Heavy Metal

September 1998

Precious Metals:News

Heavy Metal

A new book for investors contains plenty of in-depth information for those whose livelihoods are linked to gold, silver and platinum

You handle precious metals every day, but how much do you know about them? In The New Precious Metals Market(McGraw-Hill), author Philip Gotthelf applies his expertise as a precious-metals analyst to this practical account of how gold, silver and other precious metals influence lives and fortunes.

Publisher of the COMMODEX® daily commodities trading system and a weekly futures forecasting service, Gotthelf has appeared on television, written articles and been quoted frequently. The New Precious Metals Market,his second book (his first is Techno Fundamental Trading,McGraw-Hill, 1995), was written for investors but offers plenty of background, technical and "insider" information to interest anyone who shares his admitted love of precious metals, particularly gold.

"If you have ever seen and held an ingot of pure 24-karat gold," writes Gotthelf, "you know it is not 'just a commodity.'" His love of the metal, he says, was kindled by a visit at age 12 to the Federal Reserve vault in New York City, where he gazed upon "bricks of gold ... in absolute glowing splendor." A $5 gold piece given to him before the visit helped hook Gotthelf for life.

Because of the world's undaunted interest in gold, says Gotthelf, most gold mined throughout history is accounted for today. In his new book, he evaluates gold's role as a revered historical symbol and its relatively short-lived status as a monetary standard. Referring to today's "implied gold standard," Gotthelf observes that even though nations have largely abandoned metals for "full-faith-and-credit" monetary systems, governments continue to hold millions of ounces of gold in reserve – proof, he writes, of the universal belief that "if all else fails, gold will retain its monetary value."

Gold Outlook
Jewelers will find Gotthelf's analyses of the uses and futures for gold, silver, platinum and palladium informative. For example, he says that despite recent "unthinkable" low prices, there's little reason to believe precious metals will lose their status as revered and necessary elements. In writing about gold, Gotthelf notes jewelry accounts for the vast majority of gold used today. He expects jewelry to "lead the growth curve (for future gold consumption) and investment will represent the balancing wheel." Demand for gold in other industries – such as electronics and space technology – will continue to grow also, he says.

The Far East and Europe will continue to lead world gold jewelry production in the next millennium, he says, with substantial growth expected from India. Expanding wealth in China and India, he adds, should cause gold consumption to increase dramatically in those countries as well. Expect higher consumption in the "sleeping giant" countries of the Commonwealth of Independent States (former Soviet bloc nations) and in Latin America.

Gotthelf notes that current and future gold supplies should be more than capable of meeting demand. "The trend in gold production is solidly up," he writes. Advances in extraction technology have "massively accelerated" gold output and even transformed a virtually non-producing area such as South Carolina into the ninth-largest gold-producing state in the U.S. Gotthelf says gold production is likely to increase in the U.S., Canada and Indonesia as it levels off in South Africa. Untapped gold in the world's oceans and Pacific Rim countries adds to future production potential.

Silver Outlook
Silver, as a long-term investment, will fare less well, says Gotthelf. Though he expects silver to retain potential in electronics, its use in photography – which accounts for 40% of output – is threatened by the dawn of digital imaging. Gotthelf suggests falling silver prices could one day cause a return of silver coinage to absorb excess quantities and keep prices stable.

Platinum Outlook
By contrast, platinum and palladium have exceptionally bright futures from investment and manufacturing viewpoints, says Gotthelf. Though platinum is a rare metal (its 156-ton 1996 output is dwarfed by gold's 4,300 tons in 1996 and silver's 453 tons in 1995), Gotthelf calls it "extremely important" for the jewelry, automotive and petroleum refining industries. A key aspect of platinum jewelry's popularity, he says, is the visual contrast the metal provides to Asian skin tones. This characteristic has pushed demand in Asia, he says, as well as India, Africa and among ethnic groups in the U.S. and Canada. He expects interest in platinum jewelry to grow steadily, coupled with intense industrial use to keep platinum prices high.

Palladium, another member of the Platinum Group of metals, is also rare. Its usage and price are similar to that of platinum, though its heaviest use occurs in the automotive and electronics industries. In jewelry, its exclusive use is for alloying platinum and gold. Gotthelf predicts palladium's scarcity and industrial demand will make it a potentially rewarding investment well into the millennium.

Overall, Gotthelf sees bright futures for all precious metals (even silver, despite threatening factors), regarding supplies and investment potential. He cautions that price trends will still be subject to the same types of factors in the future they have in the past: international crises, economic conditions, industrial demand and investor activity. Prices for gold will continue to be the hardest to predict, he says, partly because of the large amounts of gold that can quickly enter and exit the market (because it's controlled by governments, investors and hoarders), and because gold production is expected to remain strong.

As Gotthelf demonstrates in his analysis, the way to anticipate precious-metals activity is to understand the past and how it relates to current conditions. "A true follower of precious metals," he writes, "must study geology, technology, geography, demographic patterns, politics, economics and history." But he believes the value of these metals is secure. "People's lives," he says, "have been, and will continue to be, surrounded and influenced by precious metals."

 Metals Market Tips

Professional Jewelerasked author Philip Gotthelf what advice he has for jewelry retailers and manufacturers regarding uncertainties in the precious-metals market. His response:

"The decline in the wholesale price of precious metals, particularly gold, provides an opportunity to increase the profit margin on many items. The public doesn't correlate the price of gold with the price of jewelry per se. Demand for the metal is not lacking, and supply is sufficient to keep prices depressed for the time being."

"Consider lines positioned for lower-end consumers. One problem in marketing precious metals is the price is too high for those most prone to purchase it. There's a strong ethnic attraction to gold, especially for large pieces, which are normally prohibitive. If manufacturers can bring down prices, they can stimulate an audience that has been foreclosed from the market."

"People like gold. No matter how cheap it becomes, it's still an attractive metal. Manufacturers should go after these sales now, while maintaining their premium 18k lines."

– R.L.C.

– by Richard L. Carter

Copyright © 1998 by Bond Communications.


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