-- Posted Wednesday, 5 April 2006 | Digg This Article
Were you one of those who were concerned that when the Fed pushed the interest rates higher that gold would suffer? Well, look at the chart below which shows gold’s price action a few days AFTER the Federal Reserve raised rates.
Again, look real good at the graph above.
These are the indications of a true bull market force in action. Gold is on a continuing path higher & will continue to build substantial momentum with every passing year. And we will not even go into the fundamentals here as we have gone over them time after time after time. But the important point to make again & again is that natural resources, commodities & our favorite friend, gold, are all going to continue to head higher & higher still.
No one is making new oil wells today as I believe no one is cloning dinosaurs. No one is making new precious metals either. No new naturally occurring copper ores. No naturally occurring base metals deposits. We talked about rhodium last week & I don’t believe anyone is making rhodium from scratch today. And gold? Any alchemists out there succeeding in gold production? No. Fraid not.
“Metals explore new highs as supplies fall” “As per ICRA estimates, global gold output is likely to fall by about 30 tonne annually for next five years.” - click here!
So, what is our point here?
Let’s get back to the old principals of supply & demand. As the “demand” increases & the “supply” decreases guess what happens? Think hard here as I know this is a tough one. Did you see the Arnold Swarzenegger movie a number of years ago where his son wanted a Turbo Man action figure, with all the accessories for Christmas & there was only one Turbo Man in town?
Good analogy to demonstrate how dwindling supply of anything that is in great demand will rise in value very greatly.
“Howard (Arnold Schwarzenegger) promises both Jamie and his wife Liz (Rita Wilson) that there will indeed be a Turbo Man under the tree for Jamie on Christmas morning, but come December 24, Howard realizes that he hasn't actually bought the toy yet. Seemingly it would be no great problem to head on down to the toy store and pick one up, but it just so happens that Turbo Man has been the hottest ticket of the holiday season, and literally thousands of parents are scrambling for the last few action figures. Howard then spends a hilariously hellish Christmas Eve madly scrambling from store to store in desperate search of a Turbo Man…” - click here!
Let’s change the words a little.
“Seemingly it would be no great problem to head on down to the broker & purchase gold & silver shares, but it just so happens that gold & silver has been the hottest investment ticket of the season, and literally thousands of investors are scrambling to purchase quality gold & silver mining shares for their portfolio. Ma & Pa investor then spends a hellish time madly scrambling from brokerage firm to brokerage firm in desperate search of a reasonably priced gold stock”
And as silly & corny as the above analogy is I believe this scenario will eventually play out. We witnessed this during the peak days of the bull market in the late 1990s & we will witness this type of behavior yet again as precious metals mining stocks slowly continue to gain in popularity. And getting back to the day AFTER the Federal Reserve raised rates? What were analysts’ comments?
"The hikes are not as much an attempt to stave off inflation as they are designed to attract investment into the dollar by would-be debt holders (China, Japan, etc.) of the U.S. currency," said Nadler.” “But "to that, we say: good luck," he said, adding that "there still is no real competition from paper as far as gold is concerned." “The precious metal's "fundamentals after all, look a LOT better than those of the U.S. dollar," he said. And "after tax and after inflation are taken into account, real rates are very close to tiny increments above zero." “Analysts at Citigroup said that while gold may go through a short-term correction, its longer-term trend is bullish.” "We maintain our positive stance on gold and believe that prices will continue to work higher, driven by supply & demand fundamentals, macro factors and investment demand," said analyst Christian Siebert.” - click here!
So then the consensus is that even with escalating rates gradually being increased by the Fed the price of gold will only continue to work significantly higher.
Dr. Richard S. Appel - “Across the past several years gold’s price has risen from its $252.50 nadir to a recent $572 high. Yet, despite the fact that it has more than doubled in price, few individuals or investors truly recognize that its Bull Market even exists.” “Despite the fact that substantial profits accrued to those who early understood that gold was destined to be propelled far higher in price, the average person still can not fathom gold’s destiny.” “…when they do we will likely witness a massive price rise that will bring back memories of late 1979 and early1980.That was when gold rose from the $400 range to $875 in less than six months.”
- click here!
You know it’s really funny the way things are progressing on the world scene.
I remember when I first began to seriously notice the markets in 1997 almost ten long years ago & I became very much aware of the cyclical patterns of economic history. Simple fact then I thought that cycles are a part of nature and will remain forever so as long as governments reign. And now we are witnessing the early stages of the next cyclical pattern… the one on the down side.
