Is there anything we can learn from gold’s recent price action?

As I have said continually gold wants to climb higher and resume its upward trend. It always amazes me how folks will give every other market objectivity and patience except the precious metals and resource market. Yet, what better market to invest in than an area whose supply and product is finite and only guaranteed to ultimately climb higher as it is used up.

Last Friday’s gold action before the weekend showed a great deal of strength. The chart below actually reminds me of when gold was at 288 an ounce and struggling to break above 300.

Now look at Monday below. Gold clearly is seeking its own path.

But you want to hear what gold is going to do within the next few months, right?

I am no seer and I probably should not make price predictions, but I still feel strongly that by the end of the year and ‘defiantly’ into the next year we will see a stronger gold price and more significant developments supporting a higher gold price. There are just too many branches presently barely hanging on within our present fragile economy. Time for many of these limbs to start breaking off the tree and falling to the ground.

Hi David,

“Yes, we have been and are, going through what seems like a painful correction in the price of gold.” “And like the quote from Paul Van Eden (another seriously astute observer of the precious metals market), I'd prefer to see gold decline in price for the next couple months so I could load up as funds become available. THE US DOLLAR IS TOAST…”

Max G.

Did you read the title to this article? Yes, China’s reserves shortly to exceed 1 trillion bucks!

“BEIJING -- Sometime in the next few days, China's holdings of foreign currencies and securities will top $1 trillion…” “…China might one day dump its holdings of dollar-based assets, setting off a tidal wave of sales that might swamp the U.S. economy.” “China discloses almost nothing about its reserves, beyond their awesome size.”“Indeed, the Chinese central bank's State Administration of Foreign Exchange leaves few tracks as it buys and sells assets through dealers all over the world, as well as through the largely state-owned Bank of Communications in Shanghai. The sums are so large that traders and analysts from Hong Kong to London prize even the slimmest details.” Click!

Did you catch that last part? The Chinese make every attempt to keep their tracks hidden and untraceable. And you are going to tell me China’s influence over the West presently is minimal? So many today in just the past couple of months are totally and with abandon dismissing the Chinese as losers whose future will be 100% dependent on what America allows. The following tidbit below is interesting.

Al Thomas - “Carolyn and I went to our eye doctor today, Marshal Gladnick in Melbourne. He is so thorough about the slightest detail. He was telling us stories about an eye seminar from which he just returned. He said there are 92,000,000 (that's right million) Chinese who are going blind with glaucoma because they don't use their medications.”

The snippet above just drives home how the Chinese and Asian market will impact on our world as the years pass.

Hello David,

“…your comments just made (last week) on China conform some new numbers for me. 100M new chuppies on this earth is 1.6% of the earth’s population and this is building. Have the public got any clue what this means?”

Neil C.

But let’s talk about that real estate bubble back here at home. With every passing month I am convinced more and more that this real estate bubble is going to be the loudest bang we have heard yet to go off in our economy. This deteriorating real estate bubble will eventually put to shame even the crash of the dot.com bubble we witnessed five years ago. And while not everyone participated in the last market bubble five years ago everyone, unfortunately, has been taking part in the real estate bubble.

Hey, it meant easy money in refinanced loans and who can resist that?

Especially when you have been taught to believe all your life that all asset prices only go in one direction – up. And the point I am driving home here is that just this real estate crisis alone should justify the importance of having gold in your portfolio as insurance.

Dave,

“Can you give me a short answer? I'm come from the Netherlands. Are we in a bull market for gold yet or not? So ja, when do we break the downtrend line?” “Dit bericht kan informatie bevatten die niet voor u is bestemd. Indien u niet de geadresseerde bent of dit bericht abusievelijk aan u is gezonden, wordt u verzocht dat aan de afzender te melden en het bericht te verwijderen. De Staat aanvaardt geen aansprakelijkheid voor schade, van welke aard ook, die verband houdt met risico's verbonden aan het elektronisch verzenden van berichten.”

Rene Zegveld

Rene, you lost me back there as my Dutch is a little weak… as in zero.

