-- Posted Thursday, 22 December 2005 | Digg This Article
I suppose the question on most everyone’s mind now is what is next for gold & where do things go from here?
If this was merely a cyclical market rally we would see volatile swings back & forth. But what we are really witnessing is a realistic valuation for the first time being attached to the gold price. For over 25 years now the gold market has been fairly well controlled while the markets in general were fed by Fed Greenspan's unprecedented credit plunge since his inaugural debut in 1987.
Are you worried $500 gold is too high?
When gold reaches $1,500 to $2,500 an ounce there will probably come legitimate concerns about a speculative top but we are a long way from that day.
Now that the cartel has lost control of the gold price you will observe gold holding strongly at the $500 level. This is because for the first time in a very long time normal market forces of supply & demand are affecting the gold price. And as we have said before – the gold price is back in the hands of the people & the investor as it should be.
We had a good ice storm here in Greenville Thursday, 12-15-2005. I was driving around observing all the many trees down & I ran into a buddy from church & his son. I stopped to speak to him & he told me he was going around with his chain saw clearing trees off the road.
That’s what we do here in the south.
We do not wait for the paid road crews to come and clear our roads for us. We go do it ourselves. Of course it is usually others who do this but when Gus told me what he was doing in my neighborhood what else could I say but, “Do you need any help?” And of course Gus had to say, “Sure!” And I was stuck. Anyway, we were soon joined by another half a dozen men and their sons as we began to chainsaw & drag these obnoxious fallen trees & their limbs from the road. And it was cold. And those trees & their limbs were heavy – oaks & hardwoods it seemed most of them were.
“…for miles in every direction, the world was for the most part dark and ice-covered, laced with impassable streets, shattered trees, cold houses. Windows were black and empty except for, here and there, the faint flickering blue light of gas logs or the orange flames of wood fires.” “After the pale sun went down, the only sounds were the splintering of branches and crashing, like glass.” “Back to before the 1880s, when stringing electrical power lines from pole to pole was exciting brand-new technology.” http://greenvilleonline.com/apps/pbcs.dll/article?AID=/20051220/COLUMNISTS02/512200322/1107/NEWS0701
The following email message below is from a reader in Germany.
Dave,
“Thanks - it is always nice reading your contributed commentary. I enjoy it also when you part from the subject for a paragraph or two, to write about other fundamentals in life. Most things do not interest me but your commentary is one of the few things I enjoy reading. Well, I have bought some gold and it is in a bank in Switzerland, a so-called metal account, where one may buy ounces of gold.” “I was rather concerned about your comments about the "Spargelbauer" (asparagus farmer in German). Basically I am a "doom and gloomer", and in Aldi (the big supermarket chain in Germany) they call me Herr T-fisch because I buy enough cans of tuna to last a 4 year civil war.”
Best wishes
T.
What Next for Gold?
The excerpts below from George Paulos do an excellent job of summing up where we are now with this gold market. And particularly, for the astute reader, the commentary below may just answer our question.
“Gold has now made a decisive technical breakout over the critical $500 resistance level that many analysts believe is the recognition point for the second leg of a long-term bull market.” “The recent breakout of the HUI is a welcome sign that the gold stocks are coming to life.”
“Gold is trading at 22 year highs, yet the industry itself is in denial. Disbelief keeps money on the sidelines, only to be invested later at higher prices, pushing up prices even more.” “The universe of gold mining stocks is small. The market cap of the entire industry is smaller than some popular big cap stocks. It does not take a large amount of buying or selling to drastically move gold mining stocks. Gold mining stocks are still under-owned and under-analyzed by the greater investment community. Movement of even a small percentage of mutual fund or hedge fund money into gold stocks would create explosive price gains.” George Paulos, http://freebuck.com/articles/gpaulos/051216gpaulos.htm
The text below is further evidence of the United States continuing dying manufacturing sector. The death of the U.S. Auto Industry will be a sad day, but that inevitability seems for certain now & just over the horizon.
“The hottest car at the big Detroit auto show next month might be a humble family sedan with the unlikely name Geely 7151 CK.” “It is the first bound-for-America Chinese car to be shown in the USA. The executive of its minuscule U.S. operation expects to begin sales here in late 2008 or early 2009.” “Geely is the second Chinese automaker to aim at the U.S. market. Chinese car company Chery has said it plans to sell cars here. Their interest brings closer the day that automakers in China, where wages are low and manufacturing hardware is modern, could flood America with low-price cars and trucks.” “That might be good news for buyers, but it could be devastating to General Motors and Ford. They are losing money in the USA, laying off employees, closing factories. They'll find it difficult to slash prices until their reorganizations return them to financial health.” “We're very confident that we will have a five-passenger family sedan ready to import to the United States, fully in compliance with U.S. emissions and safety regulations, that we can sell for less than $10,000," says John Harmer, vice president and COO of Geely-USA. The car, probably to be renamed for the USA, is about the size of a Honda Civic, he says.”
http://www.usatoday.com/money/autos/2005-12-15-china-cars-usat_x.htm
What next for gold?
“The year 2005 marked an "amazing run up that has woken up bears and is attracting new buyers who don't want to miss out on exciting opportunities," said John Person, president of National Futures Advisory Service, noting that commodities have been in a 20-year bear trend.” "Metals prices are high, but they're going higher," said Sean Brodrick, an editor at Weiss Research -- calling the global economy a "metal-devouring monster." "The second half of 2006 is going to be a really good time to own gold as the Fed has stopped raising rates," said Brian Batt, a co-portfolio manager at Brick Capital Partners.” “In fact, growth in gold demand will continue to outstrip production in the medium term, said Matthew Parry, an economist at Moody's Economy.com.” http://www.marketwatch.com/news/story.asp?guid=%7B0995B48B%2DF488%2D4043%2D9E37%2DD09B47788AA2%7D&siteid=mktw
Let’s get back to that Greenville ice storm.
The ice was continuing to rain down on us & turn to water on our bodies. Now I am not an outside person & really do not even own a pair of work boats or a pair of blue jeans. I had my thin Docker slacks on and a pair of Reebok tennis shoes. After about half an hour I humbly asked Gus if he had an extra coat & pair of gloves for me to wear. Fortunately his house was close so he ran home & got me these items. Fat lot of good this did for my pants though. Within an hour I was soaking wet & my pants felt like I had just pulled them from the washer. But this is the south & I had to do this bit of community volunteerism. Personally, I would have been just as pleased to leave those stupid trees on the roads until those who were getting paid came to remove them.
What Next for Gold?
“A rally in gold may resume as investors seek an alternative to stocks and bonds because of inflation concerns, a Bloomberg survey shows.” “Inflation accelerated even after the Federal Reserve raised its key interest rate 13 times since June 2004.” “They are not going to be able to keep up with inflation because they would be scared of really hurting the economy,'' said Stephen Leeb, president of Leeb Capital Management, which oversees $140 million in New York.” “Gold has been one of the most accurate inflation forecasters ever.'' “Bloomberg's survey has forecast the direction of prices accurately in 50 of 86 weeks, or 58 percent of the time.” “The breather that gold is taking last week will be short- lived,'' said James Turk, founder of Jersey, British Channel Islands-based GoldMoney.com, which allows people to make payments in gold rather than currencies.” “Gold is attracting serious attention and new money, and as a result, it will continue to climb higher in price.''
http://www.bloomberg.com/apps/news?pid=10000086&sid=aJP.v5POJJWA&refer=latin_america#
What we just read above is very important & lets repeat what I think is the most important & astute comment we just read.
“They are not going to be able to keep up with inflation because they would be scared of really hurting the economy,'' said Stephen Leeb, president of Leeb Capital Management, which oversees $140 million in New York.”
What we just read again explains rather well why we can expect a continuing higher gold price.
To curb inflation the Fed needs to raise interest rates. But what happens to the U.S. economy when rates begin to rise substantially? You guessed it. If rates are raised then consumption slows down which further weakens the U.S. economy. Do you begin to see the “Catch 22” or “Loop” the Fed is now stuck in? And the rest of the world understands this principal though individual Americans seem ignorant & overall dumb founded as to what is happening economically. But you can bet the rest of the world is on their toes & they see the future – hence higher & higher gold prices
And I know you are dying for me to get back to that devastating Greenville ice storm!
