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To: marginmike who wrote (111869)	1/30/2002 10:03:51 AM
From: Jim Willie CB	Read Replies (3) \| Respond to of 152472

Greenspasm rate cuts wont work until US$ comes down and that will subdue the forces holding back gold what starts as a slowmoving trolley might become a fastmoving locomotive does anyone see greater stability, safer times in next few years? I realize I might be preaching to the leader of the choir, but here goes anyway I wanted to hear your reaction I have read a lot of financial articles in my life, but this one is near the top in competence, argument, appropriateness, and high quality logic. The USdollar has been engineered higher since Rubin "took office" under VP Clinton. Now 38% of the US debt is held by foreigners, US exporters are handicapped seriously by poor competitive pricing (due to high dollar), and worldwide debt quality is disintegrating. These are the catalysts for a reverse in the trend for gold. tocquevillefunds.com Hathaway's article is simply brilliant, not for an immediate rise in gold, but for the inevitable rise in gold soon. Three forces have kept gold down: 1. central bank selling Central banks hate gold since it competes with their paper (currency, bonds) and the soldier companies' paper (stocks). They have been selling gold in favor of USTBonds which yield a return in interest. How much longer can that happen with rates near or under 5%? 2. world deflation Many govts are now fighting deflation with reflationary measures, which will very likely invite eagerly some inflation. As debt quality becomes resolved, via payment of debt by sales of assets, the new direction will be toward higher quality asset holdings. This means paper assets will not be favored as much as they have ludicrously been held in the past decade. 3. mining forward selling The hedged quantities of gold are at historic highs: two years' worth of production. All this while production levels have come down, and production investment has been reduced. The "contango" is now the smallest it has been in decades. That refers to the difference between say, gold future price one year out, versus gold future price next month. Investors are onto the concept, bidding down American Barrick (the biggest hedger) while bidding up those firms who minimize the practice. Many many forces could easily force gold up: A. Production shortage alone is enough to spark the new trend's direction. The simple laws of supply and demand will be all the more critical if & when demand rises for precious metals, and more reliable forms of currency (than stocks, bonds, corporate debt, mortgage debt, etc). B. Bush wants privately to see the US$ come down in value in order to aid our exporters. As this condition is fostered, look for increased foreign sales of USTBonds, which will be dropping in value. This leads to higher interest rates, by the way. A strong argument can be made that Greenspan's rate cuts have NOT worked because the USdollar is too high. I agree 100% with this. As the dollar comes down, gold (versus US$) will rise. C. As USdollar-denominated assets slide in value, the world will look to a new "reserve store". What will that be? Some say it will always be the dollar. Some in 1999 said tech stocks would rise forever. Some in 2000 said fiberoptic would see rising orders forever. In 1999 some turkey said the Dow would soon hit 37,000. Some in the late 1990's said the US was forever free of terrorist threats. D. As gold rises, and inevitably it will in this unstable world scene, the forward selling by mining companies will unwind to catch many investors by surprise. Mining firms will buyback their forward hedged contracts. They will not roll over expiring contracts. And firms that dont hedge much will begin to speculate and go long on forward contracts. E. The historical trend is for a 10-15 year cycle with stocks rising while gold falls, then for gold to rise while stocks decline. Usually in stagnating periods economically, gold rises. The opporutunity for returns is lacking, the instability is rising, the confidence in paper is deteriorating. F. The historical trend also have an average price of gold at 1/10-th of "One Dow Share". That would be $970 now. This is the target that is likely in the next 2-4 years. Current price is $260-270 per ounce. G. Japan is dying, while it hold close to $1 trillion in USTBonds. Argentina and at least two other Banana Republic nations south of the border are in danger of dying. They too hold many USTBonds in reserve. These people will be selling in order to avoid collapse, as their debts come due and they need to raise real money cash. H ... and then there is the Middle East and Arab oil world with maniac terrorists running loose, and despotic dictators in control of dangerous weapons and vast wealth. Rumors are flying around now that Saudi Arabia is accumulating available world reserves of gold and precious metals. Has anyone thought what might happen if the Saudi govt (corrupt royalty, ailing King Fahd, with 250 princes) should come unraveled? we live in interesting times you owe it to yourself to read this article slowly tocquevillefunds.com / jim