GET
FILTHY RICH INVESTING IN GOLD
by David N. Vaughn
Gold Letter,
Inc.
March 21, 2006
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You don’t believe yet that gold is making a few investors incredibly rich? In the past few years we have witnessed gold ascending from around 252 dollars an ounce to a top so far around 580 dollars an ounce. And have you been paying attention to many of the silver & gold junior resource & exploration companies?
Are you? Kind of like what Bill Murphy always says, “You’ve got to be in the game to win,” or something similar to that. Bottom line is that the hottest sector now really is the gold & silver mining stocks. Though you don’t see any serious coverage given to this sector on CNN or any other cable news network for those who are paying attention they are reaping awesome & incredible personal gains. Do you wish for further confirmation that precious metals equities are the place to be? Read the text below. “Canadian Stocks Head for Weekly Rise on Higher Gold, Oil Prices” “Canadian stocks headed for their biggest weekly advance since January as gold and oil prices advanced.” - click here! One of the things we write about over & over is the simple yet important fact that our world is changing today. Let’s stop here a moment & take a ride back in time. Think a moment about everything you have read in your history books about the year 1906. The significant changes occurring during that time brought the introduction of new technology. And that new technology forever changed the way people lived. It’s very important always to recognize the changes occurring in our world around us. For example in 1906 you didn’t want to consider as a long term career path becoming a blacksmith. In much the same way today in the year 2006 dramatic & life changing events are happening that will dramatically change the way our children live tomorrow. Is this good or bad? Bad I suppose if you are not prepared for the changes or stupidly believe that we are still living in the 20 century. No, the 20th century is behind us & we are continuing to move further & further into a brand new century that will only evolve & change further with each passing year. And just how quickly can an environment around us change? Let’s stop here & consider for a few moments just exactly what our world was like in 1906. And keep in mind how rapidly the world changed & evolved from this humble year. In 1906 there were only 8,000 cars in the country & only 10 miles of paved roads. And in 2003? “On February 1, 2003, the space shuttle Columbia disintegrated as it tried to reenter the Earth's atmosphere after a sixteen-day mission in space.” - click here! And back to 1906… “Speeding - The element that made motoring sport was its dangerous speeds. By 1906, 15 states had speed limits of 20 miles per hour.” “Many changes during this time were brought about through advances in technology. The turn of the century decade began one of transition and progress and is considered the first decade of materialism and consumerism.” “There were hundreds of (new) job openings for a typewriter secretary. Radio broadcasts and transportation, especially automobiles, ships, and trains, changed the way people viewed their world.” - click here! And in 2006? “Dynamic programming is used for optimization problems, where the solution is the result of a series of decisions d1,d2,...dn. Every decision depends on the one taken before and it isn't uniquely determined.” “For applying this method we need to make sure that the optimality…” - click here! Don’t even know what the crap they are talking about above. And that’s how far technology has evolved in our generation. Don’t you long for the simple good ole’ days of 1906? “Leisure time during the first decade of the twentieth century was spent at family get-togethers, baseball, picnics, long Sunday drives in the horse and carriage (or the new family car). In the evenings families gathered around the piano for a sing-along. Sheet music to popular songs sold over a million copies. Song pluggers carried pianos on their horse-drawn carts and performed for crowds who bought this music from these vendors or dime stores.” - click here! And in 2006? “Why you should worry about urban sprawl, out-migration, overpopulation, traffic congestion, ghettoization, imbalances in urban mobility?” “Why do traffic jams happen?” - click here! Anyway, our point is that this ain’t 1906 nor even the quiet hey days of the 1980s. Our world continues traveling on a non-linear graph & trajectory where the angular velocity of the world’s problems is getting steeper & steeper. Need another example of new changes in this 21st century? Read the text below. “World's Water Wells Are Drying Up!” “After over half a century of massive exploitation, far greater than any possible rate of recovery, most of the groundwater basins of the world are now close to the limits of the resource.” “The reality is that the United States is coming to the end of the cowboy era of groundwater