre Lassonde said at the conference that the gold price is set to soar as high as $US450 per ounce in the next 12 months, and linked it to some interesting observations over the US economy.

“Key to the rising gold price is the unsustainable $US550 billion United States' trade deficit. The only way to reach a balance is to have the US dollar continue to depreciate against a range of other currencies” he said.

"Therefore the gold price will continue to go up in US dollar terms, and our view is that in the next 12 months you're going to see it up to $US450. " Mr Lassonde continues “recent signs of a US recovery are politically induced and will not last beyond the next US election.”

GOLD SHORTS
Reuters newswires put out this dispatch from the conference; “Central banks worldwide sold a combined 280 tonnes of gold in the first half, but still hold enough to match global demand for nearly a decade, Tim Spencer, a researcher for Gold Fields Mineral Services told Reuters on Tuesday. The sales hardly made a dent in central bank caches of the precious metal, the banks still hold 32,200 tonnes of gold, Spencer said.”

As many know, Tim Spencer’s comments are far from accurate. Central banks may officially report 32,000 tonne on their balance sheets, but as we have commented many times, due to bullion leasing, they physically hold much less. As James Turk puts it “how much less is a hotly debated.” Turk continues “many people continue to accept the results prepared by Gold Fields Mineral Services, which have generally stated that around 5,000 tonnes have been removed from central bank vaults.

James Turk, as myself, and much of the gold community, reject the numbers from GFMS simply because they do not reflect the amount of gold leased and sold into the physical market by commercial bullion banks. Research and analysis by the likes of Frank Veneroso and Reg Howe, and accepted by much of the industry today, indicate that up to half (15,000-17,000 tonnes) of the central bank reported 32,200 tonnes of gold have already been removed from central bank vaults and sold into the physical market.

All this points to sudden and dramatic prices rises in the future, as these short positions are unwound and the gold re-paid. Question; where does the gold come from to pay back the shorts? It can’t come from the physical market (without dramatically higher prices) as demand already far exceeds supply. It can’t come from new mine production (around 2500 annually) when we are not even producing enough annually now even to meet present market demand. Add to this that price increases related to unwinding these short positions don’t factor in any of the other monetary or economic issues like a tanking US dollar as raised by Pierre Lassonde this week. One day the industry, market and world will wake up to the reality that the world is very-very short of gold.

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NEXT SCHEDULED TELECONFERENCE

"Investing in Precious Metals and Some of the Pitfalls"

AFBC hosts regular telephone conferences to keep its clients informed world-wide. Conference participants have the opportunity to have their questions addressed by qualified educators.

NORTH AMERICA
Tuesday evening 19th August 2003 9.30PM Eastern Time

AUSTRALIA/NEW ZEALAND
Wednesday evening 20th August 2003 8.30PM Eastern Time (Australia)

AGENDA (total run time 60 mins)
Introduction (5 mins)
Investing in Precious Metals and some of the pitfalls (35 mins)
Q & A (15 mins)
Close (5 mins)

More information and registration LINK

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INTERNATIONAL INVESTOR– 8th August 2003 . Philip Judge

Many legal, financial and civil liberty observers have argued that, while it completely destroys personal, corporate and financial freedoms for honest law abiding citizens, it is completely ineffective in combating and controlling terrorism and the movement of illegal funds.

This week a lawsuit filed by the American Civil Liberties Union in the federal court of the Eastern District of Michigan, seeks to dismiss provisions of the Patriot Act on constitutional grounds.

The suit focuses on Section 215 of the act, that lets the FBI secretly obtain personal records and belongings, INCLUDING those of individuals NOT suspected of criminal activities, in the course of antiterrorism investigations. ACLU spokesperson said "this section allows the government to snoop and spy on people merely out of interest, it's just un-American."

The ACLU claims the act breaches constitutional protections against illegal search and seizure. The suit also accuses two defendants, Attorney General John Ashcroft and FBI Director Robert Mueller, of violating the First Amendment by authorizing the investigations of people based on activities that are constitutionally protected as free expression, free association and free exercise of religion.

It is good to see that there is growing backlash and opposition to the US Patriot Act, even from within Congress itself. Last week, the House of Representatives voted by a wide margin to pass a measure that would repeal a portion of the Patriot Act. This amendment will take away federal investigators' power to conduct unannounced sneak-and-peek searches of homes and businesses.

Sadly Australia, which has passed simular draconian legislation as the Patriot Act, is not yet experiencing the same grassroots resistance as in the US.

SWISS BANKING AND FINANCIAL SECRECY
About 58% of Swiss support Switzerland's banking secrecy laws in their current form, according to an opinion poll released in early August by the Swiss finance ministry.

Swiss authorities are currently relaunching a campaign in an effort to clean up the country's international reputation. This is very interesting to me, having just returned from a week in Zurich and Geneva and having spent time with members of the financial and banking community in that country discussing this subject.

Mr. Kaspar Villiger, Switzerland’s finance minister, has stated that the nation is not an “offshore” centre, nor an ideal place to hide illegal funds, and of-course he is right. Without question, Switzerland maintains far higher internal banking regulation and “know your client” record keeping than almost any other jurisdiction in the world.

This is something we know from personal experience. Anglo Far-East is dealing in financial services in multinational jurisdictions on a daily basis, and are able to gauge 1st hand various nations approach to financial self regulation, “know your client” and due diligence.

I don’t know whether Switzerland will ever successfully address the negative reputation it has unjustly gained as a centre that handles illegal funds. In my opinion these charges and claims have primarily been brought about by the half-truths and miss-information of high taxing, intrusive nations that don’t like the financial competition that Switzerland posses.

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GOOD QUESTION
Q: If I open a Bullion Account, what is the minimum amount required to credit my bullion account?

A: We have no minimum, however the funds required to credit your account with silver or gold bullion must be sent to one of our settlement accounts. In most cases this will require the account holder to send funds via an international funds transfer (sometimes referred to as a bank wire or telegraphic transfer). International funds transfers can cost up to $40 in fees (depending on the banks used). Therefore, sufficient funds should be sent to make this funds transfer (after bank fees) cost effective.

We have many clients that treat their bullion account as a regular savings account, and will credit their bullion account with an amount of just a few hundred dollars each month. Bullion accounts suit many people, as their savings are in the tangible form of gold and/or silver, internationally diversified, and they maintain full and outright ownership.