We have advocated investment in gold on several occasions in the past two years. The recent strong advance in the gold price through $350 fully vindicates the strategy. Gold is up 27% in the last 12 months and 11% in the last month alone. So we asked our precious metals expert, Michael Checkan, to explain why gold has reacted as it has in recent weeks and months...and shed some light on where it may be heading.

The best investments in the new millennium so far have been nontraditional investments: real assets like property and gold. In 2003, the property bubble will continue to look for a pin. But I believe strongly that the bull market in gold will continue into 2004 and beyond.

Gold's major trend is up in US dollar terms, but it is also up compared to stocks and the euro. This has been the case since 1999. So, gold is up against all major currencies in 2002 and against the dollar it is up by 26% for the year. This is very powerful and extremely bullish.

Current gold market fundamentals are very positive. Six from a much longer list of positives are as follows:

• Currency concerns, in particular the weak dollar, means that investors see gold as a haven.
• Gold producer forward sales, which had previously kept the lid on the gold price, have abated.
• The mania for equities has been dealt a severe blow by three years of poor performance. The bull market in government bonds is also faltering.
• Gold benefits from the search for a safe haven brought about by tensions in the Middle East, India/Pakistan, Iraq and North Korea.
• Gold mine production has flattened out after two decades of growth.
• Inflation caused by extreme monetary growth in the US makes gold look attractive.

The new millennium's gold rush

There is a redistribution of wealth taking place in the world. Wealth, in the form of gold, is being transferred from the West to the East. Isn't it interesting that from time to time you can read about gold sales by Western central banks, never the most astute of seller. But who are the buyers? It turns out they are the central banks of Middle and Far Eastern countries, who are loaded with US dollars and selling them to buy gold.

China and Taiwan are two of the biggest buyers of gold. However, there is significant buying going on by the governments and citizens in India, Japan, Thailand and Vietnam. Of course, there has been ongoing buying from the Middle East too.

On 18th December, the Shanghai Gold Exchange opened. This allowed Chinese citizens to buy gold in investment bars for the first time in decades. Liberalization of the Chinese gold market is occurring at breakneck speed and Chinese gold demand could really make a difference in the world markets in years to come.

Consider this about China: China's population is around 1.2 billion people and it has a GDP growth rate of 8.5%. There are presently an estimated US$ 1.2 trillion of private financial assets sitting idle in Chinese banks, earning about 2% interest. The amount and type of competing assets to gold in China as a savings and investment vehicle is strictly limited. The result is that the potential domestic demand for gold from this source alone is enormous.

With GDP growth of 6%, India is the second largest consumer market for gold. The yellow metal continues to be a primary savings instrument for most Indians, along with fixed deposits. There are strong cultural preferences for gold as a store of value and a symbol of wealth.

Finally, continuing troubled times for the Japanese economy have translated into significant sales of gold to investors. Unlike the growth and wealth creation we are witnessing in India and China, the Japanese motivation to buy gold now springs from a deep concern about the future and the desire to preserve wealth.

Gold you can fold

Everyone should have a percentage of their portfolio in gold and precious metals. Financial planners suggest having 10% of one's investable assets in gold. It's your "golden anchor", your "wealth insurance" policy that you hold and never sell.

One of the best vehicles for UK investors to use to invest direct in gold (and other precious metals) is the Perth Mint Certificate Program (PMCP). There is no reason for you to have to buy and store precious metals in coins and bars in the UK. Instead, you can eliminate the inconvenience by simply purchasing a precious metals certificate with free storage in Perth, Australia.

The PMCP is the only government-guaranteed precious metals certificate in the world. If used to invest in gold, it is VAT free. Transaction costs are low. There is a low certificate fee and no storage fee if stored in the Mint's nominee name.

The outlook for gold in 2003 is excellent. The fundamental and technical factors influencing the gold price are all in place for the bull market in gold to continue through 2003 and into 2004. This is the time to jump in with both feet and buy gold for "insurance" and for investment.

Action to take: For further advice on buying gold, call Michael Checkan collect at his USA office at 001 301.881.8600 after 2pm. Or, you can email Michael at rcheckan@assetstrategies.com, or visit his web site at www.assetstrategies.com.

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