exploitation, and it is to be expected that the flow in all basins will gradually decline towards extinction.” “The rapid decline of groundwater resources in China and India has led to the governments of those countries moving to construct huge projects for the transfer of water to their cities and farms. Similar actions may be needed in the United States.” - click here! And of course what we just read above details the rapid depletion of clean drinking water & this only dramatizes how the mineral wealth over the entire world is rapidly being depleted. And we are further reminded below that gold production is falling & not keeping up with long term demand. “Gold mining production has been flat to lower for 8 years and that gap will widen over the next 5-7 years.” “For the foreseeable future, there seems little chance that this situation will change.” - click here! Ken Gerbino seems to know the subject & industry of mining stocks well. Ken Gerbino- “We still have a long way to go in this mining stock bull market, because all the mining stocks together represent less than 1% of the S&P 500 Index.” “Minerals and metals are becoming more scarce.” - click here! Let’s say those words again because this is very important in understanding the future direction of the 21st century & this present long term gold bull market. “Minerals and metals are becoming more scarce.” And Ken below lays out a consequence of that mineral scarcity. Ken Gerbino- “Consequently an acute supply squeeze will surely occur in the coming years. This means historic valuations of mining stocks based on global economic cyclicality is no longer valid. Growth from Asia and India changes the entire landscape of raw materials from a cyclical business to a growth business…” - click here! And I love Ken’s prediction below. Ken Gerbino- “…the mining sector could, again, become the long term darling of Wall Street.” “Mining companies should now enter an era of sustained growth. Growth stocks sell for 20-30 times earnings. Base metal mining stocks in the last three decades usually sold for only 3-7 times earnings because of the constant ups and downs of the world’s economy (cyclicality). This is all changing right now.” “…because no one can ramp up any supply in the short or medium term to meet demand, pricing power will be strong. Also these mineral deposits like everything else in the world become more valuable as inflation continues to move forward year after year.” - click here! Ever heard of rhodium? “…rhodium is a member of the platinum group, is found in platinum ores and is used in alloys with platinum and as a catalyst.” “Rhodium (Greek rhodon meaning "rose") was discovered in 1803 by William Hyde Wollaston soon after his discovery of palladium.” “As of 2006, rhodium cost approximately six times as much as gold, by weight.” “Rhodium averaged $26.43 per gram or $1,000.00 per troy ounce over the last 30 years and $2900.00 per troy ounce in December 2005…” - click here! Did you enjoy the above history lesson about rhodium? Trying to illustrate here the importance of precious metals in general to our world & life style. Trying to point out how the demand for minerals is increasing in our world today & tomorrow. If you’re interested in the history lesson about rhodium the info below is interesting & further illustrates how the need for minerals is mounting. “New Class Of Compounds Promise Better Drugs, Clean Energy” “…scientists working in the laboratory of Dwight Sweigart, a Brown professor of chemistry, combined two compounds. One is hydroquinone… The other is the precious metal rhodium. The resulting reaction produced rhodium quinones.” “This mixture has marvelous properties,” Sweigart said. “Rhodium quinones are very fast and efficient catalysts.” “The secret is rhodium. It’s the Superman of elements.” “Rhodium is lighter than platinum, rarer than gold, and, at about $3,000 an ounce, the priciest of precious metals. The silvery white substance is prized as a potent, long-lasting catalyst and is used to concoct antifreeze, detergents and other industrial chemicals as well to make automotive catalytic converters, which cut down on air pollution. Rhodium…can be found in searchlights, dental mirrors, and giant microscopes known as synchotrons.” - click here! Are you beginning to get an understanding of why investing in precious metals today is the best place to be putting your money? These resources are NOT growing, but rapidly becoming extinct. A reader emailed the following comments below concerning another reader’s comments in last week’s article. We try & let everyone have their say. Hello David - “Regarding this quote (by VH) in your recent posting:” Chinese government policy has been to peg the Yuan against a basket of Western currencies…” “Please post a correction to this nonsense by H. The Yuan had been pegged to the US dollar, and just recently the Chinese started to very slightly loosen the peg, and the Yuan appreciated about 2% versus the dollar. The pressure on China from the US is to let the Yuan APPRECIATE, so the Fed can continue devaluing the US dollar without taking the Yuan along with it (and thereby maintaining re: US or increasing re: the rest of the world, China's export advantage).” “There is no way in !@#$%&* THAT the Yuan will be devalued 70% against the dollar.” Regards, D.B. Any fall out from that failed Arab effort to take over U.S. ports? Looks like someone is mighty mad over losing that port deal. Read below & tell me if you think someone is angry over losing those U.S. ports? “Arab central banks move assets out of dollar” “Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.” “
Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.” “The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros…" “Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.” “The governor of the UAE central bank, Sultan Nasser al-Suweidi, said the bank was looking to convert 10 per cent of its reserves, which stand at $23bn (£13.5bn), from dollars to euros.” "Investors are going to take this into consideration [and] will look at investment opportunities through new binoculars." "The issue is whether we will see similar attitudes taken by other Middle Eastern banks. It is a question of momentum." - click here! Wow! Did you catch that above? U.S. dollars being traded for Euros. My how things do so suddenly change. Guess the U.S. will have to soon be going to war against these principalities & powers who dare to threaten to quit using the mighty U.S. dollar. Now let’s talk briefly about the old U.S. trade deficit. Is it not amazing how we always seem to return to talk about & to discuss that ole’ record trade deficit? The subject of this deficit just never seems to go away, but to only grow & grow. “Dollar falls on record trade deficit” “The dollar weakened against its major rivals Tuesday, hitting a one-week low against the euro, after a report showed the U.S. current account deficit widened to a new record.” “The U.S. current account deficit widened by 21.3% to a record $224.9 billion in the fourth quarter, the Commerce Department said. The deficit amounted to 7.0% of the nation's gross domestic product, also a record.” - click here! You think anyone really cares about that deficit? What did we just read? “The deficit amounted to 7.0% of the nation's gross domestic product, also a record.” It used to be considered an economical catastrophe if this figure hit 3%. But who really cares, right? "We had an extremely bad current account deficit number this morning," said Kathy Lien, chief fundamental analyst at Forex Capital Markets.” - click here! Well, Kathy seems to care about that growing US deficit. "There's a very high likelihood that we had another deficiency this month. If that's the case, you can easily see the euro shoot up to $1.20, and the dollar collapse as a result…" - click here! Kathy, sweetheart, nobody really cares & you’re wasting your time even giving your comments to the news media. The following excellent analysis is by the master “down under” – Bill Buckler. Pay very close attention to what Bill says because he is telling us the soon to be direction of the US gold price. Bill Buckler- “…ALL instances of rapid acceleration in precious metals prices come with RISING interest rates. This is very simply because in a fiat paper currency world, rising rates and especially rapidly rising rates reflect a growing unease about the future purchasing power of the currency in which the rates are denominated.” “…it would take a "heroic" level of self-induced blindness to not recognize the potential for a swoon in the US Dollar. Indeed, the longer it is "postponed" by frantic Central Bank action, the bigger it will be when it finally hits. We are on the brink of another upleg in the $US Gold bull market. When it occurs, whether next week or next month (we don't think it will take any longer than that), it will NOT be accompanied by a rising or even stable US Dollar. This time, we think that Gold and the US Dollar are going to go in opposite directions, just as they did in the first three years (2002 - 04) of the current Gold bull market.” - click here! And below is further good advice from another well respected gold analyst who always should be listened to. John Doody- “Stay the Course we advised in Feb Update. The sky was seemingly falling as gold dropped from its $572 peak to $539.” “…investors ran for cover. Gold’s underlying driver is the Dollar’s poor macroeconomic picture and its future implications. No one can time the market’s ebb and flow… look at all the swings (adjacent) this bull market had since its 4/2/01 start. Until there’s a fundamental change, stay the course!” - click here! Below is another welcome comment from a reader. “…I'm heavily invested in the metals which of course we both know that in time they "WILL" go parabolic without question.” “WOW, the ride so far has been GREAT!!” “By my estimate this should be the Greatest Bull Market in our life time, something that neither you nor I, or any other living