Well, when we refinanced our homes these past few years it was for the purpose of getting our hands on more money, right? So, we know that the world at the least wants more money. But it is what we do with the money when we get our hands on it that shapes the economic realm. So with a very important election year coming up maybe its time to ask ourselves what the world is really looking for. You can bet the politicians want to answer this question. And if they can convince the voters they can give them what they want then they are elected into office.

If you live in the decadent west that is an easy question to ask. Just look around you. Principally there are three things most coveted by westerners alike. They are a nice car, a nice house and nice clothes. I left out good food, booze and nice furnishings? Yes, because I believe these things folks will forfeit (not happily) to pay a high mortgage and an inflated car note.

Dear Dave

“My name is Larry H. working in xxxx Korea.” “In Korea, no... I want to say..... Asian investors are still not following the trends of international commodity market yet.” “We, most of Asians are confused. Maybe I say... kind of stupid....easy to be wrongly influenced by a comment based upon REPUTATION. Morgan Stanley is so bad these days... They say Commodity Boom is over.... and revert Commodity Boom is not over yet. I don't want to reveal the name of analysts who had different views in the same company. You may know what I want to say...if western investors are misguided, then for Asians..... It is very dangerous.” “I feel sorry for the destination of Currency Crisis.” “We have a currency crisis to come.............and Steven Leeb says we will see USD 200 a barrel... crude oil. We have a two tremendous crisis to come... What a pity ... Countries like Korea....... We have no escape for that....”

Larry H.
Korea

Yesterday I ran into a friend of mine at the post office who is a millionaire. His one indulgence is an expensive motorcycle with a trailer attached in the back. His dog, Echo, rides in the trailer. Funniest thing you ever saw to see this dog riding around in town in back of this motor cycle sitting up like a human just enjoying the ride and wind blowing in his face. Well, this millionaire is a conservative and it is always interesting to hear his concepts of money because he is prudent about spending it.

We stood there in the post office parking lot talking and we commented on the million dollar plus subdivision being developed across the street. A place called Montebello. And this millionaire comments to me in wonder at where folks get that kind of money to buy those homes that are close to a million bucks. And I knew what Mike was talking about. Mike paid 200 grand cash for his home on the mountain. And he sure as the devil was not going to either spend all he had for a stupid house or borrow it.

But the point of the story is that if this millionaire is typical of many self made millionaires who refuse to part with their money then who is buying these million dollar homes and with what? Answer as I have said before it is not the ones who have built significant sums of real wealth. These people are generally frugal because they know how hard it is to both make and to keep money and they sure as heck are not going to spend it on a house that may or may not go up in value.

So who is spending this money?

It is the middle income earners with ma and pa pulling down $100 to maybe $120,000 total between them a year on average. And out of that sum a monthly take home pay check maybe around $6,000. And out of that around $2 grand a month going toward an extremely high and fat mortgage.

If you hurry you can buy lot #96…too late! Sold! Yes, lot #96 just sold for only $220,000 US dollars. What a deal too. That included a paved road and garbage pickup. Home owners can borrow $600K for just 2 grand per month and you don’t see how we are in a bubble?

Hi Dave,

“Just a query....I am interested in understanding the global economy better…” “Can you recommend a good book to read?” “…I wish to understand the truth of how economies are run in layman terms. Is there such a book?”

Russell D.
Australia

Russell, order the following book from Amazon.com. This is mandatory reading. I am going to check up on you in a month and you better have read it. Just kidding. Excellent book. Also, I don’t get a penny recommending this.

“Empire of Debt: The Rise of an Epic Financial Crisis” by William Bonner, Addison Wiggin

Sure, don’t get me wrong as I know there are a number of well to do folk who can afford to live this well and they have the big bucks. But I would say probably less than 10% of those folks living in 400,000 plus homes can really afford them. Too many that are buying into this life style are going to suffer tremendously as this real estate bust gathers momentum over the coming years. Greenville is a little slow yet in feeling it but it is coming even here eventually.

And with the elections coming up just how educated are the American people? Are they even ready “mentally” to vote?

