Meet the rational gold investor, a rare bird

Section:

By Scott Burns
Austin (Texas) American-Statesman
Saturday, February 5, 2011

http://www.statesman.com/business/personal-finance/meet-the-rational-gol...

Allow me to introduce a very rare bird. I've been trying to find him for a long time. It's a rational gold investor.

Most gold investors aren't rational. If you've met one, you know. The garden-variety gold investor is an all-or-none thinker. Whatever your investment question, gold is the answer. The world as we know it, the gold bug says, is ending. The only thing anyone can do is own gold. There is no point in talking about Google, whether home values will recover, or anything else because it is all going to end. Get ready for a world of money burning in wheelbarrows.

The rational gold investor is different. This one is named Shayne McGuire. He manages gold investments for the Texas Teacher Retirement Fund. Although the amount of money is large, he is quick to put it in perspective: It is less than 0.5 percent of the roughly $100 billion fund. Even so, it's more than most pension and endowment funds anywhere in the world have committed to the precious metal.

... Dispatch continues below ...



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Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

For the complete announcement, please visit:

http://prophecyresource.com/news_2011_jan18.php



Talking over breakfast and reading his book, "Hard Money: Taking Gold to a Higher Investment Level" (Wiley & Sons, $35), McGuire makes a clear three-point case for why we should own some gold. You might want to consider those points now, while gold is below its $1,420 per ounce December peak. Here are his three basic reasons.

Gold has never been more underowned as an asset. Historically, gold was money. It accounted for a substantial part of global assets. It was a universally recognized store of value and medium of exchange. Today, it is an asset only as a commodity. The value of all the gold in the world, he points out, is about 0.6 percent of all financial assets. This is down from 2.5 percent as recently as 1980.

So gold is a rounding error. The value of the largest gold exchange-traded fund (ETF), at $57 billion, is less than the market capitalization of McDonald's ($79 billion) and only a fraction of the most valuable stocks, such as Exxon Mobil ($403 billion), Microsoft ($246 billion) or Apple ($316 billion).

After years of being net sellers, he points out, governments are now net buyers of gold. Moreover, institutions such as pension and endowment funds now have vehicles for investing in gold. Long prohibited from owning physical gold, these funds can now own it through exchange-traded funds such as SPDR Gold Shares (ticker: GLD). Significantly, State Street Global Advisors' annual report on ETFs shows that GLD was the fifth-most-traded ETF in 2010.

With gold accounting for so little of global assets, McGuire says, only a small shift in asset preferences — from currencies to gold or bonds to gold — would cause a major price increase in gold. Unlike most gold bugs, he is not talking about financial Armageddon. He's simply talking about decisions by institutions, pensions and sovereign wealth funds to sell some bonds and put the cash in gold.

The supply of gold is difficult to increase. When people want to own stocks, there is never a problem with supply. Wall Street will create it. Similarly, governments around the world are producing a worrisome supply of debt — more debt, many worry, than will ever be repaid. But the supply of gold can't be ramped up quickly, whatever the demand. Worldwide gold production has been declining for years.

Again, any change in asset-holding preferences would probably produce a much higher price for gold. How high? No one knows. But let's do a back-of-the-envelope exercise. Suppose that worry about government debt forced governments to back their bonds with gold. With the world government bond supply at $30 trillion and the world gold inventory at 4.8 billion ounces, you can make a case for gold valued around $6,250 an ounce.

Financial leverage in the world economy has never been higher. This, McGuire points out, is usually a precursor to financial instability and inflation. When that happens, both people and institutions look for the exits. One of them is gold.

How do you buy gold? In addition to discussing gold exchange-traded funds and gold stocks, McGuire also tells us the ins and outs of buying nonnumismatic gold and silver coins.

This book is a keeper, one every serious (and rational) investor should have in his library.

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Scott Burns is a syndicated columnist.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf