Investors who have heeded our advice to hold gold related assets have seen the dollar price of gold rise appreciably in recent weeks. As of December 19th the price stood at $345 per ounce, a price not reached in six years.

A rising chorus of voices, largely those of gold enthusiasts, is proclaiming (yet again) the emergence of a sustained bull market in gold. Many factors have been cited, especially looming military action in Iraq, as reason to buy gold now. While we favor gold in reasonable proportion as a form of insurance, we do not recommend that investors increase their exposure based on world events.

The first chart below demonstrates that while the dollar price of gold has indeed risen sharply since October of 2001, the Euro gold price has fallen back nearly to its level at that time. The second chart tells the same story a different way; the dollar gold price has risen but this largely reflects a depreciating dollar vis-à-vis the Euro. The point is we are not convinced that we are necessarily witnessing a global flight into gold; current prices instead suggest a flight away from dollar, as a U.S. war looms.

Most investors with a relatively long-term planning horizon should continue to devote between five and ten percent of their assets in gold related assets, and occasionally rebalance their portfolios by selling appreciated assets and reinvesting in those that have fallen in value, to maintain their desired asset allocations. The vast majority who do so stand a far better chance of meeting their goals than those who succumb to the temptation of chasing the latest rising star.

Also in This Issue:

Another Look at Fixed Annuities
Equity Indexed Annuities: Sorry, No “Free Lunch”
Reminder: Tax Savings for the New Year
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield