My goal here is really not to build up false hopes as I am not a gold bug and I hate that term, but I am very much a realist.

When I began to look at the markets in 1997 my goal then was to simply understand the under lying truth and to make calculations based on that truth. Can we ever really come to recognize what truth is and will we know it when we see it? My one major weakness that I will confess is that I see things from a historical perspective and forever will. Also, the truth as I see it is that the present administration in power will do everything within its power to look good before the November elections. And consequently, the opposing party will do everything within its power to make the administration in power look bad. Common sense really.

I bring this up because there is so much spin in the news now and the masses are just eating it up. Give me a break here people! Are we really that dumb? And along the lines of this spin I have gotten a tremendous amount of criticism for believing that gold is not finished and is heading to 700 and beyond.

Dave,

“Just got your commentary. Gold $604 when you wrote it. Now $40.00 lower. Are you sure of the direction?” 

Evelyn L. 

Hey. It wasn’t me who first predicted gold to climb higher. GFMS made this call a month ago. Who is GFMS?

“GFMS (Gold Fields Mineral Services) is the world's foremost precious metals consultancy, specializing in research into the global gold, silver, platinum and palladium markets.” “Today, GFMS is widely acknowledged as the leading source of information on the precious metals markets…” click

Well, their credentials look valid. What did GFMS say last month…actually about 30 days ago or so?

“GFMS Sees $700 Gold By Year-End.” “Gold investors unnerved by the recent downdraft may just want to sit tight. That's because investment demand could boost bullion prices to over $700 an ounce by year-end…” 9-14-2006, Click!

I like Jim Sinclair’s gold price prediction even better as he is predicting a gold price eventually higher than 1,000. What does Jim Sinclair Have to say?

James Sinclair – “Manipulation of psychology is what prices depend on.” “All this has been helped along the way in preparation for the November elections.” “As gold breaks down below December $580 the gold price is in the process of building a bear trap that might be a few hundred dollars.” “Gold is headed to $1,650…” click

Uh, oh! Jim said something unique above. We better go back and look at it again. Jim said:

“Manipulation of psychology is what prices depend on.”

Naw!!!

I think Jim Sinclair is full of monkey grass here. Who does this man think he is! Get him out of here. But the room grew deathly quiet and Jim spoke with a clarity of purpose and a strength no man had ever heard before. And when Jim spoke everyone ran from the room wondering why they had ever even gone there in the first place.

And what did ole’ Jim say that moved the crowds and un-nerved them so? 3 words.

“Manipulation of psychology…”

Wow, Jim. You trying to tell us that someone out there is trying to manipulate us?

“What is that truth? In part, it is about how the media and corporations have begun to surround us with a universe of illusions.” “…they increasingly script and stage-manage events…” click

Let’s play this charade for everything its worth. This is a show and a lot of work has gone into its production so please lets not let the producers down. What else has been presented to us lately in this show?

“…the Dow Jones industrial average has set new record highs for the first time in nearly seven years…” click

Wow! A nice timely and convenient record right before the November elections. Any other records being set?

“Wall Street barreled higher Wednesday, propelling the Dow Jones industrials to their second straight record high…” click

Again, very convenient timing and I am sure just a coincidence that all the economic factors just happened to blend together at this appropriate time to make this happen for next months elections. And make no mistake folks…there is a lot riding on next months elections as you will read below.

“GOP Might Lose 50 Seats” “The flowering Foley scandal will be devastating to the Republicans in November and might result in the loss of 50 House seats according to Fox News…” click

Uh, oh. Another smelly ole’ scandal. A very appropriate time for a break and a short essay about cheese.

I experimented with a new and different cheese this past week. Called Taleggio and imported from Lombardy, Italy. The Italians learned to create this variety around the 10^th century and first seasoned the cheese in caves. It was developed so the locals’ milk production could be preserved longer. The Italians consider this cheese such an important asset to their cultural heritage that it is protected by the European Union.

“Taleggio cheeses were originally matured in the caves of Valsassina, in the province of Como. These caves are particularly renowned thanks to deep fractures in the rocks; they provide a unique climate that favors maturation and the growth of molds on the rind.” “In Italy, Taleggio is a typical, yet outstanding table cheese, eaten either at the beginning or the end of a meal. It pairs nicely with robust wines, such as Red Franciacorta, Pavian, Oltrepò, Piave Merlot, Pinot Nero, and Red Piceno.” click

Need a recipe for Teleggio? click

Personally, I thought this cheese stunk, but what do I know?

