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AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.

10/12/2001: Gold pulls back; safe haven buying continues.


Best wishes from Dana Samuelson, Owner of American Gold Exchange.

In this gold market update:

Gold pulls back but remains poised for major breakout.
The world has radically changed.
Safe haven gold buying continues unabated.
Our current recommendations for gold investors.

Gold pulls back but remains poised for a major breakout.

In our last update we advised you that gold was poised for a major breakout, as it continued to bump against the critical upside resistance level of $295 per ounce. So far this breakout has yet to occur. We believe it is just a matter of time.

Gold has softened in price this week; it is currently trading at the $282 level. The U.S. dollar has rebounded slightly against the euro. Our own stock market rallied earlier this week, but has given back much of its gains today on bad economic news.

Current economic conditions, however, offer no real justification for this temporary increase in paper assets (like the dollar and U.S. stocks), nor for the current pullback in the gold price. Government reports released today show retail sales plummeting in September and wholesale inflation increasing substantially for the second straight month. (See Inflation Watch for details.) U.S. unemployment remains at a nine-year high and world markets are in full retreat. (See below for more on the economy.)

Last Friday I spoke at length to one of the largest gold bullion traders in the country, if not the world. He's been a personal friend for over 15 years. I asked him point blank: "Why hasn't gold broken out yet? In your opinion, what will it take for that to happen?"

He replied that "any major new crisis event will cause gold to soar $30 - $50 almost immediately, sad but true." His business volume, he added, has grown in multiples since the tragedy and he doesn't see any let up in sight.

In the midst of this kind of escalating investor demand, any pull backs in the gold price like we've seen in the past few days should be short lived and viewed as a buying opportunity.

His belief (and mine) is that conditions remain ripe for a major up move. You're basically risking a possible $5 to $10 per ounce decrease in gold prices (we just gotten that over the last three trading sessions) against a potential short-term increase of $30 to $50 per ounce or more.

We strongly recommend buying on any weakness and increase your upside potential by the 2% to 4% the market offers when that opportunity arises. A strong upward movement for gold is only a matter of time now. Most buyers welcome the fact that gold today remains absurdly undervalued compared to its 20-year average, especially when placed in context with the economic recession the United States is clearly entering.

The world has radically changed — in a month and in a year.

Consider these new economic facts, all of which are extremely bullish for gold:

1) Consumer spending, the driving force behind our incredible economy in the last 10 years, has come to a screeching halt. Retail sales in September took a huge nosedive. The ability and the desire of U.S. citizens to spend their money as fast or even faster than they earn it has finally dried up. Lower consumer confidence means a constricting economy. It points toward recession.

2) The amount of debt our citizens and our corporations owe remains historically high and the ability to repay that debt becomes less and less as our economy contracts, and corporations shed employees to compensate for the contraction. This adds to recession.

3) Wholesale inflation has increased far more than expected (.4% in September alone) for the second straight month, despite obsessive Fed rate cutting.

4) The Fed has aggressively cut interest rates 9 times this year, but with no apparent affect on our economy! The cost of money has become as cheap as it's been in my adult lifetime, and as an economic stimulus it means nothing so far.

5) Low interest rates mean low returns on things like savings accounts, CD's and bonds. When you factor in inflation, you probably end up with a negative yield today on these assets.

6) Stocks are clearly in danger of falling further, perhaps much further, unless an unlikely economic turnaround occurs quickly. Take a moment and think for yourself where we might be if things continue to stay the same as they are today a month from now, six months from now and even a year from now. The light at the end of this particular tunnel looks very far off indeed.

7) The war on terrorism is just getting started. We will most likely be forced to live with the consequences of the events of September 11th for years to come: destabilized markets, the risk of reprisals, and further armed conflict. The criminals who committed these heinous crimes are willing to die for their cause. There is no negotiating a cease-fire with this mindset.

Safe haven buying continues.

Because of the factors mentioned above, safe haven gold buying continues unabated. Investors are looking to secure their wealth in clearly dangerous times and are turning to gold. Prices for classic U.S. $20 gold Liberty and $20 gold Saint-Gaudens Double Eagles (the ones we've been recommending for the last six months) have surged 7% - 15% since September 11. Nonetheless, they are still 10% - 30% below their average 1999 price levels, when gold was virtually the same price as it is today! These great classic gold investment coins remain substantially undervalued! But probably not for long.

Our current recommendations.

1. Uncirculated classic European gold coins.

British gold Sovereign "Kings", French gold 20 Franc "Angels", and Swiss gold 20 Franc "Helvetias" are our three top recommendations as the best bulk gold buys available today. Their premiums (price over gold content) have not yet caught up with the surge in demand, and prices remain below normal. This temporary lag between increase in demand and increases in premiums provides a great buying opportunity. But prices and premiums are destined to increase.

The links just below will take you to two of our best European gold specials, the British gold Sovereign "King" and the French gold 20 Franc "Angel".

2. Mint state U.S. $20 Liberty and $20 Saint-Gaudens gold double eagles.

These wonderful classic coins have surged in price by up to 15% in the past month! (We hate to say we told you so, but...) Market supply was already fairly low prior to September 11, but demand has now completely overrun existing "on the shelf" supplies.

Kudos to all of our "Power Pair" customers, those who bought our special combo of Pre-1900 $20 Liberty (MS62) and $20 Saint-Gaudens (MS63) prior to this surge. But it is definitely not too late to buy these coins! Prices remain low relative to the 5- and 10-year price histories of these coins. When the gold breakout happens, these coins are likely to skyrocket. As we mentioned above, if you are inclined to buy, DO NOT HESITATE! You are likely pay more, perhaps a lot more, as time passes.

To learn more about our "Power Pair" special offer click on the link just below:

That is all for now; we'll report again as events warrant. As always, thanks for your time.

Dana Samuelson
Owner, American Gold Exchange


P.S. You probably already know this but...

The United States has begun to fight back in an attempt to eliminate the terrorists and the hosts of the terrorists who are responsible for this horrendous act. Unfortunately, this retaliation will probably result in the beginning of a tit for tat affair that is likely to continue for months or years to come. To understand our new reality just look what has been going on in the Middle East for decades now.

Our reservoirs, energy plants, airports, etc. are all under heightened security. We are just passing through the very first phase that is the result of this new war. I can't see how gold will get any cheaper in this environment that is likely to continue for months and years to come. Yes, it is sad but true.


Metal Ask      Change
Gold $1,780.89           $0.00
Silver $18.21           $0.00
Platinum $832.41           $0.00
Palladium $1,973.67           $0.00
In US Dollars