wmeubank@ocp.kcmo.com
AIC INVESTMENT ADVISORS, INC.
400 South Street, Pittsfield, Massachusetts
(November 3, 1997) METALS: PRECIOUS METALS–On October 24, preceding the collapse of equity prices on October 27, the December gold futures contract plunged $16.10 to $308.90 per ounce. Then rumors which circulated as newly reported news through the controlled press, were that Switzerland had intentions of selling roughly one half of its total gold reserves. In response to these rumors, the dollar gold price dropped to a 12- year low. The actual proposal coming from a committee reporting to the Swiss National Bank was a comment that Switzerland could “mobilize” approximately 1,400 metric tonnes of reserves for the purpose of funding a fund for victims of World War II atrocities as well as other humanitarian endeavors. One may “mobilize” reserves not only by selling the gold, but by leasing, swapping or using the metal as collateral, among other possible methods. Switzerland may have no intention of selling any of its gold reserves; after the collapse in gold's dollar price, we suspect that they may well have been buyers in a weakening market.
For perspective purposes: If the Swiss National Bank intended to liquidate one-half of its gold reserves, we doubt that the fact would have been announced prior to the sale; it would depress the price. Also, the sale presumably would be spread over a period of years and not occur at one time. Finally, the proposal to sell gold reserves of the central bank in Switzerland must be approved by the Swiss parliament. Assuming passage by the Swiss government, which is not all that well assured, the proposal must be submitted for referendum to the Swiss people. Present indications are that the referendum would fail if put forth at this time. According to some, the earliest any Swiss gold reserves could be sold is April 1999.
Dollar gold prices (London PM fix) experienced steady downward pressure during October. The October high of $337.15 per ounce was recorded on October 15 and the monthly low, to date, of $311.80 per ounce, on October 28. The larger price declines took place on October 24 with the London P.M. gold fix dropping $7.65 per ounce and on October 27, which witnessed a further $4.85 per ounce decline. The average monthly gold price, through October 27, is $327.27 per ounce.
Silver prices (Handy & Harman) followed gold lower during October. Silver prices reached a monthly high on October 8 of $5.28 per ounce and a monthly low of $4.81 per ounce at this writing. The average silver price is $5.07 per ounce through October 27.
Platinum prices (Mercantile Exchange) strengthened during the first half of October as supply concerns remained a focal point, but later succumbed to the pressures taking hold in gold and silver markets. Platinum prices recorded a monthly high on October 15 at $437.90 per ounce before retreating to a monthly low on October 27 of $400.20 per ounce at this writing. The average platinum price, through October 27, is $425.52 per ounce.
The accompanying table shows metal prices and the Philadelphia Gold/Silver XAU index of mining shares for October 28 and approximately one month and one year earlier.
10/28/96 9/30/97 10/28/97 Bullion Gold $382.90 $332.10 $312.35 Silver 4.92 5.21 4.70 Platinum 384.90 432.50 401.00 Coins American Eagle $405.48 $349.19 $333.68 Austrian 100 Corona 386.40 332.49 317.78 British Sovereign 90.09 78.14 73.49 Canadian Maple Leaf 406.44 349.52 333.99 Mexican 50 Peso 480.62 410.68 392.59 U.S. Silver Coins (1 bag)* 3,482 3,769 3,460 XAU Index 119.10 109.50 89.26
*–$1,000 face value
AIC recommends that investors maintain all precious metal holdings at these levels. For investors needing income, coins may be sold periodically to generate cash flow. Central banks have so far been successful in containing the dollar price of gold. With currency markets in turmoil abroad, it is hardly the time to throw in the towel, so to speak, on gold and other precious metals. The uncharacteristic performance of gold and silver during the recent currency crisis simply demonstrates the marketing skills of the propagandists well trained in the trade.
Richard F. Maloney
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com