Again, what does talking about 10^th century cheese have to do with our discussion of gold and economics? It reminds us how so very little changes down through the ages. The time worn principals of economics and psychology remain the same. All that does change is the degree of ignorance by those who think they have discovered something new under the sun. But the individual who prospers is the one who is able to grasp a hold to the simple and the proven.

The email I received below is an excellent example of how successful the media is at manipulating the mind of the masses. I respect what Dlonyc1 had to say, but was it D talking or the news he listens to every evening? Anyway, below is what Dlonyc1 had to say.

Dave,

“It is sad to see the current wave of cheerleading going on in the gold sector by known analysts. Lower mine production and a "weak" dollar, etc. does not mean gold cannot go significantly lower and stay down quite awhile.” “…the fundamentals are quoted as a reason to continue to make upside predictions.” “Instead of cult like cheerleading, it would be responsible to accept the fact that the $ (dollar) could bounce around the 80's to 90 for several years, the oil price could take a breather, and with a dent in investment demand mining totals may not force prices up in the immediate future - there are many mines coming online with the higher prices and dwindling mine supply is not an imminent crisis, but a long term trend.” “I don't necessarily subscribe to my points - factors could resume higher prices sooner - but a balanced scenario to novices/trusting investors is appropriate for better decision making when a continuing bull/new highs cannot be assured /assumed at this juncture.”

Dlonyc1

Excuse me Dlonyc1, but providing another view to provide balance is exactly what I am attempting to do. Veteran and long term competent analyst Paul van Eeden notices that something appears to be not quite right in the markets.

What does Paul say below?

Paul van Eeden - “What is surprising is the strength in US stocks. When a major stock index such as the Dow breaks a new record it means the outlook for the economy is good. Is it possible, therefore, that I am completely wrong worrying about slowing economic growth?” “Six years ago when the stock market broke new record highs the dollar was also at record high levels as foreign capital poured into the US in search of financial assets. This time, however, the dollar barely budged. The rise in stock prices today does not appear to be driven by international demand for US equities. The rise in US equity prices makes no fundamental sense at all…” “I would be ecstatic if the gold price fell further -- the lower the better. It doesn't matter that my current positions would decline in price because the intrinsic value of the companies I own, and the gold I have, would not change, and the lower the prices fall the less I have to pay for the same intrinsic value.”

And did you catch the last comment Paul made?

“I would be ecstatic if the gold price fell further -- the lower the better.”

Maybe he understands this market better than the rest of us.

Carl Sagan - "One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge -- even to ourselves -- that we’ve been so credulous" LeMetropole

Nine years ago I made the judgmental decision that we would have a market crash. When gold later dropped down to 253 I knew that it would one day ascend over 300 again. So while new readers lament that gold is under 600 an ounce I still remember like it was yesterday when gold was trading for 275 an ounce with no hope even of climbing beyond 290.

Dave,

YES!!! Another great call! See you at $420! Thanks.

Richard

You new readers cannot even grasp a gold price of around 280 can you? Back in the “old days” it was predicted by all that gold would go to 50 dollars an ounce so maybe you can understand why it really does not bother me to see gold dropping now. Been there…done that.

The price of gold may rise and fall but I continue to look at the long term. Let me take a moment to explain to you where I believe we are headed. Generally, there are 3 classes of people that make up the world.

1. The very small minuscule elite of the super rich…the very top of the economic food chain. You and I will never be in this class. This is the billionaire club.

2. The next sector is the middle class. Within this middle class are 3 sub groups comprised of the lower, middle & upper.

3. The remaining class is the poor and those living in abject poverty at the bottom of the economic food chain. Hopefully, you and I will never be in this class.

It is within this broad “middle class” that most of us reside. We spend our lives battling to pay the bills and get by. Households within this group are battling to grow their 401K pension plan and to set aside money for their kids’ future college. The lower class wants to become middle class and the middle class wants to join the upper class ranks.

And what easier way to climb the class ranks than debt and easy credit terms. People have become over stretched today in an attempt to climb that class ladder. I know beyond a shadow of a doubt in my mind that we are headed for a significant economic crisis (readjustment) because there just is too much debt. Almost everyone’s finances are out of whack and beyond common sense.

Today we have middle class families living in 500,000 dollar estates that are acquired with massive and cheap mortgages. We are over due for a momentous correction…a very big correction.