Jon A. Nones - “At the third annual American Stock Exchange Precious & Base Metals Investor Conference in New York today, Van Eck Global analyst Charl Malan gave a broad overview of the metals market. His synopsis: MANY MORE YEARS TO COME IN THE COMMODITIES BULL CYCLE.” “Malan’s presentation focused on the supply and demand fundamentals of precious and base metals, and began by noting a lack of major discoveries in recent years as compared to the 1980s…” “…gold production peaked at roughly 2600 tonnes in 2001, and was set to decline 8% per year going forward, according to GFMS.” “But the problem does not only lie with a lack of surface or below ground supplies, but a number of gold mines have past their peak of production, said Malan.” “…thus long-term high commodity prices are here to stay…” “Previous commodity cycles have lasted 20 years on average, much longer than the few years we’ve seen so far, he added.” “Dale Doelling, Chief Market Technician of Trends In Commodities, told Resource Investor today that market trends continue in the same direction until they reverse, and he sees “no sign of a reversal at this juncture.”
- click here!
After over 20 years of a major euphoric upside we now begin to see the other side of that pendulum.
And because of government intervention this process is slowed some what, but not canceled out. And so we now see gold escalating to 20 plus year highs. No mystery really if you step back & observe that we are now entering a cyclical downtrend. And that downturn has not even really even significantly begun yet.
Justice Litle - “Yet what if, this time, the future doesn’t look like the past? What if gold were to climb to new highs, breaking the $1,000- an-ounce barrier, and never return from whence it came?” “The role of gold in the 21st century is not just to act as a barometer of financial anxiety, but to ultimately return to the fore as sound money.” “Born of Nixon’s infamous utterance, fiat currency is little more than a brief experiment in the grand scheme of things - still shy of its 40th birthday.” “The current boom in commodity prices could be just the beginning of a decade-long super-cycle – one that could provide you with regular double and triple digit gains.” click here!
When will the masses around us become aware that something is going on in the world?
I am thinking that when gold surpasses 1,000 an ounce that the common masses & Ma & Pa investor may finally step off their couch & enquire what is happening in the world today. Maybe on the way to the kitchen for another coca cola ma or pa will discover that the world really is changing.
“Commodity prices are rising rapidly…” “…demand for commodities has increased in a growing world economy. At the same time, supplies have remained relatively stagnant.” “Unless the global economy changes dramatically, prices likely will continue to rise, says CRB chief economist Richard Asplund.” "The current commodity bull market is far from over…" - click here!
This last week I awoke in the middle of the night & I noticed I had fallen asleep with all the lights on in the room.
As I came awake I just sort of stared at the lamp on the night table the way you do as you are waking up. It occurred to me that the brass design of the table lamp was made to imitate the design of an old brass candle holder & at the middle of the brass lamp stand was a wide circular lip designed to imitate the original candle lamps as the lip would catch the dripping wax from the candle as it burned down.
And I thought this is a reproduction of a design copied from old technology we lived with just a scant 100 years ago!
And I thought how much our world has changed technologically in just the last century. And not just technologically but there have been so many other rapidly occurring changes as well. And we are still continuing to undergo significant & new rapidly occurring changes with each passing year.
And then I contemplated those changes that we have begun to observe in just the past couple of years. I am referring to the changes we are noticing in our economic structure. In the past short few years we have witnessed an escalating gold price with a 180 degree change in the world’s sentiment toward gold.
And why is the world taking notice of gold now where as just a few short years ago it was laughed at & despised & the price was predicted to eventually fall to less than 50 bucks an ounce?
“…there are encouraging signs that another golden age looms for resources stocks.”
- click here!
What happened to reverse the status quo?
Most people think the story behind gold’s price rise is about gold, but gold is just the barometer giving us a signal of other major changes. What we in reality are witnessing is the slow break down of the financial order that has been constructed just these past 35 years or so. The fact that gold is now climbing dramatically is only part of a much larger story & reality.
Dr. Eckart Woertz - “There is no doubt that gold is regaining its luster as an asset class.” “An increasing number of central banks like Russia, China and Argentina are actually buyers of gold in order to diversify their currency reserves and Western central banks appear to be increasingly reluctant to enact further sales (e.g. Germany) or have sold or leased out most of their gold (e.g. England and Portugal). Thus, apart from the inflation fears and the dollar weakness, the supply gap and the derivative short position is the third main driver of the gold price rally of recent years. THESE UNDERPINNING FUNDAMENTALS ARE SO STRONG THAT ONE CAN SAFELY ASSUME THAT WE ARE STILL AT THE BEGINNING OF A SECULAR PRICE RISE RATHER THAN AT ITS END. In fact, the accompanying boom in commodity and oil prices and unstable political developments remind one of the gold price rally of the 1970s, when gold prices rose more than twenty-fold from $35 to $850.” - click here!
