# Gold in your Investment Portfolio



## josjes (12 April 2008)

To my great regret gold has only come to my attention when it reached US$750 last October. Since then I have jumped on the boat and started gradually building up position in gold, until now I have 10% of my investment portfolio allocated into Gold (physical/unallocated Perth Mint certificate). And I plan to add more. 

I am interested to know whether :

1. other people in this forum have gold in their investment portfolio and 
2. if yes what percentage ? Whether you plan to increase your gold holding ? 
3. if no, why you are not interested in gold ? 

When I started buying gold last November, friends, relatives, Financial Planner, accountant are mostly sceptical and indifference at best. Now, the reactions seem to be improving, people start taking notice and asking questions on how, why to invest, whether it's too late to buy gold etc etc. 

I am sure many people in this forum know the gold bull run, but knowing and taking action is different thing. 

BTW, I did a bit of research on Gold vs All Ord performance over the last 3, 5, 10 years. The start and end of period obviously can make quite a different. 

Investing in an indexed-ASX shares give you steady dividend of about 3-4% pa vs Gold with zilt/nothing.

However with shares you have to pay CGT when you sell them vs Gold with no CGT. 

Gold VS All Ord
Mar 98-Mar08, 220% vs 202%
Mar 00-Mar08, 220% vs 177%
Mar 03-Mar08, 182% vs 193%
Mar 05-Mar08, 182% vs 136%
Mar 07-Mar08, 123% vs -7%

Below a historical chart of Gold in AUS$ from 1983.


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## Nyden (12 April 2008)

Yes, but your figures show _near perfect_ entry / exit times for Gold ... only really possible with hindsight.

The ASX has had many good entry periods throughout the years, & has offered steady / fantastic *growth*. Growth being the key word there. Gold, on the other hand; has had the occasional major spike / *huge* fall.

If you were a true long-term gold bug ... & had been holding since the mid-80s, for instance ... heh, you'd have probably *lost* money over all this time, not made (after inflation) ... if your entry point was somewhere around 600, that is. The point is, gold is volatile, very; & therefore, it's very risky.

Now, the ASX on the other hand ... has not had a major fall that it hasn't recovered in a matter of a few years ... no matter *which* year you entered it, if you stuck with it ... you would have made!


Index funds not only pay fantastic dividends, but they also appreciate in value ...
So, your calculations are wrong. The All ords have gone up 200%, but that doesn't factor in the 4% dividends each year, over 10 years ... that's 40% without even compounding / dividend reinvestment.


Perhaps I'm missing something, but from what I understand, you do need to pay tax on gold profit? Why wouldn't you? I was under the impression anything you bought / sold with a profit (without being a business) was subject to capital gains tax? Could be completely wrong though!

http://law.ato.gov.au/atolaw/view.h...=99991231235958&recnum=3&tot=184&pn=ALL:::ALL
Gold nuggets are CGT assets, so I'm quite certain that bullion, & the likes would be as well ...


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## explod (12 April 2008)

Gold as an investment has its cycle and a good investor will get to know those cycles well.   I used to have a financial cycle clock on the wall above my computer, seek one out and get to know it well.

Above it is mentioned that if you got into gold in the 80s you would probably not have gained.   However if you had got in in the early 70's at the  price of $35 an ounce and held you would be up more than 2000% today.    For those that lost after the fall from the 80's as many profited by getting out at the right time.

I remember as a youngster on the farm from my Father I learnt there were right and wrong times to sell sheep and cattle.   Supply and demand  make the cycles.  Many traditional investment vehicles are looking a bit doubtful and money seems to be losing value so gold is in demand.   

To answer the thrust of the thread,  I have 40% of my investment portfolio in physical gold and silver which I have stored in a bank vault.  Have been set with that for 3 years and have no need to add to the position.   I am confident that I will know well in avance when the cycle is ending and it is time to sell.

An investor and analyst on cycles, William Gann is well worth reading up on.  He was early to mid 20th Century but the basic principles never change.


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## Nyden (12 April 2008)

Hmm, just realized I never actually answered any of your questions! :  I shall answer question 3 ...


I personally don't really have any gold exposure at the moment, but; it perhaps should be part of a balanced portfolio ... I'm just entirely in cash at the moment, waiting for the dust to settle.

Why? Well, I've stated my views on this many times; & it's my belief that if you can't eat it, use it for warmth, run a car on it, or cure disease with it, it serves no purpose. Has no ability to generate income, & people don't _need_ to buy it; that right there is the key reason for me.

In addition; I apologize for my ill-structured posts, but I have the flu ... & am quite dazed.


