My gold price forecast for the end of 2003 was $418 (I was as close as it gets), in 2004 I went for a trading range of $435-$450 and suggested $442 was where the yellow metal would end 2004 at. After looking like fluking it two years in a row, it tripped at the final hurdle closing around $438. My target for gold at the end of calendar year 2005 is $512US. Like that song that stays stuck with you throughout the day (these days it is normally something from The Wiggles) I cannot delete that price figure so it stays no matter how it looks away now with the spot price struggling around $418.

My methodology of selecting these targets combines looking at the bigger picture fundamentally, then shutting my eyes and imagining the price/ranges on Kitco a year or so later. I cannot see the future, I do not believe in charts, I have not had a dream and to be honest one of these years I am going to embarrass myself with one of these calls. I published my silver target for clients only as I would probably have more chance of winning the lottery than getting the silver price spot on at the end of the year.

The end of 2004 was going quite well as the speculators were back in drove, the three major trading brokers in Australia were starting to move into some of my core stocks, and it looked as though I would be on a hat trick in terms of selecting the gold price three years in a row. Then we had the devastating event in Thailand, Indonesia, Sri Lanka, The Maldives, India and as far away as East Africa. I was enjoying a holiday with the family a few hours south of Perth and it certainly was a shock to all concerned. Upon my return the phone started to ring at home as clients were concerned over the situation in Indonesia in relation to the Dairi zinc-lead project in North Sumatra. I certainly felt helpless in not knowing the extent of the tragedy, however I must say it was an entirely different feeling to a terrorist attack or geopolitical issues. Your main concern is the humanitarian aspect of the dead, injured and homeless as the damage to the spreadsheet if often rectified over time.

ECONOMIC SNAPSHOT

• Australians have opened up their hearts and wallets to the Tsunami Relief Appeal. In excess of $100m raised will now be heading towards the victims and rebuilding their lives and not the coffers of retailers who have had an extended honeymoon period. This figure is expected to increase significantly after further donations/fundraising efforts and a greater focus from corporate Australia.
• The psychology of the consumer may have now shifted slightly as this tragedy may lead to many re-assessing their lives and looking more towards quality than being overly concerned with materialism. 2005 may not be the year the retailers were hoping for after record sales in the Christmas period.
• Coastal property, which was already under some pressure in parts of Australia, is now faced with the additional burden of having potential buyers concerned in relation to a tsunami. Whilst the risk factor may be low, buyers will become far more discerning and some may even request detailed reports on the associated risk factors.
• The Australian press declared the housing boom, "officially over" in December 2004. Maybe a little late for some but it made headlines nevertheless. There were numerous articles appearing from 2002 onwards anyway and warnings from leading economists with auction clearance rates in Sydney and Melbourne in particular highlighting the dire situation investors may yet be faced with.
• Polished floorboards and the use of earthy tones throughout will not maintain real estate prices. I was shocked on a recent return visit to Sydney in relation to how houses and units were being presented for sale in some areas.
• You can now buy DVD players at supermarkets for $60 or under with your 51cm TV for around $200 for the whole package. There are numerous new brands emerging with names that clearly do not match their price tags. I guess all the good ones have been long taken, however near enough may indeed be good enough to trap an unsuspecting customer
• Car advertisements continue to push those special deals and 3-day sales, however the prices do not seem to change at all. Maybe they assume we all have short memories?
• DVD and CD prices are crashing with the $10.00 level clearly breached for 2-3yr old releases. Not that long ago you would happily snap these up for $19.99, which became $14.99 and is now $9.99 or under. One of the best economic lessons you can get in relation to where we are heading is to walk into a JB Hi-Fi store around lunchtime.
• I am introducing a battery ban for next Christmas where all presents must not have the battery option (This rules out some electrical items also). I am now fed up with toys talking and singing throughout the night that have not been asked to perform. With my children and myself being left-handed I may have to pay a little more for the baseball gloves but after this debt bubble bursts we may finally a see a return to traditional family values where the teenagers actually show some respect to their parents.
• Personal debt in 1977 was 40% of income in Australia, now it is 120%. The consumer cannot go on like this forever. Retailers are getting even more desperate with interest free periods now blowing out to 48 mths.

