Why buy metals now?
Safety, growth, privacy... shall I go on?
By Craig R. Smith, CEO Swiss America
Aug. 30, 2006

Precious metals continue to outrun almost every other asset so far in the 21st century, as I said they would in my book Rediscovering Gold in the 21st Century, released back in 2001.

Even if gold prices don't move an inch for the rest of 2006, it's already moved up 42% year-over-year and 125% since Sept. 2001. Silver prices are moving even faster, up 81% year-over-year and 198% since 2001.

By comparison, metals have outshined stocks since 2001!

I remember the raging debate last December about whether Google or gold would be first to cross the magic $500 level. Well, gold won hands down, now trading over $600/oz., while Google sits at 382, which is up 35% year-over year, but down 12% year-to-date.

The Dow is much worse off, now up 9% year-over-year and 9% since Sept. 2001 -- despite record low interest rates, a housing boom and an army of happy-face stock perma-bulls featured daily in the mass media.

What most "instant" analysts miss is 'the big picture'.

Exhibit A: Day after day, CNBC anchors report: "the Dow is now closing in on new highs." Yeah, after doubling the 9% growth they've had over the last six years!

"For the Dow to overcome the effects of inflation over the last 6 1/2 years, it will have to rise 18%. If we repeat the last secular bear market in stocks, it might be another 23 years (2029) before the inflation adjusted Dow exceeds its January 2000 peak", reports Cross-currents.net.

Missing the trade of the decade

Commodities have been in a secular bull market since 2001, while stocks have been in a secular bear market since 2001. Sure, there are bear market rallies and bull market pull-backs, but metals are and remain, "The trade of the decade" as Bill Bonner said back in his first bestseller Financial Reckoning Day.

Not that I mind the mass media's misinterpretations. So far it's had a positive effect by keeping the masses away from precious metals, which translates into a slower moving bull market, which offers more opportunity for latecomers to participate.

But with more and more frequency, gold experts are being given a voice in the media. We found over two dozen widely respected financial gurus who all see gold over $1,000/oz. in the years ahead -- with a total average projection of $2,200 per ounce gold. Here are four recent quotes worth chewing on ...

HOWARD RUFF, Editor, The Ruff Times
"Gold and silver are now early in a historic bull market that will dwarf the 500-1700% profits we made in the '70s. Gold will hit at least $2,172 and $100 silver is inevitable. Investment vehicles to avoid: Stocks, bonds, fixed-return investments like utilities, REITs, residential real estate, ARMS (adjustable rate mortgages). Investment winners in bull markets: Gold, silver, copper and other base metals, uranium. The most powerful, completely essential factor affecting gold is monetary inflation. The most compelling force affecting silver today is the supply/demand equation." -Marketwatch, 8-24-06

DR. DAVID DAVIS, Credit Suisse senior gold analyst
"Between 2007 and 2010, supply-and-demand dynamics will undergo irreversible change, caused by a decline in global mine and official sector supply and increased demand from China and the investment community. We still see a gold price of $700/oz, $800/oz and $1,200/oz by 2008, 2010, and 2015 respectively." -Resource Investor, 8-4-06

HARRY SCHULTZ, International Harry Schultz Letter
"My view has always been: current governments (which are bank-owned) won't voluntarily return to a gold standard, with its discipline on money creation. But, when the price roars to, say $1,600, they'll quite possibly be forced to do so, to appease a clamor for sound money - e.g. Bretton Woods II. The price could go to $2,000 while they debate new rules. Washington insiders would see it as their last chance to save the US dollar as a reserve currency. If they don't, the euro, yen or yuan could make a bid for that status ... If no rules are made at $1,600, gold could keep climbing till they do. Hello $3,000." -MW, 6-5-06

JIM CRAMER, Founder, Thestreet.com, host, Mad Money, Real Money
"Gold could reach $1,000 if the Chinese stop buying our paper. Once the levee to the Treasuries breaks, the easy high ground worth gaining will be gold. Any portfolio designed to counter government-mandated inflation has to be bedrocked in gold" -New York magazine, Oct. 10, 2005

A silver bullet?