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## Bill M (12 April 2008)

josjes said:


> I am interested to know whether :
> 
> 1. other people in this forum have gold in their investment portfolio and
> 2. if yes what percentage ? Whether you plan to increase your gold holding ?
> 3. if no, why you are not interested in gold ?




1. None what so ever
2. N/A
3. Because gold doesn't pay me dividends and over the years it has really been a really poor investment. I can go to Thailand tomorrow and buy 24 carat in any gold shop very cheap, much cheaper than Australia. If I really want gold I will buy in in Asia not here and at much better prices. I could be wrong but gold does nothing for me or my finances, I will stick with my industrial shares, cheers.


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## MRC & Co (12 April 2008)

Nyden said:


> Why? Well, I've stated my views on this many times; & it's my belief that if you can't eat it, use it for warmth, run a car on it, or cure disease with it, it serves no purpose.




Then buy wheat, oil, or corn if you like to sleep a lot   Or perhaps invest in biotch........

On Nydens point, you did pick some good years to compare gold (though, they are also decent years on the index).  However, these good years could well roll on into the future.

Also, Bill makes a good point, has the index been adjusted for dividends?  Or simply capital gains?


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## Nyden (12 April 2008)

MRC & Co said:


> Then by wheat, oil, or corn if you like to sleep a lot   Or perhaps invest in biotch........




So, your argument is that gold is volatile / to be bad for sleep? Yet another reason not to hold it! I value my health, & yes, my sleep / desire for minimal stress more than anything gold can offer.

Well, let's see - from what I understand ... each of those 3 commodities are doing quite well lately, aren't they? Seems to just add strength to my argument. Biotech is also pegged to be hot in the future, as is energy (warmth!)...


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## MRC & Co (12 April 2008)

explod said:


> William Gann is well worth reading up on.  He was early to mid 20th Century but the basic principles never change.




Explod,

Whilst I have never studied Gann myself.  Wasn't he more of a salesman than a successful trader?  As stated by his son himself, who said his dad left them a mere 100,000k as opposed to millions.  He said his Dad was more of a marketing guru than a trader...........

Perhaps even though so, his principles may have been correct, but are there many current, professionals using Ganns techniques?  (disclaimer:  I have no idea on the Gann techniques, can only state what I have read).


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## MRC & Co (12 April 2008)

Nyden said:


> So, your argument is that gold is volatile / to be bad for sleep? Yet another reason not to hold it! I value my health, & yes, my sleep / desire for minimal stress more than anything gold can offer.
> 
> Well, let's see - from what I understand ... each of those 3 commodities are doing quite well lately, aren't they? Seems to just add strength to my argument. Biotech is also pegged to be hot in the future, as is energy (warmth!)...




No, I have no idea on the historical volatility of gold (I do not trade the futures currently myself, but will do soon).

My arguement is that corn is not volatile, hence, you will be able to sleep well.  

Wheat has not done well lately, at least the wheat chart I have been looking at.  The different versions of wheat, though I understand there are various grades and trade on different exchanges, confuse a futures novice such as myself


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## So_Cynical (12 April 2008)

I have 80% approx of my portfolio in gold stocks...with hindsight that was a mistake as market sentiment 
determines share price, so my Gold stocks haven't done as well as ASX :GOLD or ZAUWBA warrants.

I find it totally Bizarre that people can look at the gold price chart and then 
decide...its not for me etc...it don't pay dividends...lol

as for the entry comments....look at the chart...any entry 1999 to 2007
was a good entry.


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## MRC & Co (12 April 2008)

So_Cynical said:


> and then
> decide...its not for me etc...it don't pay dividends...lol
> 
> as for the entry comments....look at the chart...any entry 1999 to 2007
> was a good entry.




That is a short period in comparison to the many years of an individual investor.

Dividends make a HUGE difference to compounding rates of return, which most "investors" are after.


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## projack (12 April 2008)

Nyden said:


> Why? Well, I've stated my views on this many times; & it's my belief that if you can't eat it, use it for warmth, run a car on it, or cure disease with it, it serves no purpose.
> 
> 
> 
> ...


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## MRC & Co (12 April 2008)

Just another note on GOLD, which by my avatar you can tell I am long-term bullish.  I do not hold ANY gold stocks myself, at least at the moment.

Another note that worries me, is that gold does well when the US dollar declines.  Which means the POG rises, however, the POG in AUD does not rise to quiet the same value.  Furthermore, gold equities fall when the equity market fall (generally), whilst this is generally the time gold does well, no?  Leaving Australian gold investors in some kind of a catch 22.........and to the conclusion that "perhaps" gold futures or bullion are a better vehicle for gold investment.

