Taylor's Review of Gold Reviewers
Gold Price Could Triple by 2015, As Resources Dwindle
The price of gold is set to rocket, says Andisa gold analyst Dr. David Davis. His report, "A trilogy of -An exploration in three parts," indicates that gold will reach $1,200 an ounce by the end of 2015.
His prediction is that in 2008 it will go to $700 an ounce, a year later it will climb to $750 an ounce, then another $50 an ounce to reach $800 an ounce in 2010.
These predictions answer the questions blazing through the industry currently: what will gold sell at and what will shares be worth in 10 to 15 years' time?
In arriving at the answer, Davis's 55-page report looks at the current gold price, historical trends in mining operations, and historical supply and demand patterns.
He argues that supply is falling behind demand and fewer reserves are being
mined as resources diminish. Not a new phenomenon, but previously this trend has been masked by central bank sales and producer hedging-a dying
practice. When this ceases, says Davis, economies of the age-old
supply/demand equation will take over and flame the price of the metal.
This, he argues, will mean investors have to be in the right place at the
right time to make money. To read this article go to:
www.miningweekly.co.za/min/news/today/?show=68551.
Let's see now, if you believe as I do that history will repeat with respect
to the value of the Dow and gold, and if Dr. Davis is correct in his forecast for $1,200 gold, that would imply a Dow 1500, or about an 87% decline from its all-time high in 2000. And quite frankly, the year 2015 is very much within the scope of time during which the K-winter could bottom.
In general, nothing is new under the sun as far as major patterns are
concerned, but clearly institutions do change, and so perhaps the Dow will
not be the best yardstick against which to measure the value of stocks
relative to gold at the bottom of the impending equity bear market. However, there is little doubt in your editor's mind that, in general, stocks have a long, long way to decline, relative to gold. Not so, I think, for other commodities and perhaps even silver.
Also, I would like to note that a big part of Dr. Davis's argument for $1,200 gold stems from his view that the supply side of gold will decline from mine production. While that would be a bullish development, far, far more important will be the loss of confidence in fiat money and the monetary institutions that are burdened with fiat monetary debt. I say that because with respect to total supply of gold in the world, the percentage of change in supply of gold available in the world varies little with mine production. What really does make a huge difference is when citizens of the world panic out of paper into real money-gold, which is a money that has value regardless of the ability of others to pay their debts. It is exactly when we head into the K-Winter, when paying debts becomes increasingly impossible and when balance sheets everywhere become insolvent, that gold will rise, I suspect, not to a "mere" $1,200 but to tenfold that level, especially if policy makers panic and fire up their helicopter printing presses in a futile effort to overwhelm these deflationary forces.
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Doug Casey's Recent Thoughts On Gold
Finally, I thought I would pass along some wisdom on the topic of gold from
Doug Casey. The following was making the rounds on the Internet last week so please forgive me if you have already read it. Although Doug is a grand
master at showmanship, I think his insights into gold are always worth
noting so in the event you have not already read the following, enjoy!
A couple of weeks ago, with gold knocked as low as $416.10, resource
investors were wondering just how low gold could go. Now, with gold
rebounding over $420, such musings might turn to questions such as, "Can
gold hold at these levels?" and "Does it still have what it takes to hit
$500 by year-end?"
While I'll share my views on the topic, I tend not to be overly concerned
about short-term price action, but rather concern myself with finding great
companies, with good financial structures, using proven exploration
techniques on multiple, highly prospective targets. In other words,
companies that will make you rich on process under any reasonable gold
price scenario. Price volatility, other than a dramatic meltdown the likes
of which I don't expect, is, therefore, not unwelcome as such volatility
allows me to (a) buy great companies on the cheap when prices dip and, (b)
sell for a profit when prices move strongly to the positive. Simple but
effective. Right now, I am very much an active buyer.
But back to the topic at hand. When gold briefly touched $416.10 on the
heels of the euro's train wreck, a lot of people began to fret that it was
on the way to its recent low of $379 gold, reached in May of last year.
Yet, it is worth noting that gold has been over $400/oz., on average, for
over a year now. And the 200-day average is over $426.72. So gold over $400 is not some short-term spike, but a trend in motion.
It is also important to consider the historical context for current prices.
Adjusting for inflation, $400 today is only about $175 in 1980 dollars,
when gold hit its $850 peak. So, rather than being historically expensive,
gold is still actually quite cheap and has a lot of room to move up before threatening previous highs.
But the most intriguing thing I'm keeping an eye on is the relationship
between the U.S. dollar and gold.
As everyone who invests in this sector is already aware, over the last couple of years, gold has largely traded in a converse pattern to the U.S. dollar, appreciating most when the dollar falls, and depreciating when it rebounds.
Over the long run, that works in gold's favor because the dollar's problems
are legion and almost nothing will keep it from heading lower. Much lower.
Of course, the government could stem the erosion by returning to the gold
standard, thereby underpinning the currency with something more tangible
than the operating speed of a printing press. But returning to the gold
standard, which would require $5,000 an ounce gold, has almost no chance of
happening in the foreseeable future. That pretty much clears the way for
the dollar to depreciate more or less steadily to its intrinsic value...
just shy of completely worthless.