CURRENT GOLD PRICE WEAKNESS

The gold price will not rise in a straight line and the majority will lose considerable amounts of money and confidence when this bull market has run its course. I am often asked my view on the short-term direction of the gold price and to be honest I would not have a clue, nor will I ever claim to be able to predict such movements in order to obtain financial benefit. Maybe having my conscience removed would be the first step or adopting the character traits of a psychopath wouldn't go astray either. I am not under any pressure to make regular calls to earn a living, however my clients are now demanding that my stock selections provide triple-digit percentage gains over the medium-term, which is basically my passion anyway.

The bottom line is the US economy has not dramatically improved, housing prices are not going to rally to any degree, personal debt remains at dangerous levels, and the outlook for gold and silver remains favourable regardless of the recent rebound in the US dollar. Investors must remember that during the speculative blow-off phase you may see gold trade in $100 ranges and I would not be preparing to slit my wrists if a stock I purchased for 45c somehow eased back to 42c or even 39c. During bull markets the best returns are at the end where fear is replaced with the "fear of missing out". Gold may yet have further to fall (who really knows where it is heading short-term), however if you do not buy gold stocks on credit for a short-term bounce, invest in well-managed companies with an excellent growth outlook this period should be an integral part of your investment career as it may indeed provide some excellent opportunities.

My neighbour invited me over for a cup of coffee this morning and showed me a holiday house we wanted to buy a few hours south of Perth for $449,000. At the end of the conversation it is looking as though he will not only sell his current investment property (the Perth market hasn't experienced major drops yet), but may also purchase some silver certificates for his children. Gold and silver have the potential to be the next "Real Estate", the next real investment craze. I went searching for the alternatives and cannot see any hope for sports memorabilia, comics and piece of space junk, however there may be some chance for speculators if they buy enough packets or Nutri-Grain to end up with an image of ET or block cheese to have a famous Hollywood celebrity adorn their cheese on toast so they can trade it on Ebay.

EXPLORATION SUCCESS AND HOTSPOTS

The rising interest in the gold and metals sector has seen some of the focus shift away from the junior oil/gas stocks, which underwent a serious re-rating from mid 2004. A number of oil juniors were managing to double their share prices on nothing more than joint ventures or block acquisitions that would have gone largely ignored in any other market.

With increased funding there have been some aggressive drilling programs undertaken and as a result there were some major share price gains. Examples include Falcon Minerals (FCN) 15c to a high of $1.47 on the back of some promising nickel hits in JV with WMC Resources, Cazaly Resources ran from the high-teens to a peak of 74c after an exciting drill intersection of 58m @ 6.35 g/t gold at Kunanalling (WA) Havilah (HAV) also ran strongly on the back of not only its uranium strategy but also some exciting copper hits in South Australia, whilst Kings Minerals (KMN) has undergone a significant re-rating (6c to around 24c) on their gold/silver potential in Mexico. Whilst many market participants may claim that the market is overly weak, the fact remains that some market capitalisations have increased significantly and some are factoring in a fair degree of blue sky, which like what has occurred in the oil sector see some scary movements to the downside.

"Gold deposits are formed over millions of years and no amount of hype or willpower is going to have them form where your beloved company is drilling" This is what makes bull markets such wonderful events as the mentality is that "every drill hole is a mine", and where there are considerable sums to be made from profiting from the irrational exuberance and the utter stupidity of the vast majority.

MY EARLY 2005 WATCHLIST

I am following the companies and projects listed below. It should be noted that these are not recommendations to buy or sell the stocks, however they could be used as a guide to undertaking further research.

Ramelius Resources (RMS) (nickel, gold) Hilditch Nickel Project WA, Wattle Dam and Black Cat Gold Resources.

Universal Resources (URL) (copper, gold, zinc, lead) Under takeover from CopperCo for the Roseby gold-copper resource in Queensland.

Malachite (MAR) (silver, gold, tin, copper) Silver JV projects with Macmin (Boonoo Boonoo, Rivertree), Tooloom Gold Project, Copperfield Copper Project, Elsmore Tin-Silver Project.

Compass Resources (CMR) (copper, cobalt, lead, nickel, gold) Browns oxide and sulphide resources in the NT.

PlatSearch (PTS) (zinc, lead, silver, gold, copper, mineral sands, uranium) Base metals projects in the Curnamona and Gawler Cratons, SA projects prospective for uranium.

The Philippines Now that Friedland has made his first move and the Government is working diligently to attract overseas investment could this heavily mineralised country shape up as one of the hottest exploration destinations on the planet?

