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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.

1/29/2002: Gold: A Flight to Quality


Greetings from Dana Samuelson, Owner of American Gold Exchange.

In this gold market update:

Gold up $3.90, at $282.60
Stocks hammered by "Enron-itis"
Investors returning to gold in a flight to quality
Best environment for a major gold surge in 21 years!

Gold still looks pretty resilient to me right now. After pulling back from the $290 level two weeks ago and then channeling in the high $270s, the metal has firmed up and gained ground today, closing up $3.90 at $282.60. We define the current market trading ranges as follows:

Technically, gold must remain above the $274 support level in order to have a chance to rally higher in the short-term. Any close below $274 would seek a new support level in the $265 range. On the other hand, any movement over $295 will signal a breakout and the price could begin to run. Once above $330, the next stop on the way up is $410. When — not if — this breakout happens, we think it will happen quickly!

The VERY good news behind today's $4.00 jump is that gold seems finally to be responding again to some of the traditional forces that determine its price. Which traditional forces? In two words: economic uncertainty.

Stocks hammered by "Enron-itis"

Gold normally rises during economic uncertainty. Until last year, however, investors had little fear of economic uncertainty. With the U.S. economy so robust for so long, investors were shaking off stock market corrections with little thought towards gold. To be honest, I can hardly remember a day in the last two years that a weakening stock market has directly resulted in gold moving higher — despite gold's bargain basement prices and exceptionally strong market fundamentals. That is, until today!

The Dow fell over 245 points today, apparently due to a change of investor sentiment in the wake of the Enron debacle. The sell-off comes as the recent bankruptcies of Enron, Kmart, and Global Crossing have unnerved investors suffering through two straight years of market declines. Stock investors are becoming increasingly wary of the accuracy of the information provided to them by the companies they invest in, by their accountants, and by their brokers as well. Based on the problems with Enron, it seems that some balance sheets are not quite what they seem to be.

"Any company out there that has some accounting concerns, either real or imagined, is getting hit today," said David Briggs, head equity trader at Federated Investors. "There's fear out there that maybe Enron was just the tip of the iceberg."

In response to the falling Dow, gold immediately moved up in price almost $4.00. While this amount might not seem like much, it suggests that there is a growing shift in sentiment towards gold as a safe haven in lieu of traditional paper assets like stocks, bonds and the dollar. This is very good news for gold, and something we've been anticipating.

Investors returning to gold in a flight to quality

Investors in the U.S., and to some degree worldwide, were ignoring gold for the past two or three years in favor of the huge returns promised by traditional paper assets like stocks. This preference was understandable in the days of fantastic stock market returns, but those days are now long past. More recently, despite an increasingly volatile U.S. stock market and the realization that we may be in for a longer recession than many care to admit, many investors have continued to be slow in returning to gold and its traditional safe haven status. But this behavior is beginning to change.

Japanese investors have been buying gold five times as fast as usual, as their currency the Yen has fallen 16% in value relative to the U.S. dollar. Because it's priced worldwide in dollars, gold is up about 16% in Japan since last fall — probably the only asset that gained value in Japan in the last four months. No wonder the Japanese are buying it up.

Even before Sept.11th, before the Argentinean default, before Enron, and most definitely before the U.S. went into an official recession, the smartest U.S. investors were seeking viable alternatives to over valued stocks and low yielding bonds. Quietly, many were accumulating gold. Now the herd seems to be following suit.

I believe we're seeing the leading edge of renewed investment demand for gold here in the U.S. This is a prerequisite for sustained higher gold prices. The number of new inquiries we're receiving at AGE is growing, our customer base is growing, and regular investors seem to be perking up again. Last year, when the Dow had a bad day, our phones rang barely more than usual. Now they ring off the hook, which is a solid indicator that gold is coming back into favor as a preferred antidote to stock market risk. I suspect our phones will be ringing even more as the year progresses. When gold moves above $300, demand is likely be overwhelming. This is great news for gold investors who have been patient these last two years!

Best environment for a major gold surge in 21 years!

(The following is a repeat from our last update, but it deserves to be reiterated.)

Major economic cycles come once or twice in a generation. I truly believe we're entering one of the two or three major economic contractions of my lifetime. Right now, one of the only safe havens is gold. With no more than a 20-30% downside risk today, gold offers an upside potential of 100-500%, perhaps more. Investors with money and patience who buy gold now should be very well protected from a declining paper assets and perhaps very handsomely rewarded with their gold holdings.

It bears repeating that gold over $295 signals a breakout to the upside. Any move above $330 suggests the next stop on the way up is $410. When, not if, this happens, it will happen very quickly. A gold move from $295 to $330 could occur in one day. Once gold moves over $330 we're off to the races! In my 21 years of intensive experience in the gold market, I've never seen a better environment for a major gold surge. Once the price breaks above $295 you probably won't have much reaction time.

So what should you choose for investment?

We recommend the following conservative items. If you are more speculative, please call 1-800-613-9323 for a personal consultation.

Gold bullion: 1 oz. American Gold Eagles.

No IRS Reporting Requirements

European gold coins: British Sovereign “Kings” Brilliant Uncirculated.

These are the best classic European gold coin for popularity, price, and scarcity.

U.S. classic gold coins: $20 Liberty, in MS62 to MS64 condition; and $20 Saint-Gaudens, in MS63 to MS65.

These gorgeous, historic coins offer complete financial privacy, excellent leverage to the gold price, high collector and investor demand, and are downright cheap today.


Dana Samuelson
American Gold Exchange


Metal Ask      Change
Gold $1,789.07           $1.31
Silver $18.24           $-0.17
Platinum $847.17           $5.47
Palladium $1,992.79           $8.95
In US Dollars