Gold continues in a strong pattern & just refuses to stay down.

Tuesday, October 25, gold climbed as high as 8 bucks before settling at the end of the day at $472.30. Gold definitely is preparing to climb higher. Most analysts & experts are predicting an average of around 502 dollars an ounce for 2006. And if 502 is the average then the peak we will see will be much higher & dramatic.

Take a look at the Kitco gold graph for the last 5 years just below.

You will notice that the 5 year climb higher has been fairly smooth & solid. In my opinion I do not see a lot of volatile fluctuation, but I see a carefully climbing price with a good deal of strength behind every move higher. I just do not see evidence that these higher prices are signs of an impending peak with a quick drop south again. On October 12 gold reached a high of $480.25. Gold definitely is stealthily & slowly moving higher.

What we are witnessing is a generational & a once in a life time cyclical move higher.

For those new readers just scouring these commentary Internet sites the question must immediately arise as to what these jokers are all about. Are these sites & writers merely doom & gloom nuts that enjoy highlighting & focusing only on the negative in the world & economy?

That’s a legitimate question to ask. And I will admit there does appear to be a lot of pessimistic writing on these sites. But is all of this writing really just pessimistic chat focusing only on the negative or is there more to the purpose of these sites?

How many of you out there live in small towns?

Allow me to live in a smaller town any day. Greenville has only a little over 50,000 souls – where I call home. You will always find the best local home cooked food in smaller towns. The favorite diner I journey to every day is a small eatery called Gene’s. This small, local downtown restaurant has been in operation since 1957 and several of the employees there have been coming to work at Gene’s for 30 to 40 years. Gene’s matriarch “cook” is a black lady everyone calls “Mamma”.

Mamma’s real name is Mary, but she likes to be called Mamma. Mamma has been cooking meals at Gene’s for over 40 years. Just today she had on the menu chicken baked pie & fried salmon patties, fresh made creamed corn, fried okra & fresh seasoned pinto beans. And of course every day you’ll find her cooking the best fried chicken in town - always crisp on the outside & tender & moist on the inside. And I always prefer the coffee here to the fancy coffee at the Internet Café downtown. At Gene’s I do my reading & at the Internet Café I do my work on the laptop.

But let’s leave the dinner plate & get back to the question we asked at the beginning, "What’s in all this for me?” What is the point in being so cautious & bearish? Is there even any profit or value in even eventually being proven correct about these longer term negative predictions about our economy?

Can it pay & be profitable to be cautious? Where is the reward if the analysis presented on these financial sites proves correct?

In our generation we seem to have come to expect each day to be even rosier than the day before. Does history always prove this to be so? Is each day always going to be brighter than the day before? Our world doesn’t always face the sun as every 24 hours is divided between darkness & light. But in our generation everyone has come to believe our economic world is always only an eternal day.

So…our slant of the market news does tend to be cautious, conservative & wary. And again the question arises - why? And these questions of course always bring us back to the discussion of gold.

If you are familiar with history then you know that when dark economic days appear on the horizon that gold always gains dramatically in favor. Just yesterday Alan Greenspan’s successor was announced. A new economic cycle is taking shape before our eyes & only the foolish will pay no heed. The golden days of our last bright economic generational bull market miracle are behind us & a new different financial era is evolving.

Only the blind & unobservant refuse to see these cycles taking shape. Only the ignorant refuse to see gold’s favor growing. We believe gold to be in a long term generational bull market that still has many years left before its peak. Just what does this mean & why do we cover these facts over & over? Well, we can go back in time and examine the last major generational gold bull market.

The last major gold bull market occurred between 1970 & 1980.

“During this incredible ten year (1970 – 1980), 2500% price advance, gold mining & exploration companies returned impressive to mind boggling profits to their shareholders,” Dr. Richard S. Appel.

And many experts believe today that we are experiencing the beginning of another major generational & once in a life time gold bull market.

“In 1975 (maybe translate here the year 2005) most or all of the gold and silver stocks were trading under $2, most were penny stocks under $.50.” Edward Gofsky, The 21st Century Gold Rush, 12-22-03

Remember, we asked at the beginning, “What’s in it for me?” Well, the opportunity to potentially make once in a life time “rags to riches” profits are a very real possibility.

“I don’t know of any other, except for maybe the dotcom bubble where in only a 5 year time span you could have turned so little into so much wealth. Imagine buying in 1975 (2005?) a handful of gold and silver stocks for under a dollar and selling them in 5 years for $100, $200, or even $500 per share as gold fever ripped through Wall Street.” “This one decision in 1975 (2005?) to buy just a handful of gold and silver stocks and sell them near the all time high’s of hundreds of dollars per share could have set you up financially for the rest of you life.” “I truly believe we are at that same juncture as in 1975, but only this time the fundamentals are even better for gold and silver. The similarities between the 1970s and today (2000 – 2010) are uncanny.” Edward Gofsky, The 21st Century Gold Rush, 12-22-03

Let me break here and go over the similarities of the 1970s to today in 2005. Notice lately how we are beginning to hear more & more that inflation is on the rise & a very real & growing threat on tomorrow’s economic horizon?

