by Thomas G. Cloud, President
February 19, 2000

    Tangible assets have clearly been out of the news during 2000 since Y2K “came and went” without much fanfare.  We at Turamali, Inc. continue to believe that tangible assets both in the precious metal area and also in the collectible area offer two different baskets in an overall investment portfolio.  With the world still thinking that inflation is “no problem” and with the Federal Reserve trying very hard to make U.S. Treasuries the kind of investment that gold has been for hundreds of years, things have simply not looked good for the short term – particularly precious metals.  Below is a thumbnail overview of what is going on within a market that is under priced (i.e., tangible assets).

     While tangibles should comprise from 5% to 10% of a well-balanced portfolio, this is an area which affords little downside risk and a moderate upside potential over the next three to five years.  Many of the tangible areas are now buyer’s markets with premiums down considerably since January 1, 2000. 

GOLD

    Recently in the Harry Schultz’s newsletter of August 6^th, Chris Thompson, the CEO of Gold Fields of South Africa, the second largest gold producer, stated that the world is running out of gold reserves faster than one might think.  Mr. Thompson stated, “Reserves are drying up at an increasing rate and demand is increasing.  Central Banks will soon realize that it is not smart to either sell gold or lend gold they may have trouble getting back in a gold-scarce market.” 

     Jay Taylor of Placer Dome stated, “In the last ten years, gold demand is up 30% and the price is down 25%.  Those facts defy market law”.  Mr. Taylor pointed out that “collusion by Central banks and bullion banks and brokers have capped the price of gold”.

     This is further substantiated by GATA (Gold Anti-Trust Action) that is building as GATA continues to raise money to take this issue to international court sometime during 20001.  With all of this said, gold is still down 9% during 2000.  It is currently selling for $271 per ounce – which is touching a yearly low.  C&A continues to believe gold is a must as part of any investment portfolio.  The historical significance of gold cannot be overlooked.  If the world’s economies continue to expand, gold demand will increase even more and the shortages will become more evident.  Chris Thompson also stated recently that his firm, Gold Fields of South Africa, is producing 85 million ounces of gold annually and that the reserve decline is happening out of sight and yet it has not been headlined by any news anywhere in the world.  He predicted that this “could not go on much longer without changing the price of gold to the upside”. 

     We continue to recommend Gold American Eagles, Australian Kangaroos, Canadian Maple Leafs, and bullion coins along with Swiss 20 Francs and British Sovereigns as semi-numismatic coins.  These coins presently carry lower premiums than they did last year and they continue to be the best place for gold holdings. 

SILVER

    It’s impossible to talk about silver without mentioning inflation.  Most agree that the government’s inflation figures are not real (with many believing that those numbers are actually half). During 2000, inflation has doubled over 1999 primarily because of rising oil prices.  But silver has continued to decline and is currently selling at a low for 2000 of $4.87 per ounce.  Until there is an inflation scare, silver will be flat to possibly trending lower.  If you are holding junk silver or silver rounds as part of your portfolio, C&A suggests that you continue to hold.  If you have more than 5% of your holdings in silver, we suggest that you liquidate part of it striving for a more reasonable percentage.  

PLATINUM

    Since our buy signal in March ’99, platinum has soared from $340 per ounce to $600 per ounce where it is currently trading.  This represents the highest platinum has been since the early 1980’s.  Remember in 1980, platinum hit a high of $1,043 per ounce.  At the present time, the consumption of platinum for jewelry purposes is outstripping the demand by the catalytic converter.    An example is that the catalytic converter use in North America declined 31% in 1999 due to a greater proportion of vehicles being fitted with palladium based catalytic converters to meet lower emissions legislation currently being phased in nationwide.  However, North America was the only major area in 1999 where demand fell.  With prices of palladium rising through the roof, car companies are beginning to address the strategic need to use less palladium because of the inflated price and the concerns of the reliability of the supply chain from Russia.  Therefore, it is possible that the catalytic converter demand in the fall of 2000 could return to 1998 levels.  Further, if the Japanese economy and other economies from that part of the world continue to buy jewelry, platinum could top $700 per ounce in the next six months.  While there is some resistance at $600 per ounce, we continue to believe that platinum will break $1,000 per ounce in the next 24 to 36 months.  For investors waiting to buy platinum, they should watch the price and buy on dips at the $550-$560 per ounce range.  The way to buy platinum is by acquiring the one-ounce platinum Eagle, Canadian Maple Leaf or Australian Koala.  The Isle of Man Noble is also an accepted coin worldwide. 

DIAMONDS

    The biggest news in the tangibles area for 2000 has come from the diamond industry.  In 1999, the General Electric diamonds that were created in a controlled environment hit the market and were stones that could not be detected against those stones that had been mined from the earth.  But in the summer of 2000, Gubelin Laboratories of Switzerland was able to detect these stones with complete accuracy.  This sent the price of jewelry grade diamonds up almost 23%.  While GE diamonds are certainly real stones, the market continues to feel more confident in those stones that were mined instead of grown.  With the price of diamonds remaining fairly flat for about a decade, the surge over the last couple of months (and the surge expected for early 2001) could produce nice profits and certainly presents now a chance to buy diamonds before prices go higher.  C&A believes the diamonds which offer the greatest chance for appreciation are colored diamonds as these are extremely rare.  It is estimated that .3 of one percent of all diamonds mined are in the colors of red, pink, blue, brown, champagne, and yellow.  There have only been a very few red and green diamonds certified by the GIA since these colors are so rare.  Therefore, we feel pink and yellow diamonds perhaps offer the best potential for the mid- term.    Diamonds with a GIA certificate continue to be liquid.  They are an investment one can dispose of at any time. 