"Silver is like the relative that no one wants to invite over to their house, and if you do, it’s only on Christmas so your conscious doesn’t bother you. You know the one I’m talking about; his clothes went out of style in the 50’s and he doesn’t smell too good either. Silver is also a bit of an enigma. A search through the dozens of articles on any of the better known websites for gold bugs will see it referred to as an industrial metal, a precious metal, or money. There are a lot of people in the first camp, more every day in the second camp, and almost no one in the last camp. For those of you who do subscribe to the “silver is money” hypothesis, keep the home fires burning because you will eventually have visitors" writes Enrico Orlandini at LeMetropoleCafe.

Enrico goes on, "I expect silver to really take off in September and at the very least test good resistance at $14.81. Furthermore, I expect it surpass this level and more than likely reach $20.73 by March 2007. There are a number of pivot points along the way which the average investor can use to gauge the white metal’s progress. The first and foremost is $12.37 and the second is $13.03 (both are based on the September 2006 futures contract). Then of course we have the $14.81 Fibonacci resistance level. Once these two initial pivot points are out of the way, silver should really be off to the races. Meanwhile we consolidate. The only real impediment would be the presence of deflation. That would delay the process, but it would not alter the final outcome. Why? Because silver, like gold, is destined to become money! This transformation is a long process, but it is irreversible. The only question is when"

Doug Casey seems to agree. "Will silver hit its previous 1980 high? It was $48.70 then, but that's $120 in today's dollars - almost 10 times the current price. Given that just below the surface, the threats to the U.S. economy are even greater today than in the late 1970s, we can easily envision silver closing in on its previous high and even going way beyond it", writes Casey in International Speculator, "What's Next for Silver?".

Numismatic gold and silver opportunities

The secular bull market in commodities has driven gold bullion up 42% in the last year, from $430/oz. to $615/oz. today -- yet the prices of numismatic (rare) gold and silver coins are only up an average of 32% in the last year -- still very impressive I think. Gold is up 125%, yet rarer $20 Saint Gaudens are up just 100%. Why the lag in growth compared to bullion?

First, keep in mind that investment-grade coins are not a commodity, they are a collectible. So while the bull market in precious metals may help to propel rare coin prices upward, buying an investment- grade coin is not the same as buying a commodity, like sugar, wheat or even gold bullion.

Have you ever seen a 100 oz. bar of gold? Some bars are ugly and beat up and some bars are brand new and shiny -- but they both trade for the exact same value. Not so with collectible coins. High quality and rarity are the primary drivers.

Second, because the investment-grade coin market is smaller than the bullion market, it is less prone to speculation and more geared toward being a long-term hold. This means rare coins are one of the least volatile forms of gold to own.

The collector appeal of U.S. gold coins is growing tremendously which is creating more demand than the available supply will accommodate. This basic law of supply and demand can cause rare coin prices to rise even when gold bullion prices drop.

As the charts illustrate, gem-quality numismatic gold and silver coins are in a long-term bull market, like precious metals -- but rare coins tend to move up and down more gradually. Perhaps this stability is one of the reasons WSJ, Marketwatch and other mainstream news outlets have been so positive about this market niche over the last year or two.

Investment grade U.S. gold and silver coins are fast becoming a new American icon because they offer investors financial stability and and profit potential. In addition rare coins offer privacy of ownership, a feature that more and more investors are looking for every day.

A golden double-play

The commodity boom is here to stay, but it could be a bumpy ride upward. Because U.S. investment-grade coins are both a collectible and a precious metal they offer investors a golden double-play.

Jim Rogers, who foresaw the start of a commodity rally in 1999, told Bloomberg last spring that the boom in energy and raw material prices will endure, driving gold to a record $1,000 an ounce. "The shortest bull market for commodities lasted 15 years, the longest 23 years, so if history is any guide, they've got a long way to go. This is not a bubble."

U.S. rare coins offer as much or more upside potential for growth -- without the daily volatility of the bullion markets that are prone to wild speculation. Imagine buying a leveraged silver contract one day, then having to meet a margin call the next. Who needs the headache? In contrast, numismatic coins offer investors some well deserved peace of mind.

The current price levels of most U.S. rare coins are still at extremely low levels, adjusted for inflation and compared to their historical highs, but not for long! A potentially huge demand for these gem investment-grade gold coins is on the horizon today, so don't wait too long to get started. Contact a Swiss America broker to discuss further this golden opportunity.

P.S. Here's my publisher's FREE BOOK, CNNfn DVD and "RULE OF GOLD" offer.

DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.

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