What did I tell you a hundred times over and over through the summer? I told you that gold was on its way to establishing a base of around 700 by the end of the year. Look at a chart showing price action for gold as of this past week.

Look well at the chart above taken the last few days of September. 

Gold definitely wants to climb higher. Remember the story about the water balloon being held under water? This is the result of that action taking place. Gold is fighting and struggling with every breath to reach its true price range which is well higher than 700 an ounce. This is why I say over and over let the price drop further south because this will only help it to eventually spring to the blue sky above.

Let me repeat what John Doody wrote a few weeks ago about the direction of gold.

John Doody -“Working to gold’s advantage through end-06 are:

• “…the US Dollar has peaked.” “US$ headed lower.”

• “…falling mine production.” 

I don’t believe what we just read can be said enough. Because herein lies the reasoning for gold’s direction higher. 

• The US dollar has peaked & is heading lower.

• Gold mining production continues to significantly fall.

Memorize those two lines above if you are having trouble staying focused as to where your investment dollars should be going now. And those mid term US elections coming up in a month or so? A lot of pressure for the powers and interests to give us the appearance of a good economy so the present regime can stay in power.

On Tuesday gold was pushed and pushed all the way down to 575. 

Like a mightily thick strong steel coil this spring is being forced beyond the point of tolerance. Politics are getting thick as both sides take their positions and begin their attacks on one another. The power in office of course wants the economy to remain looking good. All stops are being removed to bring about lower energy prices and lower commodity prices.

Believe me when I tell you that this will not last forever.

“Senate Up for Grabs?” “This poll summary by the folks at Rassmusen predicts a 48/49 Democrat/Republican split with three races just too close to call. Democrats would have to run the table on these tossups, but the idea of a 51 seat Democratic caucus no longer looks like a moon shot.”

Now did you just read the text above? The Senate up for grabs? If the Democrats grab hold of it they could keep it for 20 or so years. Do you not believe the present administration is doing everything within its power to keep this from happening?

Do you really believe the Republicans want to go into this election this November with gold climbing well over 600 an ounce? Give me a break people. So lets go over again why gold must, must be held below 600 an ounce at all costs over the next two months leading up to the mid term elections. Read below.

“With the economy humming at 3%+ growth, unemployment below 5%, the Dow near all-time highs and gas prices back below $2.50, these are not exactly economic conditions associated with a "throw the bums out" type of election.” 

Things appear OK and the housing market really has not gotten too nasty yet. But how do you think this country would react if they saw gold presently breaking new highs? I have no idea what is done to manipulate financial situations and prices but I am totally confident that at an important time such as now that is indeed happening.

And lest we forget the collapsing housing bubble? 

The material below comes from the Golden Jackass. Seriously, here. That is the name of Jim Willie’s newsletter. It definitely gets my attention every time real fast. Let’s see what Jim has to say about the collapsing housing bubble.

Jim Willie - “Few analysts seem to properly recognize the upcoming housing market decline, its bear market highly likely to form a gathering storm with vicious momentum.” “Lower interest rates will do little if anything in preventing a substantial decline.” “The option adjustable mortgage (ARM) have emerged as a vicious vehicle, nay weapon, which will separate homes from owners, only to leave the structure preserved. Some call the option ARM a “neutron bomb” for the housing sector. The housing decline will expose a significant slice of the US population.” “Rising monthly mortgage costs, rising property taxes, rising home insurance costs (especially near coastlines), and high maintenance costs, these all conspire to increase carrying costs, often motivating sale.” “Hundreds of thousands will be forced to leave their homes and sell out, some of whom with negative equity. In fact, a new subclass will reveal itself, the homeowner who is bankrupt, in full ownership, but with negative equity.” “My forecast is for the current housing decline, which is several months along, to become the worst housing bear market in modern history…” 

And who says gold is through climbing?

Jim Willie – “With a collapsing housing market, removed piggy bank with home equity, rising mortgage costs, and struggling wages, our American Dream will fade into memory. The loss of the critically important manufacturing sector has rendered our nation as incredibly vulnerable to a housing decline, one which is at our doorstep.” “When the US Economy suffers mightily from the US Dollar decline, written in stone, gold will rise without interruption.” 

“By, by Miss American Pie…!”

