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Gold in a Deflationary Economy - Part- X

March 11, 1999

Forecast: Gold Prices In 1998 And Beyond

To briefly recap our forecast for gold as given in our monthly market letter The Global Market Strategist(R), I summarize here by saying that gold has fallen in classic fashion thus far in the early stages of global deflation into a series of commodity cycle lows due in the first part of 1998.

Although one can make a case that gold is not yet out of the woods and needs to base longer or fall a little further, gold has thus far held long-term support at $281/oz (see chart on page 13)-an ideal place for an 18-year bear market to end. Thus, for the first time in years, I have recommended accumulating gold, silver, and platinum for the long term. Gold has the strong potential to double or triple in value in the coming years. In fact, it is our forecast that gold will at least double in value during the next couple of years. A return to the gold standard will only serve to cause central banks to reaccumulate gold reserves, driving up demand dramatically and adding fuel to the potential for gold's bull market (see HOW THE WORLD COULD RETURN TO A GOLD STANDARD section that follows).

Gold has spent 1998 holding long-term support near $281 per ounce.

However, these are long-term forecasts. Any short-term weakness, given that gold has thus far bounced only $39 per ounce off its new 18-year bear market low, will provide the best buying opportunities in perhaps more than a decade. If gold breaks $278, then it is possible to see a slide down to one of the following support levels: $269, $225, or $180, the latter of which is unlikely except in extreme, 1930s-style deflation. However, this by no means changes the long-term implications of the current global economy addressed in this report, and a scale-in method of investing should be used (see RECOMMENDATIONS section that follows).

As far as our forecast for deflation in the late 1990s/early 2000s, it is likely that there will be an on-again-off-again fluctuation in the cycle of deflation such that an initial round of deflation, which began in 1997, yields to a round of increasing wholesale prices again beginning sometime in 1998 or 1999. Then, cyclic indicators suggest another round of asset price deflation into a low in 2002/2003, followed by the onset of the next cycle of inflation. I expect gold, after years of decline and lagging in purchasing power, to shine in both environments, especially the present cycle beginning in 1997 and lasting into the first part of the 21st century.


This report, Gold In A Deflationary Economy, is timeless in that it has researched and analyzed centuries of data on gold and commodity prices, and on the cycle of inflation and deflation. It is timeless because these cycles will always exist, and as such, one can obtain benefit from the information in this report now and in the future, no matter when it is read.

Recommendations, however, whether for speculation, hedging, or for preservation of operational wealth, are somewhat time sensitive and cannot be featured here on a wholesale basis as if to categorize the entire readership into one strategy. Different people and different institutions have different needs, and my firm, Global Market Strategists, Inc. (TM), of which I am President and Director of Research, specializes in the formulation and execution of strategies for the precious metals, gold stocks, and mutual fund switching in the gold stock sector. Readers may contact me or a licensed representative of our firm, at 1-770-967-1332, via e-mail at [email protected], or on our Worldwide Web Site at


Next we will feature an analysis of gold in other currencies besides the U.S. dollar (it is a far different story depending on where you live), gold shares and reasons they are more bullish during periods of deflation than during periods of inflation, and a key forecast section on how the world could easily return to the gold standard or a variation thereof. Our analysis of the feasibility of a return to the gold standard has a little help from a 1981 report from now U.S. Federal Reserve Chairman Alan Greenspan, then a partner in Townsend-Greenspan & Company and who has log favored a return to a form of the gold standard. Greenspan made a key proposal that year on how the world could return to the gold standard without government confiscation and, to boot, how it could monitor the transition from the present fiat currency system to the gold standard for a number of years and still be able to abandon the transition of the free markets do not feel it will work!

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