Gold is perhaps a better investment vehicle for US investors.

Sorry, had a few :alcohol:, so this may not be coherent.................but then again, it may be.........


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## MRC & Co (12 April 2008)

projack said:


> Come on mate. What about picking up girls on the beach.




ROLFMAO!!!!!!!!!!!!!!!!!!!!!


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## Nyden (12 April 2008)

MRC & Co said:


> No, I have no idea on the historical volatility of gold (I do not trade the futures currently myself, but will do soon).
> 
> My arguement is that corn is not volatile, hence, you will be able to sleep well.
> 
> Wheat has not done well lately, at least the wheat chart I have been looking at.  The different versions of wheat, though I understand there are various grades and trade on different exchanges, confuse a futures novice such as myself





Well, to be honest; I wouldn't have it any other way. Nothing to me is more important than being able to sleep well at night, forget the troubles of the day ... & drift off into restful sleep. Money isn't worth losing years off of your life due to stress, or putting yourself under strain, & not enjoying day to day living! I'd rather die penniless, & have enjoyed life ... than die a sleepless billionaire :

When you start losing sleep over the market / losses, that's when you've become a *gambler*, & not an investor with confidence. It's at this point that you should be in nothing but cash


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## josjes (12 April 2008)

Nyden said:


> Yes, but your figures show _near perfect_ entry / exit times for Gold ... only really possible with hindsight.
> 
> The ASX has had many good entry periods throughout the years, & has offered steady / fantastic *growth*. Growth being the key word there. Gold, on the other hand; has had the occasional major spike / *huge* fall.
> Perhaps I'm missing something, but from what I understand, you do need to pay tax on gold profit? Why wouldn't you? I was under the impression anything you bought / sold with a profit (without being a business) was subject to capital gains tax? Could be completely wrong though!
> ...




You can see that shares outperform gold in the 1990's when there is low inflation, and high growth. But clearly Market is cyclical, things change, the period since 2001 is period of high inflation, where gold outperform shares (if you invest in USA market), and gold perform on-par if you are in Australia (as a commodity country).  
Things will change again when we have low inflation and the commodity boom is over, by then Gold will be going under. But I don't see this commodity boom is over soon in one or two years time. In the mean time why fight the trend ?? 

Regarding 'CYCLE', not only gold has its own cycle, but so does share market. Study the shares performance from early century till now then you'll see it has had shocking performance every 8 years or so (at least 30-40% down).

Judging from the response of this thread, Gold since ancient China/Egypt has and will always incite passion . 

Nyden:

I have rang the Tax Office to personally enquire about it. I have a verbal answer from them that gold bullion is not subject to CGT. I also ask Perth Mint and read through Perth Mint Gold prospectus, it clearly states that no CGT subjected to gold bullion.


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## MRC & Co (12 April 2008)

Nyden said:


> Well, to be honest; I wouldn't have it any other way. Nothing to me is more important than being able to sleep well at night, forget the troubles of the day ... & drift off into restful sleep. Money isn't worth losing years off of your life due to stress, or putting yourself under strain, & not enjoying day to day living! I'd rather die penniless, & have enjoyed life ... than die a sleepless billionaire :
> 
> When you start losing sleep over the market / losses, that's when you've become a *gambler*, & not an investor with confidence. It's at this point that you should be in nothing but cash




Yes, I agree with the major sentiments of the post.  Nothing is more important than good health and peace of mind!  NOTHING!

However, putting yourself under strain could cause you to die penniless.  You can die a rich man by being safe if you compound a decent capital base for many years!

I loose sleep over the market, but that is because I am so excited, I cant wait for it to open (or stay up watching the US and futures) or I have read so much that I have dreams (nightmares), about figures and charts!  LOL.  Though it aint so funny at the time


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## MRC & Co (12 April 2008)

josjes said:


> You can see that shares outperform gold in the 1990's when there is low inflation, and high growth. But clearly Market is cyclical, things change, the period since 2001 is period of high inflation, where gold outperform shares (if you invest in USA market), and gold perform on-par if you are in Australia (as a commodity country).
> Things will change again when we have low inflation and the commodity boom is over, by then Gold will be going under. But I don't see this commodity boom is over soon in one or two years time. In the mean time why fight the trend ??
> 
> Regarding 'CYCLE', not only gold has its own cycle, but so does share market. Study the shares performance from early century till now then you'll see it has had shocking performance every 8 years or so (at least 30-40% down).
> ...




You mean in the last decade?  NOT the 90s in general..........

