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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.


1/1/2004: 2003 in review: Gold touches 15-year high

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In this year-end Gold Market Update:

Gold touches 15-year high at $417
U.S. dollar sets all-time lows versus euro
Silver hits 5-year high, platinum sets 23-year high
U.S. gold coin prices explode in December
AGE’s gold coin recommendations outperform bullion

First of all, everyone here at American Gold Exchange wishes you a happy and safe holiday season and a prosperous New Year!

In the four weeks since our last Gold Market Update, hard assets have surged across the board. Gold, silver, and platinum have all achieved their highest price levels in many years. Classic U.S. gold coins are simply exploding in price, and continued gains seem certain for 2004. Happy New Year, indeed!

Gold hits 15-year high

2003 has truly been a breakout year for gold. Shaking off the last vestiges of the dollar-dominated 1990s, gold firmly established itself above the crucial $400 an ounce level, confidently resuming its historical role as the world’s currency of last resort and favored safe-haven asset. Gold futures closed at a 15-year high of above $417 on December 31.

For the second year in a row, gold also established itself as a very profitable investment in 2003. Beginning the year at $343 and closing yesterday at just over $415, gold achieved more than a 20% gain for 2003. Coming after a gain of 24% in 2002, when it rose from $278 to $343, gold has appreciated by almost 45% in just two years!

And the bull marches on. As we told you it would, gold has been testing upside resistance at the $415 level all week, closing today at $415.20 after rising over $417 in early trading. Back in May, when gold was under $350, we anticipated a solid price movement over $400 this year, with resistance likely, we thought, around $410 (please see our May 2003 Gold Market Update, Gold rising on dollar weakness ). In early September, with gold at $376, we warned you that gold would break $400 and challenge resistance at $415 within months (please see Gold hits $376, signs of bullish autumn ). The market has not disappointed us. After surpassing $400 on November 29, gold has been channeling around $410, reaching 7-year intraday highs near $413 on both December 17 and 24, touching a new 8-year high of $415 on December 29, and reaching a 15-year high above $417 on December 31.

In the next 12 to 24 months, we expect gold to gain another 20% to 25%, moving into the $480 to $550 range. Upside resistance remains in place around $415, just like the resistance we encountered and surpassed at $295, $330 and $355. Once established above $415, however, gold could run up to $480 very quickly.

Noted Dow market theorist Richard Russell, in his video presentation at the New Orleans Investment Conference in early November, argued convincingly that gold should easily move as high as $556 an ounce in near future. Many other gold experts are far more bullish. Today our 12- to 24-month target price is in line with Mr. Russell’s conservative estimates. However, we do believe the gold price can push much higher over time, primarily because of the severely weakened U.S. dollar and the massive debt levels of the U.S. government. As many of you know, in 2001 we authored a white paper explaining why gold had the potential to double its previous high of $850 an ounce, reaching as high as $1,700 (see Gold at $1700?). Much of that argument remains valid today, and we still believe gold has the potential to reach unheard of heights. Massive U.S. debt and its detrimental effect on the dollar remain our major concerns, and are strong reasons why we remain staunch gold market bulls.

U.S. dollar sets all-time lows versus euro

As we’ve been telling you for some time now, the higher gold price has been (and will continue to be) driven primarily by the sinking U.S. dollar. Indeed, during the second half of 2003, gold returned to its traditional position as currency of last resort, a role usurped by the dollar during the boom of the late 1990s.

Overall in 2003, the U.S. dollar surrendered 19% of its value to the euro, and that’s only the beginning. Almost every day in December the dollar achieved a new record low against the euro. (Read the full stories in Economy Watch ). We believe the dollar needs to surrender that much again in order to bring our near-record trade account deficit back into line. We’re also dubious about the surge in U.S. share values in the second half of 2003. This rally seems to be built on two factors: hope for an economic recovery based on a few promising leading indicators, and debt, massive debt. We’ll have more on this in our next update.

In the mid-1980s, as you’ll recall, the economy of Japan was booming like ours did the late 1990s. The yen was the dominant world currency, just as the dollar was dominant during our boom. In fact, between 1985 and 1987, the yen nearly doubled its value against the dollar – or, put another way, the dollar plummeted 50% against the yen. Gold gained 65% as a result, rising from $300 in January 1985 to $500 in late December 1987. Today it feels like déjà vu all over again, with the dollar sinking fast and the gold price targeting $500 and higher.

Japan’s economy is still trying to recover and the yen is just now beginning to regain its strength. Back in 1990, few investors imagined that the Japanese economy and yen would remain in a quagmire for so long. Similarly, few investors today imagine that the U.S. economic malaise and dollar weakness could last for years. However, the economic facts cannot be dismissed. The United States is a massive debtor nation today and this debt will haunt us for years to come by further undermining the value of the dollar and scaring off foreign investors. Our national debt is one huge reason that the dollar is dropping like a rock today and gold is rising like a blazing phoenix.

We remain bearish on the U.S. dollar because we do not see a fiscally responsible monetary policy coming out of Washington. The Bush Administration has been spending money for national defense and the Iraq war on a credit card. Of course, our national defense is absolutely necessary; but without some reasonable plan for repayment, the huge debt we are now incurring may hinder our economic recover and discourage foreign investors for years to come. This scenario is extremely bullish for gold.

