from the national post , canada, today...gosh, i guess i might be able to swap some gold for suits after all <g>
Thursday, March 30, 2000
Gold 'on the brink of a
breakthrough'
U.S. dollar the trigger
Keith Damsell
Financial Post
The inflated U.S. dollar is long overdue for a major correction, a day of reckoning that will mean dramatic gains in the price of gold, a Toronto investment advisor says.
"We are in the early stages of the next up cycle for gold," David Chapman, investment advisor at Gorinsen Capital Inc. in Toronto, told the Canadian Society of Technical Analysts yesterday. "If the U.S. dollar stands to slide, make sure you've got gold on board."
Within the next two years, he forecasts gold will rise to its rough historical median near "the value of a good suit," suggesting a price range of between $600 (all in U.S. dollars) an ounce to $1,500.
A price spike as high as $5,000 "may very well happen if we get a deep enough crisis," Mr. Chapman said.
The unique correlation between the value of the U.S. dollar and gold figures prominently in the analyst's forecast. In the 1971, the U.S. abandoned the gold standard, a move that has put pressure on the U.S. Federal Reserve to support the value of the dollar -- and drive down gold -- for much of the past 30 years. In 1994 and 1995, the Fed and the Bank of Japan undertook a "massive intervention" campaign to boost the ailing currency, sparking a chain of events that led to further pressure on bullion and a flood of capital
into the U.S. stock market, Mr. Chapman said.
Gold eventually sank to a 20-year-low of $250 an ounce in August last year. Despite an agreement among Europe's central banks to limit sales and lending and dramatic hedging reductions by gold producers, the precious metal continues to hover in the $280 range.
"Gold has slipped into oblivion," he said. "There is a lot of negative sentiment out there."
But "astounding" U.S. debt levels suggest a dramatic change is in the works, Mr. Chapman said. The U.S.'s record 10 years of economic growth have been fuelled largely by debt, especially corporate and household debt. The U.S's total debt has climbed from about 14-trillion 10 years ago to more than $24-trillion today, more than twice the size of the U.S.'s gross domestic product.
Meanwhile, the U.S. trade deficit is rising at an alarming rate, with consumers and corporations buying a record $28-billion more foreign goods than U.S.-made goods in a recent month. Savings rates have hit record lows as more dollars make their way into soaring stocks.
"Why preserve regular economic activity when I can make more
money chasing stocks?" Mr. Chapman said. "It's debt that's holding the glue together and when that becomes unhinged, the whole house of cards will come down."
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