Trouble with any statistic, is it has to be relative........the stockmarket had a LOT more than 8 years where it didnt perform, however, what was this return when dividend adjusted?

What has been the average real interest rate over the previous several years you mention gold rising, in comparison to the preceeding several years?

Nyden is not a gold bug like us however, but does he have the decisiveness to go with his sentiments on energy/food (both of which I also like)?  Fair enough if he likes his sleep, and 8% in the bank is a decent return.  However, I would much prefer my 25% return.  Again though, it comes with risk...........


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## MRC & Co (12 April 2008)

MRC & Co said:


> You mean in the last decade?  NOT the 90s in general..........




Sorry Josjes, misread that post.


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## Tysonboss1 (13 April 2008)

josjes said:


> 1. other people in this forum have gold in their investment portfolio and
> 2. if yes what percentage ? Whether you plan to increase your gold holding ?
> 3. if no, why you are not interested in gold ?




No gold in m portfolio I have never reall taken the time to examine the benefits but are far as my limited veiw is concerned it can only really have a short term benefit if you are activly trading it,

a bar of gold does not pay a dividend , I can't rent it out so it is just a load of capital sitinng idle


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## josjes (13 April 2008)

Bill M said:


> 3. Because gold doesn't pay me dividends and over the years it has really been a really poor investment. I can go to Thailand tomorrow and buy 24 carat in any gold shop very cheap, much cheaper than Australia. If I really want gold I will buy in in Asia not here and at much better prices. I could be wrong but gold does nothing for me or my finances, I will stick with my industrial shares, cheers.




Bill, I think you are referring to Gold as jewellery here. Jewellery in Asia is much cheaper than in Australia (often by 200%), cause the cost of producing, designing is lower due to cheaper labour. Treat Jewelery as an enjoyment to wear and fashion. 99.99 Gold bullion price is however the same everywhere in the world, acording to the country currency conversion to the US$. 
How can it be said that gold does nothing to your finance, where if you bought them 3 years, 5 years or 10 years ago and sell it now you will be sitting in 180%, 200% profit in monetary value ?


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## jman2007 (13 April 2008)

josjes said:


> To my great regret gold has only come to my attention when it reached US$750 last October. Since then I have jumped on the boat and started gradually building up position in gold, until now I have 10% of my investment portfolio allocated into Gold (physical/unallocated Perth Mint certificate). And I plan to add more.
> 
> I am interested to know whether :
> 
> ...




1.) Yes
2.) 35-40% of my portfolio, potentially could increase to 50%

Also depends what style of company/opportunity you're after. You can substansially reduce your risk profile by picking companies already in production (normally factored into the sp - but research still paramount eg VRE), or are mining a deposit that has been mined before thereby reducing the geological risk factor, or look for up-and-coming emerging producers.

There are SO MANY factors to take into account here. Like any commodity, the quality of the resource, the management team and access to key infrastructure are key. Look for low MC/oz ratios.

jman


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## refined silver (13 April 2008)

> josjes said:
> 
> 
> > To my great regret gold has only come to my attention when it reached US$750 last October. Since then I have jumped on the boat and started gradually building up position in gold, until now I have 10% of my investment portfolio allocated into Gold (physical/unallocated Perth Mint certificate). And I plan to add more.
> ...


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## explod (13 April 2008)

MRC & Co said:


> Explod,
> 
> Whilst I have never studied Gann myself.  Wasn't he more of a salesman than a successful trader?  As stated by his son himself, who said his dad left them a mere 100,000k as opposed to millions.  He said his Dad was more of a marketing guru than a trader...........
> 
> Perhaps even though so, his principles may have been correct, but are there many current, professionals using Ganns techniques?  (disclaimer:  I have no idea on the Gann techniques, can only state what I have read).




Gann's success or not is irrelevant.   He spent his life going through library records back more than 100 years to collate factual cycles for commodities.  His books are a solid starting point for serious investors as are many others who I have studies over the years.   Buffet is my greatest for UNDERSTANDING, but my post was about cycles, so I mentioned Gann.

A solid 8% return at this time of rampant inflation is a poor investment and I would be having sleep problems if I was geared that way.   My wife tells me that some food items have gone up more than 50% in the last 12 months, I know fuel is certainly close to that.    My bullion has gone up more than 30% per year since 2005.

When I see that the bullion trend has come to an end I will sell and put my money into the next cyclical matter on the rise.    I suspect it will be a few years off and I suspect it will property on the way back up.  In the meantime I will continue to study and watch the business cycles.

Oh, and though gold may be useless, people are gready and chase riches, as other investments begin to fail due to the financial crisis a gold rush will get going, just because it has been going up for the last 7 years.