“Inflation Fears Are Back & Haunting” “Imagine waking up tomorrow and seeing the price of food, clothing, electronics and cars sky rocket. It happened in the 1970's when inflation ranged from 7 to 13 percent.” “The reason why you must pay attention to inflation is because it has a definite impact on your purchasing power and therefore, your investments.” By Alex Wolff, http://www.themontclarion.org

The real estate bubble of the past few years has probably been the greatest alarming indicator of rising inflation. And now that bubble appears to be on the verge of popping & with a real bang.

 “I know it’s hard for most people to think that gold and silver will surpass their old January 1980 highs of $850+ for gold and $50+ for silver, but that is what a 20+ year generational bear market will do to investors who have grown up with falling real assets (gold and silver) and rising paper assets (stocks and bonds).” “When the tide of human emotion swings and paper assets start to fall hard (The day the Fed bites the bullet and raises interest rates to save the dollar), the lust and fever for real assets will be unbelievable.” Edward Gofsky, The 21st Century Gold Rush, 12-22-03

For those wanting to grasp what the gold market is all about the following words by the respected gold analyst, Paul van Eeden, offers a good glimpse of where gold is at the moment.

“I expected an increase in volatility in the gold price, and that is exactly what we are seeing.” “Markets do not go straight up, and the higher the price becomes, the more volatile it is going to be because emotions and expectations become more and more polarized.” “I am still confident that the gold price is going much higher. In fact, due to the recent surge of monetary inflation in the US, I have increased my target price for gold to $830 an ounce.” “As the US dollar declines, as it has since 2001, the gold price in US dollars will return to its inflation-adjusted price, which by my calculations should be above $800 an ounce by now. But not all of the increase in the gold price will be due to a decline in the US dollar exchange rate because monetary inflation will continue to push the gold price higher.” Paul van Eeden, 10-21-2005

Again, remember the key word in what we just read is “volatility.” Also, a second point emphasized by Paul is the word “inflation.” Inflation is a word we are going to hear repeated more & more often (& indeed already are) in the evening news as the years move forward. And it will be this resurgence of inflation that will act as inflammable fuel driving the gold price ever higher – a lot higher.

Paul van Eeden is an excellent & easy to understand analyst so let’s return to what else he has to say about gold & important financial market events. I like Paul’s analysis of the markets as his writing is easy to read & understand.

“The gold price increased by more than 13% since July (prior to this week’s decline) without any decline in the US dollar to account for the increase. One possible explanation for the recent surge in the gold price could be the rapid acceleration of monetary inflation in US. Recall that the average increase in M3 since 1971 has been about 8% per year. During the past twelve months M3 has increase by 7.1%; however, if we annualize the increase in M3 over the past three months it comes to almost 11%, indicating an increase in the rate of inflation. Regardless of why US money supply is increasing so rapidly, the effect will be a higher US dollar gold price.” “As I mentioned earlier, incorporating the recent surge in US monetary inflation increased my target for the gold price to over $800 an ounce.” Paul van Eeden, 10-21-2005

Later in the day I’m sitting in the heart of downtown Greenville under towering trees stretching as high as 7 stories up into the sky.

This downtown has got to be one of the most beautiful downtown developments in America. The streets are literally dominated by towering oaks and other hardwoods. Fall is definitely in the air and a cool crisp wind blows down the sidewalks & through the streets. As the wind blows leaves are working there way down off the limbs from high in the sky. And every minute or so an acorn descends to crash on the concrete below.

Folks are walking their dogs or visa versa. Port City Java, my Internet Café Office, keeps a dog bowl filled with fresh water right outside the front next to the outside tables. Older couples, younger couples, yuppies, a scattering of homeless, the well dressed & better dressed, young families with their babies in strollers…everyone is out on this beautiful sunny Saturday fall afternoon walking the city streets. 

Everywhere is new construction mixed with the old historical business fronts. Buildings that housed cotton 150 years ago stand next to new, but tasteful, developments rising next door. This town has a great planning & zoning board as they are doing a great job of keeping the new construction tastefully blending in with the ambience of the older historical structures. The acorns continue to crash to the sidewalk reminding me that colder days are ahead. Colder days as far as the weather is concerned & with that colder weather higher prices for gold.

But let’s talk about gold stocks once more before we leave. Can gold stocks really make you rich? We think so & history proves this assertion out.

“Bullion's luster has rubbed off on the gold and silver mining firms that dig up the lucrative and limited ore.” “The price of gold is nearly $470 an ounce, approaching levels not seen since 1987.” “Since investors view gold as the world's most constant currency, they often increase their holdings when they think inflation will rise. Inflation chips away at the value of currencies like the U.S. dollar.” “For that reason, gold usually gains in price when inflation fears expand and the U.S. dollar falls vs. other currencies.” By Laura Mandaro, Investors Business Daily, 10-21-2005

History has shown that there is no other asset class other than gold that will make investors incredibly wealthy when experiencing a generational bull market as we are witnessing now. And in the same light gold will also impoverish many investors. So what will separate those who will make a lot of money investing in gold stocks from those who will lose their shirts?

Knowledge.

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