Silver sets 5-year high, platinum sets 23-year high

Surging in sympathy to gold, silver closed yesterday at $5.90, setting another new 5-year high. Like gold, silver had a sensational year in 2003, rising from $4.66 to its current high of $5.90 and posting gains of nearly 27%!

In 2001 and 2002, we’ve advised you to refrain from buying silver until gold reached the $375+ level. As we expected, silver did not surge in earnest until after gold had made most of its up-moves this year. Our upside target price of $6.50 remains in place. Buy silver on any weakness!

On Dec. 18, platinum set 23-year high of $847.70. Although it has receded a bit from that lofty peak, closing today at $818, platinum had a fantastic year in 2003. Rising from $608 on Jan. 2, platinum gained a whopping 34% this year!

We’ve been amazed by platinum’s movement above $735 — and we’ve been wary of it. Historically, when platinum has been volatile, it’s been very volatile; as a result, it often leaves precious little reaction time, especially on its down-moves. Letting caution serve as the better part of valor, we’ve been on the sidelines during this recent run-up. We now think platinum is over-bought by about $100, perhaps more. Be very careful with this market in the short run. In fact, platinum looks like an excellent sell to us at the current time.

Palladium, the precious metal most likely to double in the next 24 to 36 months, remains steady near the $200 mark, nearly 17% lower than it began 2003. Palladium has been forming a multi-year base above $165 after surging over to $1,000 per ounce in early 2001. The current price of $200 looks quite attractive to us as a long-term investment. We believe palladium could easily rise by 50% to 100% above current price levels in the next two or three years.

U.S. gold coin prices explode in December

Since our last update, the classic U.S. gold coin market has made one of the largest 30-day up-moves we’ve seen in many years! At the Baltimore coin show in early December, U.S. gold coin prices rose higher with each trading day. Demand for coins completely overran available supplies, and the show ended with many dealers desperately needing coins to fill pre-existing orders, let alone all the new orders arriving daily. A dealer bidding frenzy ensued. In many cases, prices have gained another 10% to 20% since the show, with more gains on the way.

We noticed this major run on U.S. gold coins shaping up at the summer ANA coin show in 2002 and we’ve been alerting you to the exceptional investment opportunities it offers. (Please see our October 2002 Gold Market Update, The sqeeze is on for classic U.S. gold coins.) Since gold broke $400 at the end of November, however, the gold coin market has become supercharged. Our regular readers and customers are now reaping the big rewards we foresaw, and more gains are in order.

AGE’s gold coin recommendations substantially outperform bullion

Our classic U.S. gold coin recommendations have done especially well this year, substantially outperforming the gold bullion market. Our popular Power Pair #1 appreciated in price by more than 32% in 2003. Since its introduction in July of 2001, Power Pair #1 gained more than 71%, outperforming gold bullion by more than 21% in price appreciation during this period.

Even better, our Power Pair #2 gained in price by more than 45% in 2003. Since its introduction in April of 2002, Power Pair #2 has gained by more than 67%, outperforming gold bullion by 34% during this period. And more gains are on the way.

We continue to strongly recommend the $10 Liberty in MS64 and the $10 Indian in MS64. (See our $10 gold coin inventory .) Both of these coins posted big gains in 2003: the $10 Indians in MS64 gained by 39%, and $10 Liberty coins in MS64 gained a stellar 50% this year. Both of these coins look to continue their appreciation in 2004, so we urge you to buy now!

In our 23 years in this crazy business, we’ve never seen a smaller supply of classic U.S. gold coins nationally with demand as strong and as steady as it is today. The rampant price escalation that characterizes “Phase Two” of a major bull market in rare coins, which we advised you of in our August 2003 Gold Market Update ( ANA show report: Bull market raging in rare coins), is now in full swing. Further strong gains are likely in the first and second quarters of 2004, so don’t delay!

Most coin dealers nationwide posted a large volume of sales during the last three months, especially in the last 30 days, and simply have more cash than coins in inventory. Our own sales for December have been record-breaking. Why is this situation important to you? Because as 2004 begins, dealers (flush with cash) will really have no choice but to continue to bid aggressively with each other just to keep product, any product, in stock. Prices can do nothing but rise! Even if gold pauses for consolidation and dips $10 to $30, as it certainly could, prices for all but the most common gold coins should be immune from this kind of pull back. There simply are not enough coins in the market.

Whew! 2003 has been quite a ride, and 2004 is looking to be even more exciting! We’re smack in the midst of one of the biggest bull markets for hard assets in a generation. Now that gold is back over $400 and solidly on the national radar screen once again, the general public is ready to pile into the market, driving metals and rare coin prices even higher. Don’t be left behind. Plenty of big gains lie ahead!

As always, thanks for your time! We’ll keep you informed.

Sincerely,

Dana Samuelson, President
Dr. Bill Musgrave, Vice President
American Gold Exchange

  

Metal Ask      Change
Gold $1,462.12           $0.77
Silver $16.65           $0.01
Platinum $900.63           $0.08
Palladium $1,881.30           $-6.36
In US Dollars