“So how is America's modern education system doing…?” “Are our citizens enlightened enough to exercise the powers of our democracy? Do our colleges and universities provide their students the American history and constitutional understanding needed to make them strong and responsible citizens?” “A study released this week by the Intercollegiate Studies Institute--www.american- civicliteracy.org demonstrates that the answers to both questions are no. The study concludes that "America's colleges and universities fail to increase knowledge about America's history and institutions." In a 60-question multiple-choice quiz ,"college seniors failed the civic literacy exam, with an average score of 53.2 percent, or F, on a traditional grading scale." And at many schools "seniors know less than freshmen about America's history, government, foreign affairs, and economy." Click!

But let’s get back to gold. Gold is not through climbing as the US dollar is not through falling. And everyone important really knows this, but it is important to keep this from the masses so there is no panic.

“UK-based Baker Steel Capital Managers claims that gold bullion prices will be driven by weakening dollar, as investors have used gold as both an alternative asset and an inflation hedge during the last five years, according to Bloomberg.” Click!

Mark my words well when I say that this little rally we have seen in the past month or so is very, very temporary. The days of the United States as a great power are numbered. And what will lead its demise will be the destruction of its currency- US dollars.

“The fact is, the backbone and structure—the underlying economic, political and diplomatic strength—of what has supported American hegemony in the world has already largely corroded…” “Viewed in light of the repetitive cycles of history, we can say with certainty that the days of the American empire are numbered.” “As surely as every other world empire has passed from the scene, so too will America’s supremacy—and its current policies are hastening its fall.” Click!

Remember my mantra I repeat over and over again which is the following. Never, never, never buy just one gold newsletter and/or financial publication, 4 - 6 is a minimum.

What I mean in this is that the more you educate yourself the more you will eventually profit. Wisdom and knowledge are synonymous with wealth. And this fact was never more true than in the education of mining and resource stocks. Gold Letter can help you get started but don’t stop with us as there are a ton of excellent analysts whose material you should be reading every week.

Read the following below as it is important.

Dave,

“It's difficult to listen to what the Fed says since they are experts at manipulation. Regardless about what they say about their concerns about inflation, they (the Fed Reserve) would like a gradual increase in inflation (and weakening dollar) to attempt to over time extricate ourselves out of our debt and credit issues---- as you say, if you look around and reduce what some would make complex and simplify it, the odds are strongly in favor of a continual run for the precious metal bulls--- what is required is patience. I love it when precious metals are off the front page of the media since it gives one time to purchase at lower prices.”

A.

What did we read above that was so important? This email writer just summed up very well in a handful of words why gold is going higher and there really is no need to fear long term. Lets read what the writer said again as you need to bang this over and over and over again in your head.

“…they (the Fed Reserve) would like a gradual increase in inflation (and weakening dollar) to attempt to over time extricate ourselves out of our debt and credit issues…”

The Feds eventual ONLY tool to really get out of this credit mess the US is finding itself getting deeper and deeper in is to allow inflation to significantly rise to cheapen the presently held debt. Hey, let’s not leave before we hear from Granny.

Dave,

“I'm 86 sitting on the sideline listening to you and others and holding tight to a few gold coins. I get as much fun out of that as the big boys with their big ore cars. I remember the great depression. My parents had a homestead and we had to live off the land. I thought we were the poorest people on earth but we survived. I learned some valuable lessons, to have a long range plan and save for a rainy day. My late husband and I did that and raised a fine family who seem to have inherited a few good ideas about finances and saving. Couldn't help but put in my 2 cents worth. A good day to you.”

Leila W.

And I suppose I better let Karim below put in his emailed comment also before we go.

David,

“It would seem to me that all you have done is regurgitate a few quotes from others in your latest gold letter. There is absolutely nothing of substance to back up any of your 'borrowed' quotes. Please stop this rehashed nonsense and produce something original.” “Do us all a favor and keep your opinions to yourself…”

Karim G.

Elwest makes a prediction I whole heartedly agree with.

Dave,

There will come a day and time when more people will look at all the false business information, and then see that the US financial picture is not really what is being reported. In other words, “The Sun Is NOT Shining…” “The American Dollar will (eventually) fall in value down to where it is worth only about 10 cents.”

Elwest

As gold and silver climb higher into the night sky so too will the mining stocks. Email me something you have specifically learned from a financial newsletter and I will share it.

Good luck and God bless!

David Vaughn

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