     The other area to consider is not the highest color diamonds (i.e., D, E, and F), but are those stones without a yellow tent since these stones are in demand for jewelry (i.e., G, H, I, and J color).  The clarity ranges are VS-1, VS-2, SI-1 and possible SI-2.  To insure proper grading and liquidity, it is suggested that you purchase a stone which has a GIA certificate. 

COLORED GEMSTONES

     This, too, is an area that has been a buyer’s market for almost a decade, but things are changing.  With the change in the law in 1994 that once again allowed the donation of museum quality gemstones (along with paintings and other collectibles) at retail value rather than the price actually paid has changed the landscape of large “museum quality” gemstones.  C&A’s gemstone company, Turamali, is selling every large stone we can currently find for either investment purposes or for donation to a museum (after holding the stone for a period of one year and a day).  For those who are going to have capital gains during 2001, you may want to pursue this option because a donation may help cut your tax bill and make a museum very happy at the same time.

     Another gemstone to consider is ruby.  This stone hit a bottom price last year and has now turned upward.  Rubies, like diamonds, are controlled by a family in Thailand (i.e., about 75% to 90% of the world’s supply that is mined annually).  We also like blue and yellow sapphire as choices that can be bought at very good prices and offer a respectable upside potential over the next three to five years. 

     Lastly, Brazilian gemstones are still flat; so these stones are still a buyer’s market.  For the investor willing to wait for them to rise in value, Brazilian stones cannot be beat.  We recommend aquamarine, topaz, rubellite, kunzite, chrysoberyl, and euclase.  I would also be happy to discuss the unique pricing on these items with you personally.  If you prefer to see them in person, we are happy to ship them to you “on memorandum”.  To do so, you would need to put money “in escrow”.  To discuss these options, please set up a conference call with my by phoning our receptionist, Louise, at (800) 247-2812.  I am always glad to phone you at a pre-arranged and mutually convenient time.

 HISTORICAL DOCUMENTS

    Historical documents as a whole (after realizing sharp increases in prices in the presidential, the Revolutionary War, and Civil War areas) slowed down in the late 1990’s due to the Internet and confusion over so many new dealers entering the market.  While rare Civil War documents will continue to grow in demand, there are no bargains.  When buying Civil or Revolutionary War documents, you will pay a fair wholesale price since “real steals” are simply not there like they were five years ago. 

     There is one area we have been trying to concentrate on recently since we believe they may offer appreciation potential.  This is the area of Russian and European documents and is an area that has really just become available over the past couple of years.  We are now seeing documents surface on Stalin, Khrushchev, Churchill, Katherine the Great, George III through George VI, along with other important European pieces.  Further, these are available now at very affordable prices.  For example, a Hitler war dated item several years ago would have been almost impossible to acquire; but today while still hard to find, it can be purchased from $2,000 to $5,000 (depending on content).  Stalin material is more rare and brings about $5,000 to $10,000.

     Sports memorabilia is a segment of documents that remains overpriced.  We suggest staying out of this particular area unless you are buying sports memorabilia as a gift or simply because of a personal desire to own a particular piece.

 RARE COINS

    We get a lot of calls asking why C&A has not recommend rare coins recently and why we have not issued a buy signal for rare coins.  A couple of years after rare coins first began being certified by the PCGS and NGC, several Wall Street brokerage firms did partnerships and the prices exploded only to find themselves crashing two years later.  Part of it was due to scandals and part of this crash was due to overpricing.  We continue to believe that rare coins realize their greatest appreciation during inflationary times and that appreciation is never due to the collector market.  True rare coins (as evidenced by their prices) have not gone up like many telemarketing companies would have us believe.  If you are looking for rare coins, C&A suggest staying with coins that cost over $1,500 and coins that are graded by either the PCGS or NGC.  We are happy to provide quotes on any particular coin.  For the remainder of the year, we will sell rare coins at a 5% commission which should help our clients interested in this area make some very good purchases.  According to some of our clients, lately they have seen telemarketing firms marking up rare coins between 18% and 50%.  So if you are interested in rare coins to provide a little diversification for your portfolio, please give me or Mary Jane a call and we will gladly provide you with a quote.

 CLOSING REMARKS

    There are several small changes we have made at C&A that we want to let you know about.  First, our office hours Monday through Thursday will be 8:30 a.m. until 4:55 p.m. (EST).  On Friday, we will be open from 8:30 a.m. until 4:45 p.m. (EST).  This slight change has been made to help our employees beat the weekend traffic which has become a nightmare in Atlanta.  We hope this change will not cause you any inconvenience, but we feel it is a very important perk for our employees.  Secondly, I am responding to all e-mails on Tuesday.  Even if I receive an e-mail on Wednesday, please look for my reply on the following Tuesday.  Again, I apologize for any delay in responding to your messages, but setting Tuesdays as my day to respond helps me make better use of my time.  Of course, in the event I am out of town for the entire week, I will do my best to respond as quickly as possible.  Thirdly, I will not be able to conduct any conference calls from October 27^th through November 20^th as I will be on a trip to the Holy Land and surrounding areas.  Lastly, we are doing some work on our Internet site to make it more interactive.  This process will take about a month.  You will be receiving a questionnaire shortly that we would appreciate your answering by either first class or e-mail.  We will be setting up different client e-mail lists in the near future so that you won’t receive messages on subjects that are not of interest to you.  Please be patient with us as we continue to try to improve the services we provide.