The recent turmoil on Wall Street is unfortunately only the beginning of what appears to be an unsettling time for investors. Gold and the gold mining stocks are in our opinion the best place for investment funds. We would suggest 10-20% in this sector, 10% in Swiss francs and the remainder in one year Treasuries.

• Global derivatives increased by over $150 trillion in just six months and are now at $681 trillion.
• Producer Prices increased 3.2% in November. Highest monthly rate in 36 years in the U.S.
• Consumer prices increased .8% in November - an annualized inflation rate of 9.6%.
• Inflation in China is now at 6% versus 2% a year ago and climbing.
• Goldman Sachs predicts lending will decrease by $2 trillion due to the global credit crunch.
• Over $80 billion in write offs have occurred from major banks and financial institutions due to the sub prime fallout. Some predictions for future write offs are in the hundreds of billions of dollars.
• We are in the middle of what appears to be a major credit bubble with central banks in Europe and the U.S. injecting over $700 billion in short term credit to avoid a liquidity panic in global markets. This has been the largest six month injection of short term credit in history.
• Stock markets, real estate and bonds have been going up for 25 years and these markets look like they have all made important tops. Historically gold is counter-cyclical to these markets.
• Commodities have been going down for 22 years and bottomed in 2002. Commodity swings usually last 15-20 years. This upswing will be no different and could be the most powerful in history. Because money supply increases the last two decades have seen the highest percentages increases in history, the commodity boom should have exceptional strength and longevity.

Other macro economic factors bullish for gold and the mining stocks:

• Declining global gold production
• Increasing demand; 2nd Qtr. 2007 gold demand + 21% (despite higher price range)
• Continuing political tensions in many parts of the world
• Gold is undervalued in real terms versus almost all other commodities
• Asian demand continuing at robust levels
• Global debt and credit markets are at dangerous levels and highly overleveraged
• Paper money is still being created in most industrialized countries at excessive rates
• Middle East petro-dollars being diversified into gold
• U.S. budget and trade deficits still at high levels and will fuel future inflation increases
• Safe haven status of gold (and soon mining stocks) gaining momentum with institutions.

During the 1987 stock market crash (DOW losing 22% in one day) Gold was up. During the greatest Depression in our nation's history (1929 -1936) Homestake Mining went from $42 to $575 (1927- 1936). (Editor's Note: Here is the chart of Homestake Mining vs the DOW from 1924-1935: www.gold-eagle.com/editorials_98/homedjia.gif)

A taste of what is coming: The German rail workers (who were ordered not to strike by the courts) are seeking a 31% pay raise. This inflationary scenario will be repeated hundreds of times in many countries. Unfortunately, there is no exit strategy for the governments of the industrialized world to handle their debt and future obligations to their citizens that are now over $100 trillion in the red. The only thing they can do is print more money and pray.

For more information on the economy, stock market and gold please visit our website at: www.kengerbino.com

Kenneth J. Gerbino
31 December 2007

Kenneth J. Gerbino & Company
Investment Management
9595 Wilshire Boulevard, Suite 303
Beverly Hills, California 90212
Telephone (310) 550-6304
Fax (310) 550-0814
E-Mail: kjgco@att.net
Website: www.kengerbino.com