home
***
CD-ROM
|
disk
|
FTP
|
other
***
search
/
Electronic Bookshelf
/
Electronic Bookshelf.iso
/
money
/
swiss
/
gld.txt
< prev
next >
Wrap
Text File
|
1994-07-17
|
16KB
|
282 lines
GOLD -- AND THE SWISS METHOD OF ACQUIRING IT
Gold is a traditional means of inflation
protection. Some investors have been disappointed with
the performance of gold in the past decade, but they
are forgetting the primary purpose of gold as an
inflation hedge. There has been very little inflation
in the American economy in the past decade -- so there
has been nothing to be protected from. This does not
mean that gold has been a bad investment. The proper
comparison is not to other investment performance, but
to buying life insurance and not dying. The gold did
exactly what it was supposed to do in the investor's
portfolio -- provided a store of value with inflation
protection.
An investor who is paying attention to the current
price of gold is completely missing the point.
Gold is the most effective protection of
purchasing power. This is illustrated by comparing its
value today with its value in Biblical times. From the
Old Testament we learn that during the reign of King
Nebuchadnezzar, an ounce of gold bought 350 loaves of
bread. An ounce of gold today will still buy about 350
loaves of bread.
Speculators have often lost badly with gold, but
that is true of any speculation, and is not because of
some inherent characteristic of gold. This speculation
is very different from the proper use of gold in an
investment portfolio, as a way of achieving balance,
diversification, and inflation insurance.
To put an entire savings program into diversified
paper investments, without a gold diversification, is
not a truly balanced plan. The security of the Swiss
franc is one step in that diversification, because of
its strong gold backing, and its traditional strength
as a currency. But only a step. The next step is to
also diversify some of the portfolio into a pure gold
investment.
Every paper currency buys less than it did at the
turn of the century, but gold buys almost two times
more. That is true inflation insurance, and has
nothing to do with overnight speculations on a belief
in short term price trends. There is nothing wrong
with speculation, but it should not be confused with
balancing the portfolio. In fact, a small percentage
of any diversified portfolio is devoted to speculation.
As we have seen in the history of money section,
paper money inevitably declines in value and purchasing
power. In an era when most governments have legally
freed themselves from any requirement to act
responsibly or tie their paper to real assets, This
makes it particularly important for the investor to
create his own "reserve fund" since the government's
paper money no longer is required to have one.
For thousands of years, gold has been man's
premier store of value, more trusted worldwide by
individuals than any paper investment or paper
currency. Gold cannot be inflated by printing more of
it. It cannot be devalued by government decree. And,
unlike paper currency or many other kinds of
investments (such as stocks and bonds), gold is an
asset which does not depend upon anybody's promise to
repay.
Although gold has been mined for more than 6,000
years, only about 110,000 metric tons have ever been
produced. If you could bring it all together, that is
just enough to make a cube measuring only 18 meters
(approximately 55 feet) along each side. Gold is one
of the scarcest, and so most sought-after, metals on
earth.
Gold cannot be fabricated by man. Nature limits
its supply. The amount of new gold mined each year
totals less than 2,000 metric tones -- an amount that
could be fitted comfortably into the living room of a
small modern house.
Throughout recorded history, gold has held its
value against inflation. Experts say, for example,
that the same quantity of gold is needed to buy a loaf
of bread today as in sixteenth century England. This
is why so many investors world-wide see it as the
"ultimate asset" -- an important and secure part of
their investment portfolios.
Gold has an international value that tends to
respond to the changes in value of national currencies.
Time and again, gold has proved a successful hedge
against the devaluation of an investor's national
currency.
Gold is one of the few investments that has
survived -- and even thrived -- during times of
economic uncertainty. Gold is man's classic hedge
against almost any monetary crisis, moving
independently of paper investments.
For example, in the slump following the "Wall
Street Crash", from September 1929 to April 1932, the
Dow Jones Industrial Index slid from 382 to 56 -- a
drop in value of 85% -- and some 4,000 U.S. banks
closed their doors. Meanwhile, the price of gold
actually went up.
Gold also increased in value during the events
following "Black Monday", October 19, 1987, when the
Morgan Stanley index of world shares fell 19% over 10
days. And during the mini-crashes which have afflicted
the stock markets since then, gold has held its value
and ignored the travails of share investment.
Investing in Gold Bullion Coins
Although many numismatic gold coins have been
purchased by investors, most investors think of gold
bullion coins when they think of investing in "gold
coins". And bullion coins are favored by many
investors who want physical possession of their gold.
The popularity of these coins and privately minted
coin-like medallions can be attributed to their small
size, convenient weights, and easiness to store.
The "typical" gold bullion coin is legal tender of
a nation and its gold content is guaranteed by the
issuing nation. It bears a face value that is largely
symbolic because its market value depends totally on
its gold content.
If you invest in gold bullion coins, or in
privately issued coin-like gold medallions, pieces, or
"rounds", it will be easy for you to keep track of the
daily value of your holdings because many of the most
popular gold bullion coins and medallions contain one
troy ounce of pure gold. And the price of one ounce of
gold is reported daily in most newspapers.
Other bullion coins have been minted in easy
fractional weights such as 1/2-ounce, 1/4-ounce, and
1/10-ounce. Among the countries issuing bullion coins
are South Africa, Canada, Mexico, China, Great Britain,
and the United States.