Sandfire Resources (SFR) (zinc, lead, copper) High risk/high reward exploration in potential new mineral provinces. (Their first major exploration program was hampered with drilling problems where many holes failed to reach their targets)

Herald Resources (HER) (zinc, lead, gold) Bankable Feasibility Study (BFS) due shortly on the Dairi high-grade zinc-lead project in Nth Sumatra.

Jaguar Minerals (JAG) (gold, copper, tin, nickel) Gold exploration at Kintore, Balfour Tin-Copper Project in Tasmania.

Tri-Origin Minerals (TRO) (gold, silver, zinc) Lewis Ponds gold-silver-zinc project in NSW and some stability in terms of management. (These issues appeared to delay the company's progress)

Jabiru Metals (JML) (zinc, copper, silver) Pending release of the company's BFS based on the Jaguar zinc-copper-silver deposit in WA.

Paradigm Gold (PDM) (gold, copper,) PDM has been one of the worst performing junior resource stocks of 2004. Major interest at Lighthouse Gully in QLD, and Brown Mountain in NSW.

Arafura Resources (ARU) (Gold, REE/Phosphate, uranium) Gold exploration/moves towards development at Mt Porter/Frances Creek with initial exploration at Kurinelli. Longer-term focus is the Nolans Bore REE/Phosphate project in the NT.

Golden Cross Resources (GCR) (gold, silver-barite, zinc, lead) Major exploration push underway with five projects to be drilled in the December 2004-January 2005 period.

The start to 2005 no doubt has been seriously affected by the tragedy in SE Asia and the sheer scale of the loss of life, property and livelihoods. For investors in the precious metals sector the decline in the gold and silver price has contributed to another bout of anxiety that gripped many during the Australian tax loss-selling period of June 2004. The share price declines thus far have been negligible in some cases and shareholder bases have been gradually replaced with those prepared to ride out the current weakness with a view to building their positions. It is during the next leg up that the weak hands will again enter and one would expect a dramatic increase in volatility.

I consider myself to be a "value" investor and provide advice to clients with the strategy of buying assets cheaply then simply waiting for the market to catch on. A company may have the greatest exploration project in the country, however if the fact is too well known the chances are your paying for considerable blue sky and the risk factor increases dramatically.

If anyone is terribly concerned that the economic situation has suddenly changed they should read the lyrics to "The Underwear Goes Inside The Pants" by Lazyboy. Whilst parts are offensive I think it captures the economic outlook perfectly for the US and countries with similar lifestyles and social issues. Silver bugs would be pleased to find out that the Mexican people have voted themselves the happiest people on earth.

Thus far 2005 has been a miserable start for humanity in general and looking at the bigger picture the fact that the USD bulls have gone one up on the gold and silver bugs does not mean that the opportunities to make windfall gains are going to evaporate overnight. For those that did not experience the Nasdaq Boom I can say that this corrective phase we are experiencing now in the precious metals arena is nothing more than a slap in the face designed to either throw you out of your investments are at the very least cause you to doubt your own capabilities when it comes to investing.

I have tipped the USD gold price to end 2005 at $512, and yes I have felt silly at times during the week. All the best to readers over the coming year and with any luck I am close to the mark or made to look rather conservative come January 2006.

9 January 2005

Disclaimer

I have direct/indirect holdings in the stocks listed/mentioned above. Clients have considerable holdings in each of the stocks and may change these holdings without notice. The information on each stock has been derived from ASX reports, company discussions and a site visit to Long Victor in 2002 and 2004 (Independence Group) and Arafura's Nolans Bore Project in April 2004). Each of the stocks listed is to be considered as speculative, and may not be appropriate for individual investors. No buy recommendations have been provided on the listed stocks, and the opinions on each are those of the author only. It should also be noted that some of the stocks may have very low levels of liquidity and may result in significant percentage rises and falls. Please conduct further research and consult your financial advisor before making an investment/trading decision.

About the Author
Tony Locantro is a Perth based Senior Private Client Advisor specialising in the junior resource market. He is the author of "The Green Room, A Guide To Speculating On The Australian Stock Market" (available free to prospective clients via email request) and presents on resource stock investment. He has been a contributor to a number of precious metals and market related forums.

If you would like further information or are interested in becoming a client I can be contacted at locantro@iinet.net.au