DEZ
Well, for those worried about gold having reached a rally high & are now worried about a quick retreat south again – that ain’t goin’ to happen.
How about that gold price?
As we have said so many times we are not witnessing merely a rally.
What we are observing now is a “free” gold price acclimating itself to the true market forces of supply & demand. And how goes the demand for gold? The following text below from Bill Bonner & Addison Wiggin, The Daily Reckoning, explains very well where a great part of gold’s demand is coming from today & why!
“The World's Central Banks Must Keep Buying Gold.” “As central banks around the world consider bolstering their gold reserves, one analyst says their only choice is to buy more.
And prices will continue setting records as a result.” "CENTRAL BANKS AROUND THE WORLD ARE SITTING ON MOUNTAINS OF U.S. DOLLARS," Litle explains (Justice Litle is a commodity market analyst & a frequent contributor to the Wall Street Journal & The Daily Reckoning),
"While Americans might consider that a pile of assets, foreign leaders can only see it as a giant pile of liabilities." “As he points out, the U.S. government alone faces a $331 billion budget deficit while Americans are sitting on $2.1 trillion of debt.”
“The deeper into debt America goes, the less valuable its currency becomes," says Litle. Faced with a large supply of a wasting asset, countries "would be crazy not to shovel it into gold as fast as they can."
“Litle believes WE CAN EXPECT TO SEE MORE CENTRAL BANKS ADDING TO THEIR GOLD HOLDINGS IN THE MONTHS AHEAD. And since the world's central banks have such a big influence on the gold price, we can expect the gold price to shoot up as a result.” biz.yahoo.com
Let me briefly state in a nut shell what awaits us in 2006. I know you get tired of hearing about the importance of the Fed eliminating the important inflation barometer - M3, but the importance of this info cannot be under estimated. Because in this one simple act the U.S. government is telling us what awaits us in 2006.
And?
2006 will be the year that inflation is re-acknowledged. No, it never really ever disappeared for all these years, but the government, economists & others had tried to pretend that it had gone away or, most stupidly, was forever contained & under control.
With the year 2006 we will see the REACKNOWLEGEMENT of inflation.
And the reason we will see its reacknowlement again is because the level of government & personal debt has finally reached a point that can no longer be maintained &/or sustained. And foreign governments realize this & understand this fact. It is my humble opinion that this is one of the many reasons we see gold being purchased with reckless abandon by foreign central banks the world over.
So, what does the year 2006 really have in store for gold?
“This past year has merely been a "warm-up for 2006," said Dale Doelling, chief market technician at Trends In Commodities.” "The perfect (financial) storm is about to come raining down on us, and the precious metals will be the place to be in the coming year," he said.” “So "hold on to your gold, silver, platinum, palladium and copper --THESE ARE THE MARKETS THAT WILL PAY HUGE REWARDS AND KEEP YOU OUT OF HARM'S WAY IN 2006…" "There is nothing on the horizon for 2006 to suggest that any of these factors are likely to reverse course in the coming year," he said, adding that analysts suggest that the price of gold is "prone to test the next bastion -- that of the $600 price level." marketwatch.com{128AA5F5-C0D4-4EC9-ABC3-98925A2C40...
Did you catch the above statement? I like the way the writer above describes gold’s predicted action for 2006.
“THIS PAST YEAR HAS MERELY BEEN A "WARM-UP FOR 2006…"
Simply put - the gig is up, & sadly, it is always foreigners who first recognize these economic realities long before the most humble American investor even knows what is going on. The U.S. investor is always the last to grasp important economic events. Europe, Asia, literally everyone else around the world always catches on to economic reality long before the first American notices something terribly wrong.
Anyway, what does all this have to do with gold?
Everything.
Noted gold analyst & gold veteran, Jay Taylor, has some interesting comments below.
J Taylor - “How long is this gold bull market going to go? I think WE COULD BE IN A 10 YEAR BULL MARKET—you know it started two or three years ago. So ULTIMATELY I THINK WE ARE GOING TO SEE GOLD QUOTED IN 4 DIGITS NOT THREE.” “But I see huge amounts of indebtedness in the United States and this—frankly has Ben Bernanke frightened of a deflationary scare—I think is real. I think it is real—because debt is growing exponentially while GDP is growing in a linear fashion—you know two, three percent, four percent a year. But debt is up to $43 trillion (in the U.S.) and growing straight up…” “…WHAT WE ARE SEEING HERE REALLY IS A FIRM DEMAND FOR GOLD…” howestreet.com
China can no longer be ignored as it appears they are gearing up to begin increasing their gold reserves substantially. Though this is not yet a done deal Asian public & official government sentiment seems to be highly in favor of a momentous increase in China’s gold reserves.
“According to IMF statistics, China's gold reserve stood at 600 tons at the end of June 2005, accounting for about 1.4 per cent of its foreign exchange reserve. The proportion is very low compared with that in many developed nations.” ”SOME ECONOMISTS URGE THE GOVERNMENT TO INCREASE GOLD RESERVE IN A BID TO CHANGE THE PAST FOREIGN EXCHANGE RESERVE PATTERN OF RELYING TOO MUCH ON THE US DOLLAR. In their view, with the appreciation of the home currency, China's foreign exchange reserve assets denominated mainly in the greenback may face the danger of devaluation. Teng Tai, chief economist of China Galaxy Securities Company, the country's top securities dealer, says in an article that CHINA SHOULD INCREASE ITS GOLD RESERVE TO ABOUT 2,500 TONS WITHIN A SHORT PERIOD AND HAVE IT MAINTAINED AT THE LEVEL OF ABOUT 3,000 TONS IN THE LONG RUN. Call for gold reserve increase also has been echoed by Shen Xiangrong, director of the Shanghai Gold Exchange, China's sole gold market, for the purpose of offsetting foreign exchange risks in increasing foreign exchange reserve.”
financialexpress-bd.com.