And the reality is that the “fiat” house of cards built within & by the US is beginning to show signs of severe wear & strain. Foreigners & professional institutional types recognize this inescapable fact, but not the average fellow on the street.
“Analysts said funds were diversifying into commodities as they saw stronger returns than other asset classes such as bonds and equities.” “Barclays Capital said in a report that after almost two months of consolidation, the market had placed itself in a good position to break on the upside.” - click here!
Rather than ask how high gold will climb lets ask ourselves to what extent our financial house of cards is going to eventually collapse. And since no one can answer this million dollar question central banks around the world are adding to their gold reserves to prepare for a potential economic tsunami.
Ken Garbino- “Gold and commodities are going higher in this decade. The graph below shows how commodity prices are relatively priced versus the cost of living. Two important things about the chart is that commodity prices the last four years have already risen by 50%, but from a historic perspective the move looks as if it is just beginning a new and prolonged trend. The inflation adjusted price level today is the same as 1932 at the depth of the U.S. depression when commodity prices had collapsed.” - click here!
Ken Garbino- “The graph above states the obvious, that the commodity decline from the 80’s and 90’s is over.” “A prolonged and strong across the board increase in many commodity prices is under way. This will influence inflation rates and move the price of precious metals higher in the years to come. The above graph is your road map.” - click here!
And Ken Garbino tells us below what gold & silver mining stocks should rest in our portfolios. Good advice below to follow concerning mining shares.
Ken Garbino - “Portfolios should be diversified across at least a dozen mining companies that have the goods in the ground and are well financed or positioned to bring on new production in the years to come. You want growth to look forward to and also plenty of value in the ground to ultimately protect our wealth. Remember risky exploration companies give you none of the above. The high-risk end of mining should only be for a very small part of your portfolio.” - click here!
Are you investing in gold today? You might want to think about this as the economic storm clouds are getting closer & closer.
Here is excellent material below! I have said repeatedly that most investors do not have an exit strategy as to when to sell a stock. Roger Wiegand illustrates this well.
Roger Wiegand- “The main problem with our investor majority is they do not have a sound plan for entry, exit, attaining goals and securing those goals. What is the point of the entire exercise if invested cash never leaves the stocks?” “Most of us, including me are constantly working to locate superior entry and exit price points, when in most cases we could just buy the market and follow the continuity letting the trade have room to play itself out. Livermore had shown and proved, prices can achieve much higher levels than we ever expect.” - click here!
And where does Roger Wiegand believe the gold price is headed?
“If this resistance ($574) is broken on the upside, then we will be persuaded the trending move was sideways not down and that gold is at the inception of the larger rally for 2006 which should continue to the winter holidays.” “Is the world ending? No it is not. It’s just getting a bit nasty for a few years until this big mess goes through its historical cycle then life goes on.” “Gold and silver are going up.” “Inflationary daily life will become much tougher.” “Today’s events are like the 1930’s. The Nasdaq implosion was identical to 1929. Today, we are preparing for the next wave of selling after a bear market bounce.” “Middle Eastern oil rich nations are buying gold more rapidly. These same countries feel abused by the USA and are moving to trade oil in Euros and other non-USA currencies which is very big trouble.” “The precious metals have a long way to rise in price.” “At its extreme, gold is on a one way track to $2,960. Modestly, the top could be $1,250.” “History repeats again and again. As of 3-30-06, it appears we are seeing a new gold and silver market beginning to rally.” “When the consumer caves in economically which is very soon, nobody will take care of you but you. You must take control and go opposite today’s majority which is very difficult. Those status quo believers are the dominating force. When the game caves in and there is a race to liquidity, non-believers will be seriously damaged causing severe life style changes and perhaps even the end of their happy little bucolic existence.” “Don’t let the enemies of gold run you off. Hold your gold and have strength of purpose. Remember, that first of all the fundamentals mandate gold and history tells us precious metals are the place to win…”
- click here!
Gold Letter reviews under valued gold & silver stocks. Subscribe to Gold Letter quarterly or for LIFE! Also, sign up for free report & examine GL performance for past year. ü - click here!
Comments? Thanks for coming by & please do come back.
David N. Vaughn
Gold Letter, Inc.
David4054@charter.net
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-- Posted Wednesday, 5 April 2006 | Digg This Article
