March 5, 2006
*April 2003 low: 7,603.76
*- See March 31, May 3, & May 30, 2003 reports linked on homepage.
The following are the Gold and Dollar excerpts from the March 2006 issue of the Sid Klein Comment (SKC), which is available in its entirety via www.sidklein.com. The full SKC report is uploaded on a six-month lag. The excerpt for Gold-Eagle will be published on a one-month delay, going forward.
PRECIOUS METALS & DOLLAR:
From last month's February 5, 2006 report:
"Since gold broke out of a contracting triangle above $440, a wave three of three for this move is completing, which should result in the entire move's completion in the $600 area, by quarter-end. Meanwhile, due to momentum, a wave-four correction should be contained by $540."
As we can see from the above chart (courtesy INO), and according to the blue-highlighted excerpt from last month's report that immediately precedes it, SKC again identified a perfect top in the price of gold, while forecasting a subsequent low that was barely breached, while falling into the Elliott Wave interpretation that was provided. A move above the February peak toward $600, would confirm that the analysis in last month's report was accurate, from top to bottom, and up.
The charts in the New York section clearly reflect the debasement that assets have suffered and are suffering, in terms of gold, the internationally true and dominant currency. Is there really a question regarding the trend? The very size of China's gold purchase needs assure a much higher market.
Moreover, this government, which has recommended gold acquisition to its own citizens, is now facilitating gold purchase for those who have dollar accounts, according to Shenzhen Daily/Agencies. While the cover story is that they wish to maintain wealthier investors, it strikes me more simply as being part of an aggressive and general programme to own gold in good measure, if due to no other cause than all the Dollars it holds.
By holding so many US Dollars, a need to hedge against it increases. This feeds into an accumulating and accelerating Chinese demand. Should this undermine the US Dollar as the world's reserve currency, it would benefit Chinese political interests internationally, even while harming it financially (for having held so may Dollars). As well, the Chinese openly express their disapproval of monetary policy being shaped by foreigners. Clearly, the Chinese wish to reduce the influence of the Dollar over them.
So, who is in the mood to still bet that gold and silver are not in the middle of a raging bull market? It's one thing to miss an investment that makes a lot of money; it's lost opportunity. Life goes on. However, as discussed in the New York section above, if asset prices maintain nominal values and tread water as the Dow Jones has, merely because of a currency printing spree that debases the value of the currency in which the asset is denominated, not holding the appropriate currency mix, may spell a problem of meaningful nature for those seeking to at least maintain true value, if not make it grow sizably.
Further, once the price levels of the artificially maintained asset classes commence to deflate in nominal terms as well, a truly disastrous situation is unfolding. As described earlier in this letter (see charts, p.3), if the Dow is up for the same reasons that are lifting off the precious metals' rocket, then there is a serious problem: The world judges the health of the financial markets by the level of the Dow Jones, in much the same way that a fellow may only judge the health of his dog by the sheen on his fur, without checking the gums.
When the Dow collapses, the meaning of gold's massive secular bull market will finally not be lost on anyone. Presently, much of the crowd that is aware of the precious metals' new bull market, consists of those who were bullish ten years too soon. The loss of their credibility has helped the perma-wrong miss this sea-change. In this sense, this is similar to the Nikkei; all the false starts of the 1990's caused investors to miss an obvious secular low this decade ["oh, I've heard that before about Japan (gold)"]. The health of gold bespeaks an ill-health in the Dow's gums. This will be plain when the index sheds some fur from its present price level.
Silver has rallied 50% in six months, even outpacing gold. The Swiss Franc is trading at beautiful valuation levels today! The Japanese Yen represents Asia's unofficial block currency.
For more recent readers, the currencies covered are restricted to gold, the Swiss Franc, Euro (removed after 50% gains) and Yen, as these comprise the desired secular mix. (Trading points for silver approximately coincide with those for gold.)
After having identified the low in the $410 area earlier in 2005, the fourth quarter's low at $455 was forecast within $1.00. As well, $500 by yearend was the reiterated market forecast in these pages. These forecasts followed three years of prognoses that were globally unsurpassed, for the timing of key turning points in gold (Gold excerpts summary)*.
CONCLUSION: SKC has repeatedly warned that ignoring our asset mix will greatly under-perform what lies outside the box of conventional, backward and stultified thinking. Specifically, holding 50% gold, 25% Swiss Franc and 25% Japanese Yen will provide the safety and growth that one must seek, and can find, by turning to this more appropriate vision, for this part of the Kondratieff cycle.
Open and public talk of the need for gold as a medium of currency (in the US and China, both!) is accelerating at a rate that exceeds even what I had initially forecast for this part of the cycle. Being coupled with investors' general disbelief of the break over $500, is entirely consistent with a scenario of price acceleration ahead, which can drive gold over $850 per ounce on a monthly closing basis, this year (silver's directionality is the same, though they take turns leading; presently, silver has been leading gold). Such a monthly close will precede a price acceleration above $1000 per ounce, in 2007.
While others focus on reserves, we now recommend and do focus on companies who mine economically at higher price levels (undated out-of-the-money gold calls!). For four years, SKC has identified the correct asset class and sub-asset class for precious metals portfolio allocation*. After sizable equity gains in this group, we will now enjoy returns that aim to make that performance pale by comparison, as gold dominates the headlines.
NB: Regarding the special piece written by SKC associate Donald Dross earlier this week, there are a few key points that should be clarified. Firstly, the scenario does not suggest that Mr. Buffet would sell any gold.
In fact, the purpose would be to remove a discount that his investment is pressured by (due to the awareness of such a large position being in the hands of a single party), while allowing Mr. Buffet to sell at any time in the future in a most discreet manner, by placing sell orders out of the holdings that he would have placed under consignment. In any event, Donald's work has been so controversially inspirational, that others have already begun to espouse the theory of this past week's article.
Whatever scenario unfolds, silver will trade at prices dramatically higher than what anyone is presently imagining.
LEGAL NOTICE: On this 5th day of February, 2005, Mr. Sidney Klein has donated this market letter to the public domain.
DISCLAIMER: This market letter is intended to assist in the dissemination of information to private subscribers. The information contained herein represents Mr. Klein's best efforts in good faith to advance knowledge to his clientele, but there can be no implied guarantee as to its accuracy or completeness. The information is given as of the date appearing on this market letter, and Mr. Klein assumes no obligation to update the information or advise on further developments relating to the information provided herein. No solicitation to buy or sell securities is intended, and none should be inferred. Investments are inherently risky, but investment risk itself is a function of individual preferences. Thus any opinions, recommendations, or judgments expressed in this market letter are of necessity abstract and general. They must be modified, accepted, or rejected by individual subscriber/investors whose risk averseness cannot be known to Mr. Klein.