Part 4 of this series will take a closer look at the current markets, and then using short term technical analysis, discuss what price points investors should be watching for to provide them confirmation. Please take note that the future is unpredictable and projections are only based upon previous price performance. I have elected to keep this part of the presentation short in order for investors to fully appreciate what the data and charts present.

So far in this presentation we have discussed the K-Wave cycle and have made the determination that the US economy has now entered the winter phase that is characterized as resulting in a depression. We have also discussed that based upon historical performance, investors can maintain their purchasing power regardless of whether the depression is deflationary or hyperinflationary. Then finally, price points for spot gold were given in order to provide investors with a visual indication of where the market can expect to find support and resistance as this market continues to unfold.

This presentation will now proceed with a discussion as to whether or not a future price for gold can be reasonably determined and if so how it may be done. To begin, there are several ways that one could approach this. This first method could be as simple as determining the total amount of fiat currency which exists throughout the world and divide it by the number of ounces of gold ever mined. By using this method, one makes the assumption that at some point in time citizens of every nation come to the realization that fiat currencies are nothing more than pieces of paper and all rush to convert into gold. Needless to say the price of gold as stated in the different currencies would be astronomical compared to today's price. This scenario though is extremely unlikely.

Another method one might choose to use would be to use the Consumer Price Index which is constructed and supplied by the government. In this case you must assume that the data is both consistent over time and also that it is accurate. I can assure you that this is not the case. Evidence clearly points out that the data is manipulated and deceptive. Keep in mind that it is not in the best interest of government to reveal the true effects (inflation) caused by the expansion of the money supply within the economy. For those of you who wish to investigate this further may I suggest a book written by Irwin A. Schiff in 1977 titled "The Biggest Con", Chapter 2 "Inflation: The Government's Silent Partner" and also a previous editorial written by Adam Hamilton titled "Lies, Damn Lies, and CPI. http://www.gold-eagle.com/gold_digest_00/hamilton061900.html

Although this method is obviously flawed, I have elected to use it in this presentation in order to illustrate the absolute fact that even if one selects to use the CPI which is understated, the results still clearly show that the DJIA is overvalued and that gold is undervalued. The charts also show that a major adjustment is on the horizon which will force both to readjust toward market equilibrium as it has in the past. For those who may not be familiar with the approach, it is nothing more than adjusting both the DJIA and gold to the rate of inflation in the United States. The CPI data is applied as the common denominator to show the relationship between the DJIA and the gold market over time. I firmly believe that understanding this relationship will shed additional light on what investors can look to happen in the near future.

What the graph above clearly illustrates is that the price of gold relative to prices in general is once again undervalued as it had been starting in 1851 and lasting until 1973. Therefore in a free market economy and applying the assumption that gold still has a monetary value attached to it, then one can assume that the price of gold is underpriced and that it must rise in order to achieve market equilibrium with other products and services within the economy. At this time, based on the data, the price of gold would have to rise and be quoted at $522.87 in order to return to market equilibrium. In other words, the price of gold is undervalued by more than $200.00 or roughly 72 percent! Keep in mind that IMO and others, this is an understatement of the true reality.

The next graph illustrates the percentage equilibrium variance that gold has experienced since 1897. One should readily take note that if the past is any indication of what one can expect to occur in the future, then it appears that gold is at a point where it is at a bottom (upward sloping red dotted line on the graph) which is turn confirms the previous graph. One should also take note of the fact that due to the two-tier market which currently prevails, there is a high probability that investors will witness the rise in gold again beyond its market equilibrium price as it had done during the 1970's in the United States. At that time, based on the CPI adjusted gold price of $227.66, and the price of gold on 12/31/79 at $459.00 per ounce, gold stood at 62.92 percent over market equilibrium. If one was to use the high of $850.00 per ounce in January 1980, the percentage over equilibrium would have been 79.98 percent. IMO the gold market is in final preparation to reverse itself and move upward dramatically toward and beyond its current market equilibrium price.

The next set of graphs are for the Dow Jones Industrial Average (DJIA) and they unlike the previous two gold graphs illustrate the immense danger which lies ahead for the equity market (precious metal stocks excluded). These graphs were also constructed using CPI data and End of Year closing prices for the DJIA.

This graph should make any investor sit back and take notice. The vertical bars represent the actual year end closing price for the DJIA. The shaded portion near the bottom of the graph represents the CPI adjusted price for the DJIA. As you can readily see in comparing the gold graph (Chart 1) which would require the price of gold to rise 72 percent from current levels to reach market equilibrium, the DJIA would need to fall 92.41 percent from current levels. Only then based on the CPI would gold and the DJIA be in equilibrium. Investors must ask the question, "Is this possible"? Only time will tell, but if indeed the US economy is headed for a depression as indicated through the K-Wave analysis which was previously presented, then a quick review of data of the last United States depression is in order before proceeding.

• On December 31, 1928 the DJIA stood at 300.00 points. The CPI adjusted DJIA was 72.82 which therefore put the DJIA at 311.98 percent above the then current market equilibrium. On December 31, 2001 the DJIA was 4 times higher at 1,231.83 percent above equilibrium!!
• On December 31, 1932 the DJIA had fallen to 59.93 points. The CPI adjusted DJIA was 55.79 which therefore put the DJIA slightly above the then current market equilibrium by 7.43 percent.
• The correction then for the DJIA was 97.62 percent (331.98 to 7.43).

Therefore one cannot and should not rule out the possibility that the current DJIA may decline substantially from current levels.

The next graph is also of the DJIA and once again I encourage investors to pause and consider the ramifications for the US economy which lie ahead as a direct result of not maintaining a gold standard. As one can readily see, we are well past paying the piper for allowing our politicians and the Federal Reserve the right to manage the US economy with fiat.

There is absolutely no point in discussing the details of the graph below - the image presented explains it all for those who are willing to accept the truth. The laws of economics - the free market - will not be denied. My only hope and prayers are that the citizens finally understand that is was not free market capitalism - but instead government intervention with the assistance of the Federal Reserve that will bring forth the financial devastation and misery in the years to come.

At this point you may either be extremely fearful and depressed, or you see an opportunity on the horizon which will protect your assets during this economic crises. As you already know, precious metals have always in the past, and will once again provide investors with financial security during economic and political hard-times. PM's are the ultimate insurance hedge for citizens who seek safety against uncertainty. But the question remains, "Is now the right time to purchase physical precious metals and precious metals mining stock"?

Before that question is answered, the following question must first be asked, "Do you currently own physical gold and/or silver as a hedge against uncertainty"? If not, then you must ask yourself why not? Would you feel comfortable not having life insurance in case of the unexpected? Most people I know would not.

The obvious answer to the question is that only a fool would remain unprepared considering the current economic and political uncertainty that exists. Now is the time to buy gold if for no other reason than insurance - most recommend a position of not less than 10 percent at all times.

In part 5 of this presentation, I will present additional data and graphs which will show the other extreme for the future price of gold using historical money supply data.