Jim Willie here does the best job I have seen yet in describing what is happening presently in the housing collapse and what horror we will yet see. And who is telling us the price of gold is exhausted and run its course? We ain't seen nothing yet. I really cannot do justice to all Jim covers in this short text so go back and read his entire report. 

Are you worried about China’s growth slowing down? Don’t worry about slower growth in 2007.

“European mining stocks may rise after gold prices gained and China said economic growth will accelerate this year.” “The central bank in China, the world's biggest consumer of metals, forecast economic growth will accelerate to 10.5 percent this year…” 

Folks, I know the economy may appear stable when you watch the evening news and say hello to Katie and Brian. But trust me when I tell you that we are entering an era whose severity will only grow with each passing month. The housing sector is the last major bubble to collapse. 

Bill Buckler - “The problem today is that the reserve currency status has been abused to such a degree by those in charge of the US financial system that it is now a hollow shell disguising a bankrupt economy.” “No currency is immune from the kind of manipulation the US Dollar has undergone for the past four decades. All currencies so manipulated eventually succumb, history provides no exception to this rule. The other historical constant is that, having failed, every monetary system returns, however reluctantly, to Gold.” “This time, it will be no different. The blind faith that the Fed can fix the problem that they caused by means of the same methods by which they caused it is bringing the day of reckoning - for the US Dollar - ever closer ever more quickly.” 

You see, I really don’t worry about the short term fluctuations in the gold price because I know what the fundamentals continue to be. We have a deteriorating US economy that will ultimately bring about a lower US dollar. We also have falling gold production. If you understand just these two basic fundamental principals that knowledge could help provide you with the necessary guidance to survive the coming economic storm.

And what is the mantra we must repeat over and over and over? Gold production is falling considerably and falling production in any asset class means higher prices ultimately.

“…longer term prospects have to be strong, as fundamentals are good, and major new discoveries are seemingly scarce as hen’s teeth.” “…more relevant to the state of the gold market is that in general, any new gold production out there is not doing much more than replace the fall-off in output from traditional gold producing nations.” “This battle to replace reserves mined is the reality behind the wave of mergers and acquisitions by the gold producing majors worldwide.” “The truth out there is that the majors are largely unsuccessful in finding decent-sized new gold deposits themselves, while those being found by the juniors seem to be increasingly small-scale, low grade or in countries and areas deemed to be of high risk, with only a few exceptions.” “…overall world demand for the metal still exceeds mine supply levels.” “The gist of the above, though, is that on fundamentals, the gold price is probably in for a strong and steady rise over the next few years.” 

As gold and silver climb higher into the night sky so too will the mining stocks. Subscribe to Gold Letter, Inc. to receive emailed alerts of those gold, silver and resource stocks that should also be soaring along side the gold price. When you order you will receive a report covering 21 gold and silver mining stocks to buy now. 

Let’s get back to discussing the inevitable housing collapse because this is what will really let the cat out of the bag and move gold higher.

“Very low interest rates in the United States, by historical standards, combined with the proliferation of non-traditional mortgage products and easy credit access allowed many U.S. households to convert household equity gains into income gains through mortgage refinancing. According to statistics produced by Freddie Mac: 

·         Between 2001 and 2004 cash-out mortgage refinancing accounted for 50% of all cash-out mortgage refinancing.

·         In 2005 cash-out mortgage refinancing accounted for 73% of all mortgage refinancing.

·         In the first half of 2006, cash-out refinancing accounted for a staggering 87% of all refinancing.

People do you comprehend what you just read above? We have not even begun to see the devastation we will yet see in this housing market in the next few years. And you truly ignorantly still doubt gold’s role as a stabilizing currency when this market begins to collapse?

“After the mid-term elections, the Fed may be so far behind the inflation curve that a series of rate hikes will be needed to lower inflation expectations and prop up the value of the dollar. Uncertainty surrounding the direction of interest rates will also push home prices down and inventories up. Declining home values will continue to reduce household income, forcing personal consumption expenditure lower.” “Energy and gold prices, however, will probably remain well supported by extreme global geopolitical instability and dollar depreciation. A global economic recession in 2007 will also have a significant negative impact on equity markets worldwide. Judging from recent global equity market performance, investors appear generally unaware of rapidly rising global investment risk driven by the bursting bubble in the United States' housing market.” 

Folks, I really do believe 2007 is going to be a very rough year and I hope very much you are ready for it because the economic forecast does not look good.

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David N. Vaughn
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