investor has ever seen!" “Good things come to those who wait they say " “It's been I think, the best investment I've made in this lifetime.” “As far as wearing shorts down there, we are starting to wear ours up here..........it's only 45degrees F. today and I’m now looking for my sneakers.” Kind regards, Phil, Montreal, PQ. Canada Below are excellent words of warning for those who are failing to take notice or to take heed of what is coming down the road financially & economically. “Investors tempted to bet on a benign U.S. interest rate scenario have much food for thought.” “With a trifling 0.1 percent February gain in the U.S. consumer price index, the U.S. interest-rate debate has become so quiet you can hear a pin drop. But those with a sense of history are not tuning it out.” “JUST BECAUSE THINGS DON'T HAPPEN RIGHT AWAY DOESN'T MEAN THEY WON'T HAPPEN AT ALL OR EVEN THAT THEY WON'T HAPPEN IN THE NEAR FUTURE.” “But the U.S. is not a closed economic system. If interest rates do, indeed, stay benign, could the dollar hold its ground? And if the greenback falters, should we still expect stability in future inflation readings (as consumers cough up more dollars to buy the imported products we've come to depend on) and longer-term interest rates?” “Ultimately, the U.S. must compete against the rest of the world for capital. Recent data showing a still-widening trade gap means we're going to have to keep right on doing it. In fact, the failure of investment dollars coming into the U.S. in January to fully offset those flowing out (to pay for imports) suggests we'll have to compete even harder.” “It's been an easy fight lately. Japan, seeking to combat economic weakness and deflation, has kept some key interest rates at zero. That's hardly a level that would lure capital from abroad. China had been aggressively buying dollar-denominated securities in order to preserve a steady, low, relative valuation for its own currency.” “But the ground is starting to shift.” “Investors tempted to bet the farm on a benign U.S. interest rate scenario have much food for thought.” - click here! Did you understand what you just read above? Let’s repeat a few of the most important words voiced above. “But the ground is starting to shift.” You hear over & over today about how gold demand in China is growing. And you hear that Asians in general just seem to have a fondness & a like for gold that surpasses those of us here in the west. Is this really true? Do the Chinese seem to have an obsession with gold overall? Read below & then answer the question. “CHINA is to open a R25m theme park dedicated to gold, according to Agence France-Presse (AFP), a newswire service.” “Construction of the theme park began last week near an operating mine at Rushan city, in China’s Shandong province.” “When the 3.6km2, 200 million yuan (R25m) park is completed, it will allow visitors to watch gold being mined and processed, AFP said. It will also include a Do-It-Yourself area where the visitors themselves can be gold miners for a day.” - click here! Below are some excellent points to ponder & to consider. “We are n the verge of the greatest inflationary binge in history. Our perceived wealth is the manifestation of one of the greatest misallocation of created assets and as such its existence will have profound ramifications. Our society, world society, has inflated expectations based upon financial leverage and useless credit. Our asset inflation and bubbles have created unsound distortions driven by unsound incentives. Due to this our capitalistic system is in extreme danger. Speculative market dynamics have fueled our economy for many years in spite of our knowledge that previous journeys into this realm have ended in financial tears and at deplorable social cost. All the economic revisionism of today won’t make the past and our human mistakes go away.” “Understanding the problem is simple and the solution is, there is no way out. Wall Street understands what they are facing and they’ll play their hand until the bitter end hoping they survive. We are witnessing one of the greatest destabilizing speculative periods of all time. We are going to reap the consequences of unsound money and credit. Your only investment alternative is gold and silver related assets. This is the only mechanism for protecting your wealth.” - click here! Let me re-emphasize that investing in precious metals is not just about making a lot of money though that is the inevitable result of investing in gold & silver equities. But also you are protecting your overall portfolio in the event of a major correction in the US dollar & further pain on Wall Street. Anyway, getting back to the title of our article a lot of money is being made in gold & silver stocks for those investors who have been paying attention to a rising gold price. “Continue always to educate yourself on the markets & investing” Rick Rule, Global Resource Investment ©
2006 David N. Vaughn CONTACT
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