My personal feeling is that 2006 will see a dramatic increase in gold purchasing from China & all of Asia. As we earlier stated we cannot over emphasize the importance of the Asian markets driving gold higher. Read the Asian wire service below to get a good grasp of the importance gold has today for the Asian investor.
“Commodity analyst of Share Khan, Si Kannan’s message to the retail investors is “BUY THE YELLOW METAL AT EVERY DIP BECAUSE ITS NOT TOO LATE TO BUY GOLD EVEN AT THESE LEVELS BECAUSE GOLD AT THE CURRENT LEVELS OF $500 AN OUNCE IS STILL UNDERVALUED due to the discount of about 20 per cent to $620- a 200 year average gold price.” “Sunil Ramrakhiani, head of commodities of IL&FS Investsmart Commodity Brokers Ltd. is also bullish on gold and expects a level of $650 in next two years.” “SINCE THE DOLLAR WAS DEPRECIATING MANY ECONOMIES MAINLY ASIAN COUNTRIES HOLDING HUGE AMOUNT OF DOLLARS IN THEIR TREASURIES STARTED DIVERTING THEIR RESERVES TO GOLD. Middle East countries rich in availability of crude oil (which currently ruling high) are also demanding more gold due to the huge pile of cash.” “Says Mehta of Rajesh Exports, “THERE HAS BEEN SHIFT OF INVESTMENTS FROM INTANGIBLE ASSETS LIKE SHARES, BONDS ETC. TO TANGIBLE ASSETS LIKE GOLD in last one and half months.” “Developed countries like EU, US and Japan have started feeling the need of inclusion of gold as an asset class in their portfolio.”
business-standard.com.
And?
“There is nothing like a bull market to fuel a bull market. Just look at the interest in gold, which has soared to 25-year highs in recent weeks, AND IN GOLD-MINING STOCKS.” “A confluence of factors seems to be feeding gold’s gains.” “Gold supplies also appear to be dwindling. For instance, output from three of the largest producing nations – South Africa, Australia and the United States – fell 20 percent from 2000 to 2004, according to Credit Suisse First Boston.” “At the same time, DEMAND FOR GOLD IS ALSO CLEARLY ACCELERATING. While central banks have been net sellers of gold for much of the past two decades, there are indications that some, including those in Russia, Argentina and South Africa, plan to increase the gold portion of their reserves.” fortwayne.com
Listen well to the analysis below. The writer illustrates how Asia is for the first time in two centuries leading the markets.
“Croft suggests that 2006 - the Year of the Dog - may indeed be one where the bite is worse than the bark.” “BOWEN ISLAND INVESTMENT ADVISER HANS MERKLEBACH IS BETTING THE FARM ON PRECIOUS METALS, RESOURCES AND ENERGY, IN THE BELIEF THAT INFLATION AND INTEREST RATES ARE GOING NOWHERE BUT UP, the loonie is headed for par with the plummeting greenback, and the bear market could reassert itself in the next four or five weeks.” “Coxe notes that this is the first time in two centuries that global incremental demand is coming from China and India - not the industrial nations. HE SAYS THAT MEANS MINING AND OIL STOCK PRICES WILL BE MUCH HIGHER TWO YEARS FROM NOW, whatever occurs in the meantime.” canada.com.
How about a moment of nostalgia?
It seems like only yesterday when we were watching a gold price around 283 dollars an ounce. And what was our hope during those dark days of gold? Our hope then was that gold MIGHT be able to get up to 290 or so & remain there a while. But it just seemed then that the hope of a higher gold price was merely a pipe dream & a far out fantasy.
So now the day of gold has finally arrived & we will yet experience even a 4 digit gold price as time progresses. And it is good to remember why gold is going higher & those reasons really are unpleasant & sad. Gold will continue its evolutionary course far, far higher primarily because the weak financial “fiat” system our politicians built for us 35 or so years ago is finally beginning to fall apart.
And the days of Greenspan’s magic are forever gone.
What will we have to save us as the economy shifts into an ever lower gear as the decade comes closer to a close? I don’t know the economic answer to that one. Gold is a life saver & a life preserver guaranteed to save any slipping portfolio, but gold after all is only a store of value & money, but it is not an industry. A higher advancing gold price will make many of the readers of these articles eventually far wealthier than they ever imagined, but then where will we down the road invest these gold profits?
Hopefully, that problem will resolve itself down the road after we experience a 3,000 dollar an ounce gold price & arrive at our final economic/financial destination.
There is no other asset class, & this is a historical fact, that provides the kinds of immense returns gold stocks can provide in a gold bull market. Subscribe to a publication that will review those junior & exploration gold stocks that have the most potential to rise significantly in today’s long term gold bull market. goldletterdv.com
Gold mining stocks is where the real money will be made in the next few years. Email us & share with us any interesting personal experience related to what we talk about here & we might pass these thoughts on for others to also share. Thanks for coming by & please do come back.
January 5, 2006
David N. Vaughn
Gold Letter, Inc.
David4054@charter.net
Gold Letter Website
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