GOLD BREAKS $400

Gold Hits Fresh 7-1/2 Year Highs,

Silver Surges To $5.40s

During overnight in Asian trading, Tuesday U.S. local time, gold burst through resistance to trade, for the first time since early 1996, at and ABOVE $400 an ounce! Large amounts of buying was noted by securities hedge-funds, short covering and stop-limit buys propelling gold to $400 as the U.S. dollar continue to show additional weakness in Tuesday’s markets now at new multi-year lows. Gold is now up nearly 25% YTD. For its part, silver followed gold higher today as it hit trades just below fresh 52-week highs set yesterday and last Friday, trading just around $5.40 an ounce for DEC delivery. Silver is now 23% higher YTD, 7% in the prior 5-days and nearly 10% in the previous 3 weeks!

With $400 just triggered, stop-loss buys (short covering) has pushed prices dramatically higher with resistance seen from physical selling and long liquidation. As $400 falls, a quick spike to higher levels is expected but is likely to be met with profit taking, consolidation in the coming days as gold pushes higher. It remains to be seen how long $400 will be maintained in the short-term, but soon enough $400+ will become our new trading level as gold prepares to assault prior 1996 highs just under $420 an ounce and above. Still, gold has risen mostly in U.S. dollar terms - the next major gold bull market stage will occur with global market participation. Until this event occurs, gold will be well supported with a depreciating dollar seen to lose an additional 20-40% in the coming years.

Factors contributing to the higher gold prices since its turn around in 2001 from the $250 area have been and not limited to:

·         Weaker U.S. Dollar

·         Supply deficit of around 1,500 tons/annum made up in part by central bank selling

·         Strong Mid-East, Asian demand

·         Short-covering due to the gold carry trade (GATA)

·         Producer de-hedging acquired in the 1990s and early part of this decade

·         Washington Accord signed in 1999, expiring Sept. 2004 limiting annual sales of the signatures to 400 tones/year

·         Increasing gold reserves by central banks - notably from China and Russia as holdings of foreign reserves increase and diversification out of U.S. Dollars into Euros and gold

·         Safe haven buying with recent geo-political events

·         Weak U.S. economy and inflationary pressures spurred by massive liquidity injections by the Federal Reserve as seen in the rising commodity prices (CRB index)

Some factors to watch in the coming months, years

·         Gold ETF funds, like the one launched in Australia, appearing imminently on exchanges around the world (NYSE: GLD, London, Paris, Hong Kong, Tokyo...)

·         Producer de-hedging activities, which were weak in the prior quarter - with rising prices, multi-billion dollar mark-to-market losses will force covering by companies, such as Barrick gold with an outstanding 16.1 million ounces hedged and nearly $1.5 billion losses on the books at $400 gold, will cause additional buying pressure as they cover their obligations to deliver gold at significantly lower gold prices

·         Chinese liberalization to allow private ownership of gold, which is expected to make them the largest global demand center which India currently holds, adding estimates of 200-500 tones of gold demand per year

·         Increasing interest from investment demand as jewelry sales weaken in the face of a global, economic slowdown in the years ahead. With U.S. economy undergoing a short-term recovery due to massive Fed liquidity injections, 45-year low interest rates and a consumer who are willing to pile on records amount of debt, the serious Credit Bubble will have to be contended in a serious manner

GOLD $400!

Years in the making, gold has had an outstanding run-up since early 2001 when gold bottomed out from an over 2-decade bear market decline from $850s in 1980 to just above $250 an ounce. If gold were to only go back and match the $850 an ounce level seen over 20 years ago, in inflation adjusted dollar terms, with roughly a 130% inflation rate increase since then, 1980 gold’s high is truly in today’s devalued dollars valued around $2,000 an ounce!

Proving many pundits wrong, gold and silver shares have managed to shine and provide outstanding gains to those who have rejected mainstream recommendations on gold and silver purchases. Below, we look at the long-term XAU and HUI indices to show you how the beginning of this long-term, secular bull market has begun. As $400 gold falls today, and $450, $500+ becomes reality over the next months and years, golden bulls will continue to be rewarded for their bullish posture. Continue to read the Gold Seeker to trade these wild swings and secure profits on the volatile moves up and down as well as to keep up-to-date on the current happenings in this young bull market now entering a new, exciting stage! The HUI index hit new, all-time highs with the XAU now firmly above the 100 level not seen since late 1997. Comparing the non-hedge gold bugs index (HUI), one can clearly see the exception leverage, provided by companies who are positioned to capitalize on higher gold prices.

Relative Gains Comparison 2000 to Present

Dramatic gains have been seen in the precious metals sector over the previous few years. If you had invested on the first day of this new millennium, you would have experienced about a year of anguish as the sector took a beating while it bottomed out. Even with those losses, not timing the bottom of the market, you can see how much leverage the underappreciated, unhedged gold bugs index has returned. In graph two, we compare the HUI to the XAU side by side.

Had you picked the bottom of the gold/silver share market, you would be sitting on MASSIVE gains at this point, provided you were in the HUI. The XAU, impressive gains as it may seem, has languished the HUI index in a serious way. Leverage by way of unhedged gold companies has provided an unmistakable larger return to investors. Started in mid-1996, the HUI index initial value was 200 but destroyed as gold endured a slow death from $400 to $250 providing questions as to if many of these gold companies could survive as productions costs remained above the market’s price for gold. Mines closed, companies closed, companies were forced to hedge, and the sector was a total disaster. Yet in late 2000, the HUI bottomed at around 35. Since then, 500% increase in value has been recognized surpassing the starting index value several years ago. Now, with gold prospects looking very bright, gold now back at $400, unhedged gold companies stand to benefit the most from this new, secular bull market!

Congratulations Longs

 Another Milestone Has Been Met

 More To Come!

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