Of course, in order for the dollar to slide, it must slide relative to something else. Until the recent setback to the euro, that currency was the "it's not the dollar" alternative of choice for FX traders around the world. Now that the EU constitution has correctly been relegated to the trash bin of history, uncertainty stalks those lands and the gilt has worn off that particular lily. The Italians are even considering abandoning the euro.
But I see a glimmer of hope for gold in all the European hand-wringing:
after predictably taking it in the neck on the U.S. dollar's rebound against the euro, gold unpredictably staged a quite impressive rebound of its own. >From the abyss of the technically important $417 level, gold moved quite briskly up to where it sits today, around $425. While we need to see a lot more of the same before getting overly excited, it is encouraging that gold has moved up even on days when the U.S. dollar moved little, or even moved up ... signaling what may be the baby steps for a decoupling of gold from the U.S. dollar.
One plausible explanation for the decoupling is that, since 9/11, global
investors in general, and those from the Middle East in particular, have
been moving money out of U.S. dollars and into the euro - both as a way of
diversifying away from the weakening dollar, but also to reduce the odds of
outright confiscation by a U.S. government striking out like a mad ape at
real and imaginary terrorists everywhere. Put another way, if you were a
wealthy Syrian or Jordanian -- or a citizen of just about any
Middle-Eastern potentate -- how much of your money would you have in U.S.
dollars? Especially considering that the U.S. Treasury claims to exercise
control over all financial instruments denominated in U.S. dollars,
regardless of which bank, or which country, they are deposited in?
When the euro began to look shaky - and what's next for it is still anyone's guess -- I suspect a lot of holders decided to cash out and move on down the road. But to where? Some percentage of that money has found, and will continue to find its way into gold ... a trickle that will turn into a stream and then a river once the U.S. dollar starts again on its inevitable descent.
In support of that contention, it's worth noting that Saudi Arabian gold
consumption grew by 10 percent to 37.3 tons in the first three months of
2005 when compared with the same period a year earlier.
All of which is to say that I see nothing standing in the way of gold
finding a wider audience -- both individually and institutionally -- over
the coming year. And I can name a lot more reasons for the U.S. dollar to
continue its slide, in earnest, before year-end, than I can for it to
continue defying gravity. So I would rate the likelihood of gold holding
above $400 as extremely good, and of it crossing the $500 mark by year-end as imminently doable.
But what about central bank interference? If you believe the people at the
Gold Anti-Trust Action Committee (www.gata.org), desperate governments and their central bankers will do whatever it takes to keep gold out of
contention as a viable currency alternative -- which is to say, to keep gold prices low. Whether that amounts to a conspiracy, or central banks simply selling when prices are high, as would any other investor who bought low, the question boils down to: how much gold can the central banks actually dump on the market?
Many bullion banks report large gold holdings, but many also extend credit
based on those holdings, and few admit outside auditors. With all the shell
games, it's hard to say how much unencumbered gold they actually own. But
even if they do own market-disrupting quantities, many are restricted in
various ways as to what they can do with that gold.
Jim Turk's recent comments on the prospect of IMF gold sales suggest it is
easier said than done. The IMF is reported to have a hoard equivalent to 15
months of gold production for the entire world. Selling that much gold in a
short -- or even not so short -- period of time would obviously have a profound impact on the price of gold. But the IMF needs approval from 85
percent of its subscription base, of which the U.S. represents about 17
percent, and Congress balked the last time this came up. And central banks
and government repositories are subject to innumerable legalities regarding
disposition of their gold; outside of totalitarian regimes, any major changes there are likely to be seen well in advance by the public.
That being said, central bank action -- even apart from bullion sales --
can certainly impact the price of gold. Take the late February 2005
announcement by the Bank of Korea that it was diversifying its reserve
holding (i.e., dumping dollars), sending the dollar (temporarily) plunging
and gold rising. That these institutions have the weight to move global
markets is a double-edged sword, but in time even they will not be able to
push back against the tide. And given a persistent enough weakening in the
U.S. dollar will almost certainly trigger other central banks -- notably
others in Asia -- to add to gold reserves, not sell them off.
I remain convinced that a continuation of the bull market in commodities in
general, but specifically precious metals, is a near certainty. For any number of reasons: supply and demand fundamentals ... underinvestment in finding and developing new resource deposits during the long bear market that ended in 2002 ... the current phase in the exploration cycle ... the unstoppable rise of Chinese and Indian consumerism ... state-driven
competition to secure long-term global resources ... and more. And all
against a backdrop of the Forever War against Islam that threatens to keep
energy prices high, drive up inflation, and ultimately cause the collapse
of the house of cards built on U.S. debt in all its many shades.
But most of all, I see gold at $500 by year-end coming about because gold
holds up so well by comparison to its paper competitors -- the U.S. dollar
and the euro most notably. Sooner rather than later, as people start
looking in earnest for financial safe havens, they'll begin turning away in
droves from U.S. Treasuries and overpriced real estate ... and turning to
gold and silver, assets which are both tangible and portable.
There will, of course, be bumps along the way of the sort that cause some
resource investors to question their premises, and perhaps even to abandon
the sector altogether. But for those with the conviction to take advantage
of the current weak spot in the market by buying high-quality junior gold
and silver resource stocks that are now selling for bargain basement
prices, the upside can be extraordinary. When prices do go to $500, and the
masses begin piling in, these stocks will be trading for multiples of where
they are today.
June 22, 2005
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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