Gus gave me one of those yellow vinyl rain coats you see outside road crews wearing in the rain. Had a big oversized hood & the coat itself was about 2 sizes too big so the hood kept falling over my eyes blocking my vision. And all the while the ice continued to rain down turning to icy, slushy, nuggets around our feet.
What Next for Gold?
"Gold is likely to build a base above $500 during thin market conditions over the next two weeks, and enter 2006 aiming for a minimum target of $600," said Peter Grandich, editor of the Grandich Letter.” http://www.marketwatch.com/news/story.asp?siteid=mktw&dist=moreover&guid={CBE58645-2625-4402-85E7-9CD4F9251737}
And back to that ice storm!
You have got all these guys with chain saws & their over zealous sons helping & of course things soon become interesting.
At one point I heard someone yell “Look out!” Well, my head is buried under this stupid yellow over sized hood & I cannot pull it up fast enough to see what I needed to look out for. But I found out when I felt this thing hitting my brow right above my right eye. Never did see what hit me but I felt its punch & it felt like a baseball bat. That was just what I needed at the moment. My head is ringing & I begin to stumble like a drunken man. At that point I am really ready to get back in my car which I had left wisely on with the heat running full blast.
The following text below is further evidence of the demise of American jobs to over seas markets. And of course China is the biggest country causing a deteriorating U.S. manufacturing base. But you will never hear a great deal of criticism directed toward Asia by any presidential administration since it is widely acknowledged that Asia is our principal banker & financier. And never do you get in an argument with the holder of your debt.
“The Commerce Department reported Wednesday that the gap between what America sells overseas and what it imports rose by 4.4 percent to $68.9 billion, surpassing the record of $66 billion set in September.” “(Nigel Gault, an economist at Global Insight)…forecast that this year's trade deficit would reach $730 billion, compared with the record of $617.6 billion last year. He predicted next year's deficit would be an even worse $760 billion…” "Month after month, we see new record trade deficits that spell real trouble for the United States," said Sen. Byron Dorgan, D-N.D. "Behind these deficits are massive numbers of American jobs lost to foreign countries." "We just don't see how current U.S. strategy is going to reverse these very dangerous trends," said Alan Tonelson, a research fellow at the U.S. Business and Industry Council. The group represents mainly small U.S. manufacturing companies.” “Various lawmakers said the administration has failed to do enough to address China's trade practices.” http://www.washingtonpost.com/wp-dyn/content/article/2005/12/14/AR2005121400402_pf.html
And again, what next for gold?
“…gold's 15% annualized gain is almost three times that of the S&P 500 -- a performance that has speculators and long-term investors alike not only taking a serious look at the precious metal but actively accumulating it each time its price retreats," said Nadler (investment-products manager at bullion dealers Kitco).” “Overall, the year 2005 was "only a precursor to a broad-based increase in investor participation in the precious-metals markets," he said, adding that "significant price action in gold will be apparent during 2006 and 2007." http://www.marketwatch.com/news/story.asp?siteid=mktw&dist=moreover&guid={7AB91A34-BA72-487C-95F1-B9213AB783DF}
And back to that ice storm? Yes!
And boy were the coffee houses crowded everywhere! Yes, after getting hit in the head with part of an oak tree I thought it prudent to go get a fresh cup of coffee. Power was out everywhere & folks were heading out to the very few restaurants & cafes still with power. And, yes, I have a large knot on my head that continues to ache.
Before investing in gold stocks it is highly recommended to subscribe to publications that provide a brief review & an introduction to those companies offering excellent speculative potential. Gold Letter emails subscribers those companies it believes are poised to rise dramatically higher as gold continues its upward trek.
There is no other asset class - historically - other than gold that will make investors particularly affluent. Gold equities definitely represent the best longer term investment class with spectacular potential for leverage today.
Thanks for coming by & please do come back.
To order Gold Letter click here
David N. Vaughn
Gold Letter, Inc.
David4054@charter.net
December 23, 2005
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-- Posted Thursday, 22 December 2005 | Digg This Article