Its all sentiment from that point of view.      So we could calve it into three parts, we have   (a) needs,   (b) sentiment and (c) greed


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## Bill M (13 April 2008)

josjes said:


> How can it be said that gold does nothing to your finance, where if you bought them 3 years, 5 years or 10 years ago and sell it now you will be sitting in 180%, 200% profit in monetary value ?




I've been in the market since 1987 so to round it off to a nice 20 year time lets take a look at the deal.

In January 1988 the XAO closed at 1,257, gold was at $436.

20 years later even with all the doom and gloom around the XAO is at 5505. That is an increase of 330%. Gold went up only 110% in the same period.

You put on your 6% fully franked dividends over 20 years as well and you can see that the XAO over the long term clearly beats gold as an investment.

Gold did nothing from 1988 to 2003 in fact the cumulative average price was down to $363 in 2003, a loss of -17% over a 15 year period.

Now if you bought gold in 2003 you would be doing well now, up 154%, well done to all those who did.

For a long term investor such as myself I just prefer my industrial stocks that pay good dividends. I can not predict where the price of gold will go in the future. It's a case of different strokes for different folks and historical poor performance over the long term is the reason I don't invest in it.


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## projack (13 April 2008)

I very relay post seriously. Actually I think this my first to do so.

I invest in gold and silver, since I lost a fortune on HIH.
I have started increasing my investment from 2003 when I recognised the bull market in gold technically on the charts, and fundamentally with problems in the US financial systems. 
I think it is stupid to say what was the price of the gold in any given year and compare it with the XAO. You just don’t invest in gold that way. You must have you own good reasons to do so, and I f you don’t see any changes, just forget about the fluctuations.
Once I traded with XAO futures spending all my days front of the screen, but I was not very successful. One day my broker told me that his most successful (futures) traders don’t even have computer. I could not understand that at the time, but I do it now.


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## Tysonboss1 (13 April 2008)

Bill M said:


> For a long term investor such as myself I just prefer my industrial stocks that pay good dividends. I can not predict where the price of gold will go in the future. It's a case of different strokes for different folks and historical poor performance over the long term is the reason I don't invest in it.




Amen...


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## projack (15 April 2008)

Bill M said:


> For a long term investor such as myself I just prefer my industrial stocks that pay good dividends. I can not predict where the price of gold will go in the future. It's a case of different strokes for different folks and historical poor performance over the long term is the reason I don't invest in it.




Actually Industrial didn’t do as well than resources, but if you played safe you probably picked the sector leaders 5-10 years ago.
Let see how they preformed in the last 5 years. 
(left QAN out because of the oil price Amen...)


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## projack (15 April 2008)

Sorry TSL and TAH charts were one year only. Here is the correction.
(Makes not much different He..)
Lucky you the dividend just about compensate for inflation.


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## projack (15 April 2008)

OK. I had enough with those wonderful Industrials. 
Lets analyse something very ugly don’t know where its heading stuff.
But I must warn you first;
_For a long term investor such as myself I just prefer my gold stocks (these days) even though they don’t pay good dividends. I can not predict where the price of the above industrial stocks will go in the future. It's a case of different strokes for different folks and historical poor performance over the long term is the reason I don't invest in them._
;


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## Spaghetti (15 April 2008)

I have some holdings in gold stocks but little as I have mainly cash atm. Do watch closely for a big move though.

The value of gold (if realised) will be as a store of wealth. So I would not compare to other non-precious metals or other sectors in the stock market.

I look at the historical performance of gold and suggest it has not done so well because paper currency was well liked and used so no incentive to transfer to gold. However now we see currencies around the world subject to inflation, credit crisis and tigher supply we may see more and more only wanting to take temporary positions in paper but storing wealth in gold.

So I compare to paper (afterall what is the paper worth of our currencies?) and obviously gold holds more value than paper plus it has limitations, you cannot simply print it. If you put your cash in the bank for 5% interest only to see it's value decline by 8% then why wouldn't anyone look at alternative?

The trouble is though that for gold to go sky high we need lots of bad news. 

But if you see nothing but bad news in the future economies then gold will outperform at some stage.


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## projack (15 April 2008)

Politicians don’t like gold, because gold has this keep the bastard honest affect.

We often talk about high oil prices in recent years, but who tell you that, if you kept you money in gold oil price would not changed much.

Qantas used to charge 4-5 ounces of gold for a cheap return trip to Europe; they do the same deal now for 2 ounces. That is a real bargain, but no wonder the share price is a disaster.


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