And if you study history you see this ole’ pattern repeated over and over and over and over again. Folks, we have been living in an era of unprecedented prosperity for about 25 years now. Get real please. You really think we perhaps may be due for a correction? We saw no correction in the crash in 2000 because the government built up the real estate sector with very cheap money so we had a bubble there that provided cheap borrowed money for the past 5 years. But where is the next bubble? There is not another bubble and that is why you better have your rear prepared and in gear and be personally ready because it is coming and I don’t care what anyone says.

Do I think our world is time for “realignment?” The following below is about a nurse and a school official buying a half a million dollar home on their middle class wages.

By KEVIN DUFFY, The Atlanta Journal-Constitution - “River Forest, on 1,700 acres close to I-75, is being marketed as a link between metro Atlanta and metro Macon. One day, dozens of communities along I-75 could join the two cities, regional development watchers say.” “…Trevor and Tammy Barnett, a school resource officer and a nurse practitioner.” “The Barnetts saw a newspaper ad about the development last fall, took a 35-minute drive south and eventually bought a 1.5-acre lot.” “…the couple rejected living in the metro county, among the fastest-growing in the nation.” “We're used to having a little room to roam." “The Barnett’s aren't wealthy, but their house, which they moved into last month, suggests affluence. It has an 18-foot-high stone fireplace, windows that are even taller and a view of the eighth tee at River Forest's new golf course, whose hilly topography is reminiscent of North Georgia courses.” click

And while the couple above might be doing quite well because of good planning, inheritance or good investments my common sense tells me the very vast majority of folks moving into these half a million dollar homes plus are doing so with easy term credit financing. Oh, by the way… As I researched this area I noticed a CLIMBING number of these higher priced homes that are coming available through foreclosures. Its coming folks, the great realignment, and I hope you are ready.

When I grew up in the 1960s and 1970s even higher salaried doctors, lawyers, dentists and other high wage earners did not live as well as the simple middle class today. Is this really because of higher wages? Do folks really make more money than they did 20 years ago after adjusting for inflation?

99.9% of families now have both the wife and husband working and this is the main reason families feel like they have a little more money in the bank. Take away Momma’s pay check and Dad would be in big trouble. So combine Mammas paycheck and generation cheap interest rates and there is the formula for today’s perceived prosperity. And this formula has enabled our humble generation of middle class to move into 650,000 dollar plus homes with a Lexus and Land Rover in the garage.

And all this perceived prosperity has been built on cheap debt. All through the ages it really is the same old story. Cheap debt has brought many an empire and culture crashing to its knees and it will continue to do so. But a day of reckoning is on its way. And believe me when I tell you we are approaching that fateful day very soon. This will be a day of hard economic realignment for many.

Realignments are generational and cyclical events.

By the time about 30 years have passed by no one remembers what they are like so the process repeats itself all over again. What is important is to grasp the simple fact that these realignments do come and you better be ready for them when they arrive.

What proactive steps can you take to prepare for these realignments?

• Get out of debt
• Have your investments in precious metals or resources.

OK. Earlier I went over the 3 different economic classes…the elite, all the various levels of the middle class, and the extreme poor. Now let’s transfer this discussion to China.

I have said over and over and over and over that China’s growth is not 100% affected by the US presence. Now I do not mean there will not be negative effects when the US goes into “re-alignment” but consider China again here. China has committed as a country that even with a global economic re-alignment that this country is not going to abandon its national plan to build its country up. And as this build up continues it will be principally their various levels of their middle class that benefits and consequently will drive other markets around the world. Read the following below and you will see what I mean.

Martin Weiss - “…Chinese yuppies, or “Chuppies,” a new generation of upwardly mobile, urban, middle-class Chinese consumers. There are roughly 100 million of them right now, and their numbers should double by 2010.” click

Still not grasping what I am talking about here?

Western culture has dominated for the past few hundred years. Before that China had a proud heritage and vast wealth and prestige. China is in a hurry today to catch up to the rest of the world. The Chinese today have a very real and defined agenda to grow as a super power and that will take a lot of money. And the Chinese have already proven they are not averse to printing new money just as their western brothers.

When I hear pundits in the US argue that Asia today is totally dependent on the West for its prosperity I say bunk! Considering that all the worlds major manufacturing centers are now in China I would say the roles of dependency appear to be reversing.

You have got to keep your eyes on the map and remember why you first began to cover the precious metals sector. The world will get worse before it gets better. Subscribe to Gold Letter, Inc. to receive emailed alerts of under valued gold, silver and resource stocks. When you order you will receive a report covering 21 gold and silver mining stocks to buy now. 

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