The Bull Of This Decade Goes By The Name Of Gold

Friday, January 13, 2006

I have not yet come out with my forecasts for the current year but regular readers know that I've been promoting gold investments since the $420 level.
Seeing the yellow metal taking out the $550 high with ease on the back of geopolitical worries still stuns me. I have been waiting for a 4-5% correction since gold broke the $500 mark and always advised to add to your position on dips but never attempt to try and short this market. If you followed this advice you are probably in the same position as me right now: Feet up on the desk, watching the heat-up in the biggest bull market this decade will see.
The fundamentals are all speaking for gold.
  • The US is losing two wars in Iraq and Afghanistan and is on the verge of entering into a third one with Iran. Iran's president would not be so cheeky if he would not see his country well prepared for a fight with an already worn out US military apparatus.
  • The world needs a new currency for commodity purchases. Why should China, India and Russia have to rely on the US dollar for their daily energy and raw material needs?
  • The estimated gold stock is 4.8 billion ounces while there are 6.4 billion people. Do you need more data input for the equation?
  • No fiat currency has worked for more than a human's lifespan. At 93, the Federal Reserve Dollar looks exactly like an old man limping along on a walking stick that is increasingly dependent on the help of others. In the dollar's case I mean foreigners willing to accept ever more IOU's from the biggest debtor in the world.
  • The age where the finite supply of commodities could be purchased with paper money will come to an end soon.
  • Gold has been the only universally accepted currency since mankind evolved from bartering to a monetary exchange system. The last 35 years will only be seen as an erratic blip in 6000 years of monetary history.
  • The world's center of power is shifting from the white western world to the east where the majority of the global population is striving for a higher living standard. And those folks have a fundamentally different perspective of gold. 1.2 billion Indians hold basically all their savings in gold jewellery.
Oh, and before I forget it: Forecasting a remonetarization of gold I see even bigger potential for silver. Currently the gold-silver ratio is at 1:60, in the very long term it was 1:15. I begin to believe the very small minority that sees a dramatic shift of that ratio.
And now my CAUTIOUS forecasts for 2006:
  • Gold will spike above $650.
  • Silver will move above $12.50.
  • Crude oil will trade between $50 and $90.
  • The S&P 500 will retreat below 1100 points.
  • The $ will fall to 1.30 Euros.
  • The US will enter into a recession in the fourth quarter of 2006.
And now I will put my feet up on my desk again and watch the gold price a little longer. The February future just hit a new contract high at $558.90, up $10 for the day.
UPDATE: Watching the press conference of George Bush and German chancellor Angela Merkel: Can please somebody tell the president that it is "nuclear" and not "nucular" weapons he is worried about. What place does history reserve for this guy?

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