Bullion coins normally sell for a 3 to 15% premium
over the bullion value of gold, but a large part of
this premium may be recovered at resale. The premium
of gold coins is justified by their ready divisibility,
convenience, portability and marketability.
While many gold investors would prefer to keep all
of their gold coins at home or nearby, other
strategists keep only sufficient coins for immediate
needs after a political or civil disaster, and the cost
of tickets for the entire family to get to Switzerland,
and keep the rest of their coins in a safe keeping
arrangement with a Swiss bank. (The Swiss banking
services chapter discusses this in more detail.)
Gold Accumulation Plans -- Economical Way of Enjoying
Ownership
Gold accumulation programs allow the investor to
enjoy all the benefits of investing in gold without the
responsibilities and costs of handling and storage.
An accumulation plan is an organized method of
buying gold purely for the investment and inflation
insurance aspects of gold, and does not involve
gambling on coin collecting values, or other gimmicks.
It is designed to be more efficient and more economical
than buying gold coins for their bullion value.
A monthly accumulation plan is based on cost-
averaging, rather than trying to outguess the market.
It is designed for simple and systematic savings -- for
example, an investor might decide to put $250 per month
into gold. That $250 is going into gold every month,
regardless of what the market does. In the long run
the gold cost will be less than the average market
price in the same period. This is called cost-
averaging. It requires no market expertise from the
investor -- just the dedication to make the same fixed
investment each month regardless of the market. (In
fact, some investors make a point of not looking at the
market price.)
A similar technique is used by stock market
investors -- the cost-averaging principle is the same
regardless of what is being bought. A fixed dollar
amount is being invested every month, rather than
buying a fixed unit such as one share or one ounce.
Buying gold through accumulation programs can
provide you with a number of advantages. You can make
purchases at any time. Your order will be combined
with other orders received that same day, and will be
executed the next business day. Since your brokerage
house or bank buys and sells in the wholesale bullion
dealer market, you are assured of competitive prices.
Because you are investing by the dollar amount and
not by the ounce, your purchases are made in whole or
partial ounces. And you pay discounted commission
rates that are up to 40% less than a regular broker
charges on transactions.
Your gold is stored in major depositories and is
fully insured. Your record keeping is done for you,
and you will receive a confirmation of each transaction
and a periodic summary statement. While you leave your
gold in an accumulation program, you do not have to pay
state or local taxes.
You can liquidate your accumulation plan holdings
at any time. And when you do decide to sell, you will
avoid paying costly assaying fees for weight and purity
testing.
GoldPlan -- The Swiss Gold Accumulation Method
GoldPlan is an investment account created by
UberseeBank, a medium sized Swiss bank which
specializes in investment management. The bank does
not engage in general commercial banking or in lending
to corporations or foreign governments, so it is not
exposed to such risks, nor does it have any conflicts
of interest with managing the investor's money for best
results.
Founded in 1965, the bank now serves over 12,000
clients, managing funds of almost US $3 billion. It is
a wholly-owned subsidiary of American International
Group Inc., one of the largest insurance holding
companies. AIG has assets exceeding US $45 billion and
capital of US $8.3 billion. It employees 33,000 people
in over 130 countries.
Uberseebank handles the GoldPlan accounts, sending
detailed statements on each purchase of gold made for
the investor. By purchasing in this manner, the
investors benefit from the bank being able to buy at
wholesale prices normally available only to large
purchasers. In turn the investor pays no extra fee on
small unit amounts nor the regular spread charged when
buying and selling gold. These savings can be as much
as 3% because of the wholesale price, and another 8% by
not having to pay small order surcharges. When added
to the 20% savings that is often typical with cost-
averaging, the investor is able to build the gold
portion of his portfolio in the most economical way.
Naturally, such accounts are treated with the same
secrecy as any other Swiss bank account. Each
investor's gold is held separately by the bank, in a
fiduciary (trustee) relationship. This is important,
because it means that the gold is always the investor's
property, and not merely a gold denominated obligation
of the bank. Thus solvency or credit standing of the
bank can not affect the investor's holdings, although a
bank failure in Switzerland is almost unimaginable even
with a commercial bank -- and UberseeBank does not even
assume commercial risks. Of course the gold is insured
as well as guarded, and the investor has a choice of
having it stored in Switzerland, the United States, or
Canada.
GoldPlan accounts can be tailored to the
investor's needs. One may want to invest more money to
achieve the diversification goal more quickly than
originally intended. Flexibility is the keyword in the
operation of these accounts. The investor can suspend
monthly purchases at any time without penalty.
Account possibilities range from monthly purchases
to large lump sum purchases, depending upon the
individual investor's needs.
In deciding how much of a portfolio should go to
each type of investment, it is best to ignore the
existence of the personal residence or a personally
owned business. These are not really investment
assets, and serve a different purpose. They do not
provide ready access to capital for either growth or
emergency funds. To achieve a properly balanced
portfolio, it is better to diversify based on only the
liquid investments. Otherwise one can find that the
picture has become unbalanced, by including a very
large part of the wealth in a non-liquid position, and
counting that as part of the diversification.
For more information on GoldPlan, write to:
JML Swiss Investment Counsellors A.G.
Germaniastrasse 55, Dept. 212
8033 Zurich
Switzerland
telephone (41-1) 363-2510
fax: (41-1) 361-4074, attn: Dept. 212.